Management Accounting Application in British Foods: A Detailed Report

This report provides an analysis of management accounting principles and techniques within British Associative Foods, a multinational corporation headquartered in London. It covers the core principles of management accounting, including unbiased data presentation, accuracy, stability, punctuality, exception handling, problem forecasting, efficiency measurement, and resource optimization. The report explores various management accounting systems such as cost accounting, job costing, inventory management, and price optimization. Techniques like marginal and absorption costing are demonstrated through income statements. Furthermore, the document evaluates the integration of management accounting through cost reports, budget reports, accounts receivable aging reports, and inventory reports. It also discusses the benefits of these functions, including improved decision-making and strategic planning. Finally, the report examines how organizations adapt their management accounting systems to respond to financial problems, highlighting the advantages and disadvantages of different planning tools for budgetary control. Desklib offers a range of similar solved assignments and study resources for students.

Management accounting

Table of Contents
INTRODUCTION...........................................................................................................................2
MAIN BODY..................................................................................................................................2
Part 1................................................................................................................................................2
Principles of Management Accounting.......................................................................................2
Role of Management Accounting and its systems.......................................................................3
Use of Techniques and Methods Used in Management Accounting...........................................4
Evaluating the integration of management accounting within the organization.........................6
Benefits of the Function to the Organization...............................................................................7
Conclusions for critical reflection of management accounting...................................................7
Part 2................................................................................................................................................7
Explaining the advantages and disadvantages of different types of planning tools used for
budgetary control.........................................................................................................................7
Comparing how organizations are adapting management accounting systems to respond to
financial problems.....................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
1

INTRODUCTION
Management accounting is the process followed to identify, measure, analyse, interpret,
and communicate financial information to the managers to achieve the goals of organization.
British Associative Foods is Britain origin MNC, headquartered in London and dealing in ma
manufacturing of food products. The current report will highlight the principles of management
accounting. The different types of management accounting systems are covered. The methods of
reporting the results of management accounting practices are explained. Using the techniques of
management that are marginal and absorption costing the income statements will be prepared.
Different planning tools of the budgetary control along with its advantages and disadvantages
will be discussed. The ways in which organization are adapting to management accounting
principles will be covered.
MAIN BODY
Part 1
Principles of Management Accounting
 Presentation of Unbiased Actual Data: It is one of the principles of management
accounting. As per this principle the information provide in management accounting
reports must be accurate & objective. This should not be subjected to anyone’s opinions
or desires.
 Accuracy of Accounts: All the accounts, reports, information & documents must be
accurate and serve the purpose of being competent for management enabling them to take
decisions that are accurate (Lebedev, 2018). Accurate decisions are must for organization
to accomplish its objectives.
 Stability and Consistency: The procedures and all policies based on which management
accounting is carried on must be stable and have consistency. It is crucial as any change
in such policies & procedures hamper the ability of management to take decisions.
 Punctuality: It is another management accounting principle. It states that it is essential to
take correct decisions and right time by the management when the related information to
all the accounts get presented in time.
 Principle of Exception: The aim of this principle is to make sure that the attention of
management draws on the issue that are important exceptionally. In case of observation
of deviation of any kind in the results that were planned and the actual ones, a report is
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necessarily required to be prepared explaining the reason for such deviation or exception
in outcomes.
 Forecasting and Detection of Problems: Another principle of management accounting
says that it is the duty to get the management informed about the problems that exists
currently and the potentiality of problems that occur in future (Zahid and Vagif, 2020).
With this principle of management accounting along with the identification of problems
steps are initiated to address them.
 Measuring Efficiency: The skills of managers are managed on the basis of related
management activities through management accounting. There are certain techniques that
are used for this like ratio analysis.
 Maximum Use of Resources: This principle of management accounting ensures efficient
and effective utilization of organization resources. The maximum use of resources gives
maximum profit earning to the organization.
Role of Management Accounting and its systems
Cost Accounting System: Costing system or product costing system are the other names
for cost accounting system. This system provides a framework to the firms for forecasting the
cost of products it produces. It is essential for the purpose of analysing the profitability of the
firm, figuring out the value of inventory and cost control. To make the operations profitable it is
essential to have an accurate estimate of product cost. For ascertaining which products are
profitable it is prerequisite to know the accurate cost of each product. It is also essential in
knowing the amount of closing stock, finished products and work in progress at year end. The
cost accounting system are of two types mainly: job order costing and process costing.
Job Costing System: It is a method in accounting that is designed for keeping track of
individual jobs & projects. There are two types of costs that are assessed here namely indirect
and direct costs. These are bifurcated into three classifications, labour costs, material costs and
cost of overhead. Each of these bifurcates are termed into direct and indirect costs (Gonçalves
and Gaio, 2021). The revenue and costs that are related to a particular project are tracked in a
precise manner. The decision of a business regarding what is to be charges from the customer for
its offerings is the most impactful one. An organization like – with accurate job costing can make
improvements in its profitability and also effectively manage its employees.
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Inventory Management System: This management accounting system helps
organizations to identify what is to ordered, in what quantities and when to order. The inventory
with this system is tracked from its purchase to the end sale of products. The trends are identified
and responded to ensure that the stock is always filled sufficiently to satisfy the demands of the
consumers, the storage is maintained properly (Ghandour, 2021). It is essential to have effective
inventory management because when inventory is sold it changes into revenue but before that it
ties up cash meaning that too much stock being available within the firm will result in reducing
the cash flow. So to give good cash flow it is necessary to have efficient inventory management.
The effective management of inventory is measured through inventory management.
Price Optimization System: Prize optimization is different from price management. The
effective use of both of these results in sustaining good profitability of the manufacturer. The
determination of point of optimal price for the products of the company that will be yielding
maximum profits at the given location is known as prize optimization (Abu Afifa and Saleh,
2021). And through price management it is meant to set prices, communication of changes
throughout the organization and updating pricing with respect to the business changes. These are
the two components of prize optimization system.
Use of Techniques and Methods Used in Management Accounting
Marginal Costing: In management accounting and also in economics
the term marginal costing refers to the addition or deduction in the total production cost because
of the change in output. The costs that are associated with the decision of adding a unit to the
output of the firm are known as marginal costs (Kudryashova and et.al., 2020). The formula for
marginal cost is direct cost (material, labour and expenses) + variable overheads. This method is
used by companies because it is easy and simple to understand.
Income statement as per the marginal costing
Particulars Amount £ Amount £
Sales ( Revenue) 600000
Less: COGS
Direct Material 200000
Direct Labour 120000
Variable Overhead 80000 400000
Fixed Manufacturing 50000
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Overheads
Gross profit 150000
Less: Indirect expenses:
Other Fixed Overheads 100000
Net profit 50000
The above income statement is prepared on the basis of marginal
costing technique of management accounting. The sales revenue earned by the company is
600000 from which the amount of COGS is deducted to reach at the gross profit. After which the
fixed overheads are subtracted to attain the value of net profits.
Absorption Costing: It is also known with the term full costing. It is a method of
management accounting in which all the costs related to the manufacturing of the product are
captured. Direct and indirect costs are accounted with this method. For the purpose of external
reporting absorption costing is required by GAAP (Eldenburg, L. G. and et.al., 2020). Marginal
costing and absorption costing are different because in this fixed overhead costs are allocated to
every whether sold or not in a period. The costs that get included to the closing inventory is more
in this method and carried as asset to the next period. Hence the expenses included in the income
statement are less in this method.
Income statement as per the absorption costing technique
Particulars Amount £ Amount £
Sales ( Revenue) 600000
Less: Variable Cost
Direct Material 200000
Direct Labour 120000
Variable Overhead 80000 400000
Contribution 200000
Less: Fixed Costs
Fixed Manufacturing
Overheads 50000
Other Fixed Overheads 100000 150000
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Net profit 50000
The above income statement has been prepared on the basis of the absorption costing
method or technique of management accounting (Drury, 2018). From the amount of sales
revenue, the variable costs (direct material, direct labour and variable overhead) are deducted to
reach contribution. The fixed costs that are fixed manufacturing overheads and other fixed
overheads are further reduced for the net profit determination.
Evaluating the integration of management accounting within the organization
Cost Report: Cost reports are generated as a result of cost reporting. Cost reporting is a
process that is used for informing the management regarding the value of predicted or actual cost
of the projects. Using financial cost report properly is useful as it can save a lot of projects from
being fail. For the success of the project the management’s ability to predict the profit and losses
is highly crucial (Ngo, 2021). These types of reports are prepared by organization cost consultant
who also regularly make updates to this and keep the management informed, helping them to
control such costs. These report generally evolves all thorough project life and this evolution
adds more details and accuracy to it. more information comes in when the project develops hence
the reports evolves.
Budget Report: A budget report is a type of internal report that management uses for
comparing the estimated or the budgeted value with the actual values or performance of the
company. It is prepared to know the closeness of the accounting activities with the predicted
performance (Tenhunen, 2018). Financial goals are the budgets which are set on the basis of
estimations and projections. Such estimated or projected figures may differ greatly from the
actual ones, a comparison between two is done generally. This is done with the purpose of
sustaining in the market and determining the investment for ensuring the growth and also for
assets acquisition.
Accounts Receivable Ageing Report: This report shows the amount of balance of
invoices that stands outstanding along with the time period for which they have been
outstanding. This type of report is used in identification of invoices that are not closed and helps
organization to outline the debtors that take longer to pay.
Inventory Report: The summary of existing stock is known as inventory report. The
details regarding the stock available, fastest selling products, performance of specific category of
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products and related status information and performance are outlined in the inventory report
(Azudin and Mansor, 2018). Inventory reports are prepared for managing of those assets of the
company that are most expensive and biggest. The retail businesses depend for generating
revenue and profit on their inventory.
The basic role of management accounting activities in the British Associative Foods is to
provide & support the processes of management accounting. The activities of management
accounting are integrated within the organization with the effect of such decisions. Information
given
Benefits of the Function to the Organization
The benefits of management accounting functions to British Associative Foods are
multi- fold. With management accounting the decisions that are taken by the management of the
organization are exact and effective to address the existing and potential problems of the
company. The another advantage is that of planning, with effective management accounting the
planning for future courses of action can be effective done (Le and et.al., 2020). The areas of
business problems get identified and managers get efficient time to address such issues.
Management can plan strategically for the continual success and growth of the company.
Conclusions for critical reflection of management accounting
On the basis of the part 1 of the report the meaning of management accounting has been
clear and the principles applicable are highlighted. The report has outlined the role of
management accounting. The report income statements have been prepared on the basis
management accounting techniques that are marginal and absorption costing. An evaluation of
how management accounting is integrated with the organization has been done. The benefits of
the functions to organization are discussed briefly. It can be concluded that management
accounting is highly crucial for the effective growth and success of the company.
Part 2
Explaining the advantages and disadvantages of different types of planning tools used for
budgetary control
There are different types of the planning tools which can be taken into the consideration
by organization so that attaining objective of effective planning can become possible. In order to
become successful, it is important for the company to give emphasis on having effectual types of
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the planning tools so that significant growth and development of organizational processes can be
achieved.
Cash budget
It is one of the significant type of the budget that includes the information such as
estimating inflows and outflows over specific period. British Associated Foods (BAF) is one of
the manufacturing firm can pay attention on having application of this tool so that significant
outcomes can be derived. The advantages and disadvantages are as follows which can be faced
by firm.
Advantages Disadvantages
 It gives the information regarding the
prevailing cash in firm so that proper
strategic planning can be made.
 This limits the spending power
which does not allow the firm to get
reliable form of approach to adopt
innovative practices.
 This provides the opportunity to
identify that firm is having
overspending or not that aids in
eliminating irrelevant expenses so
that appropriate functioning for
meeting organizational objectives
(Patty and et.al., 2021).
 This is time-consuming procedure
which can divert the attention of
company from strategic planning to
irrelevant activities that results in
higher expenditure of cost.
 It helps in having reliable planning
via gaining relevant realistic
overview of financial position of the
company.
 On the basis of evaluation it can be
said that BAF can face the challenge
of having security of cash as can be
stolen easily.
Zero based budgeting
It is basically concerned with having the process of making the budget from the scratch
so that accomplishing aim of compliance with meeting all the needs of firm can become possible.
BAF can obtain the distinct for of benefits and drawbacks from the application of this particular
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method so that reliable processing to have appropriate planning of organizational activities from
initial level to managing resources in effective manner can become possible.
Benefits Drawbacks
 It is one of the significant option that
can help firm to get flexibility in its
planning so that reliable coordinating
with changing circumstances can be
done as proper coordination &
communication conducting in
accuracy & effective manner.
 On other side, it is one of the most
time consuming procedure that can
affect the overall functioning of firm
in adverse manner so require to pay
attention on these aspects.
 The particular planning tool allows to
have focused operation by identifying
crucial practices so that optimum
utilization of resource conducting can
be done in precise pattern by taking
relevant decisions.
 High manpower is required which
leads to the greater cost consuming
procedure that is indicated as
expensive procedure (Yusuf, 2020).
Activity based budgeting
It is the method of identifying the activities for which firm require the incur cost. This method
can provide assistance to particular firm which can boost its ability to meet its organizational
requirements in highly effective manner. There are various form of pros and cons which can be
received by firm are as follows:
Merits Demerits
 It aids in evaluating the crucial aspects
so that having effective g competitive
edge to have eliminated bottlenecks
can become possible.
 Complex procedure is involved in
this functioning that make it short term
suitable procedure so that significant
achieving of outcomes does not
become possible.
 H it aid sin improving relationship  It is highly cost consuming budget that
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within firm that allows getting
appropriate pricing of activities by
having reliable functioning
can lead firm towards ineffective
planning as its functioning affects the
profitability.
Comparing how organizations are adapting management accounting systems to respond to
financial problems
In order to become successful, it is important for the firm to get insights regarding the
prevailing lacking areas so that accomplishing relevant tools that can allow overcoming
irrelevant functioning that can affect the functioning of organization. For having effective
operational planning there are various form of the challenges that can be overcome to get greater
profitability in firm.
Benchmarking
it is one of the important method that can be taken into the procedure by firm so that
significant ability to overcome the lacking areas can become possible. For becoming successful
its utilization helps in comparing the actual results with standardized so that having reliable
processing can become possible. This offers the distinct advantages which are having improved
performance, greater ability to eliminate the irrelevant aspects, inclined level of quality
performance, etc. On the other side, the lacking areas which can be faced by BAF while using
this as improvement method that includes higher burden on employees, time-consuming
procedure, etc.
Key performance indicator
This is highly taken into the consideration as it helps in getting the ability to set
standards which allows comparing actual with estimated outcome so that prevailing lacking can
become possible (What Is the Importance of KPIs for Performance Measurement? 2022). This
can be used for both financial and non-monetary aspects so that accomplishing the objective of
higher profitability via eliminating prevailing aspects can become possible. This permits to get
the benefit of having higher quality performance, clarity & accountability, increased visibility,
better decision-making, etc. can become possible. On the contrast to this, the drawback which
can hamper the company's objective of overcoming financial problem includes higher time-
consuming procedures can create complications, difficulty to choose the particular KPI, etc.
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these can hamper the processing of firm in adverse manner so that taking into functioning require
focus.
Variance analysis
This is basically study of the deviation of actual results as compared to the foretasted
figures so that overcoming prevailing lacking areas can become possible (Benefits of using
variance analysis, 2022). Firm in order to get the benefit can use this particular method which
includes achieving the organizational targets via mitigating risks, identifying the lacking aspects
impacting quality performance, causes, etc. can be identified (Seabrooke and Tsingou, 2021). On
the other side, the drawbacks which can be faced by firm involves non standardized production,
assignment of responsibilities, reporting delays and behavioural issues.
Financial governance
The manner in which collection, management, monitoring and controlling of financial
information is done is known as financial governance. Tracking of financial transactions by the
company, performance management and data controlling, operations, compliance & disclosures
are the activities included in financial governance. A good financial governance is essential to
eliminate the occurrence of frauds, material errors, poor decision, regulatory penalties,
misappropriation, reduction of confidence by stakeholders. With financial governance of a
company internal controls, audits (both internal & external), financial policies, financial controls,
workflow, data security & tracking and validation are referred to. The advantages of financial
governance are that it ensures that the data is accurate, helps in producing reports of regulation
and disclosures. Further the ownership & accountability are clear with effective financial
governance.
Balance scorecard
It is a strategic management performance metrics which is used in identifying and
improving the internal functions of the business along with their external results. This concept
was introduced in the year 1992 and was given by Robert Kaplan & David Norton. In this the
previously used performance matrix that was used to include the financial aspects was modified
to include the non –financial aspects as these are essential elements that contributes of the
success of an organization (Camilleri, 2021). There are certain advantages for which the
balanced scorecard is used by the organizations. It brings structure that is essential for shaping
the strategy of the business towards the success of the company. The communication of the
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performance of the organization becomes easy all across the different members and departments
of the company. The individual workers of the organization are connected to the goals of the
company with this. The disadvantages associated with the balanced scorecard are it needs to be
tailored according to the needs of the organization. Further, for having the benefits it is must that
it is effective.
Comparison of two companies
British associative foods Unilever
The company uses benchmarking for assessing
its performance and comparing it with the its
competitors. With this the company focuses
over the processes rather than just the
outcomes of the company. The company gets
benefitted through increased levels of
efficiency and effectiveness. Business goals
are set clearly.
Unilever for assessing the performance and
responding to the issues of the business use
balanced scorecard (Tuan, 2020). It helps the
company in planning strategically. The
strategy to communicate and execute
enhances. The projects get aligned with the
initiatives. Management gets better
information regarding the business. The
performance of reporting gets improved. All
the activities of the business get aligned
together in a better way.
CONCLUSION
Conclusively it can be said that management accounting is the process by which
accounting of the information that needs managerial attention is done. The report has explained
the advantages and disadvantages of the planning tools that are used for the budgetary control.
Lastly the report has compared two organizations namely British associative foods and Uniliver
based on the tools they adapt to address their business issues.
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REFERENCES
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Benefits of using variance analysis. 2022. [Online]. Available through:
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%20analysis,-Using%20variance%20analysis&text=Competitive%20advantage%3A
%20Variance%20analysis%20helps,to%20deliver%20what%20is%20planned.s>
What Is the Importance of KPIs for Performance Measurement? 2022. [Online]. Available
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performance-indicators/>
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