HNC/D Business: Management Accounting for Decision Making

This report provides a comprehensive analysis of management accounting principles and their application in business decision-making. It covers the concept of management accounting, its advantages and disadvantages, and various methods used for developing management accounting reports. The report also delves into the integration of management accounting in business complexities. Practical aspects are explored through cost cards using absorption and marginal costing, profit statements, and flexed budget preparation. Furthermore, the report discusses planning tools for budgetary control and how management accounting can lead to sustainable business success. The document concludes by highlighting the importance of management accounting in solving financial problems and driving organizational growth.

Management Accounting
for Decision Making
Table of Contents

Introduction......................................................................................................................................4
Part – A............................................................................................................................................4
Concept of Management Accounting..........................................................................................4
Advantages and disadvantages of the management accounting system.....................................5
Disadvantages of Management Accounting................................................................................7
Various methods used for developing management accounting report......................................8
The integration of the management accounting in the businesses complexities.........................9
Part – B..........................................................................................................................................10
Cost Card Using Absorption Costing........................................................................................10
Cost Card Using Marginal Costing...........................................................................................10
Profit statements using Absorption costing (10000 units)........................................................10
Profit statements using Marginal costing (10000 units)...........................................................11
Difference between the marginal and absorption costing is explained below: ........................11
Prepare a flexed budget for the actual activity for the year......................................................12
Various types of planning tools used for budgetary control.....................................................12
Part - C...........................................................................................................................................15
A) Planning tools for accounting respond by solving financial problems................................15
Management accounting can lead to sustainable success ........................................................16
Conclusion.....................................................................................................................................17
References......................................................................................................................................18
Books & Journals......................................................................................................................18

Introduction
Management accounting can be defined as an important component for every organization
that helps in developing the business objectives which is focussed towards the procedure of
identifying, classifying, measuring and communicating the relevant information with the
different interested parties of the business entity. The major objective is to analyse the financial
position of the company in marketplace. This concept of management accounting helps in
running the business operations in an efficient and consistent which will ultimately helps in
achieving the overall objective of the company. In context to this report, various topics related
to the management accounting are elaborated in context to the respective company
mentioned. Also, budget preparation is also done with the utilization of absorption costing and
marginal costing in relation to disclosing the results of the business organization in the financial
capacity.

Part – A
Concept of Management Accounting
Management accounting can be referred as the process of establishing the objectives of the
organization through identification, measurement, analysis, interpretation and the evaluation
of the financial information that is given to the managers for the purpose of taking important
business decisions (Banker, and et. al., 2018). The major objective of this concept is keep a
check on the costs of the business organization in relation to the manufacturing of the goods
and services. In context to Amoruso, there are different management accounting system that
helps an business organization to operate in the most efficient manner. The different systems
of the management accounting can be used by the respective business organization are
mentioned below:
 Job Order Cost Accounting System: it can be defined as the management accounting
system that is specifically required for the purpose of the execution of the large
projects. This type of management accounting system is majorly used by the group of
producers pr manufacturers for the purpose of producing different range of products
which are different from each other. Since all the components are differentiated from
each other, a separate job cost record is highly required for the production. Therefore, it
is highly important to distinguish each job so that it becomes important to perform the
analysis of each job.
 Cost Accounting System: It is considered as an important type of management
accounting system which is having the objective of the registering the activities related
to the production with the help of an effective inventory system. In other words, it can
also be specifically defines that the this system have an aim of tracking the inventory
flow in context to various stages of production. Therefore, in order to prepare an
efficient budget it is necessary to follow the cost accounting system.
 Inventory management System: It is an accounting system which helps in dealing out
with the management of the inventory of the business organization (Türegün, 2020).
The system is majorly focussed on extracting the information related to the exact
number of products that are available for the purpose of selling them in the market

place which will ultimately assist the company in having right number of units at right
time and at right place. It is also necessary that they are available at the right price in
the market. In case of the absence of an ineffective inventory management system, it
will become a hindrance for the business organization in order to deal with the demands
of the consumers in the competitive markets.
Advantages and disadvantages of the management accounting system
Advantages of Management Accounting
 Effective Decision Making:
Management accounting is considered as an effective tool that helps in taking some important
and relevant decisions for the business organization with the help of the financial information
provided. The financial information can be in the form of charts, tables and the forecasts which
helps the team of the management to take certain effective decisions for the constant
development of the firm.
 Increases the efficiency in the business operations:
Management accounting is an important tool which plays an active role in increasing the overall
efficiency of the business entity. It plays an important role in evaluating the performance of the
firm in a highly consistent manner. Management accounting focusses on the removal of all the
hindrances which keeps on creating a barrier for growth and development of the company.
Therefore, if any deviation comes up, a corrective measure can also be implemented with the
application of the tool of management accounting tool effectively.
 Enhance profitability:
management accounting application is a huge advantage for the business firm because when all
the financial activities are managed properly and consistently, there is an automatic
enhancement in the profitability levels of the company considerably (Gunarathne and
Rajasooriya, 2019). The various tools and techniques which are an effective part of the entity
namely, capital budgeting and budgetary tools ultimately helps in the attainment of the
objective of the organizational goal with enhanced level of profitability.
 Motivating Employees:

It is highly important to build an organizational culture which is oriented towards building a
culture in the organization which must motivate the employees to attain the objectives of the
organizations. Various periodic reports are presented in relation to the business operations.
Therefore, these reports can help the management of the company to motivate the employees
so that the performance of the business entity. This also helps in improvising the financial
efficiency.
 Reliability
Management accounting is a tool which aims at inculcating the element of reliability which can
be used for the purpose of execution of the financial scientific tools. These help in ascertaining
the objectives of the company with effective management and communicating the relevant and
genuine information on which the management and the external users can rely to take the
important business decisions.
Disadvantages of Management Accounting
 Provides only data
Management accounting majorly aims at providing data but not the action plan which can help
in dealing the certain financial issues in an effective manner. Therefore, this becomes a
significant disadvantage for the business organization.
 Personal Bias: This branch of accounting is a method which is mostly affected by the
element of personal bias which brings considerable amount of inefficiency in the
working of the company. The capacity of the company to interpret and analyse can also
get affected negatively.
 Lack of specific Procedure:
The concept of accounting does not involve the presence of rules and regulations that
must be followed (Berle and Bhabha, 2018). Therefore, it can be reasoned that
establishment of accounting does not rely on the component of code of conduct or rules
and regulations in order to create the commercial enterprise statements.
 Uncertain

Management accounting is a tool that is highly affected by the dynamic environment.
The main reason for the uncertainty is that the competitive environment is highly
dynamic in nature in order to deal with it in an effective manner.
 Costly
The establishment of the management accounting in the business organization is an
economically costlier process which involves large amount of costs along with huge
expenditures. It grabs assistance from the professional so that the concept of management
accounting can be effectively applied in the business operations. Therefore, such type of costs
for hiring these professionals puts heavy burden on the financial capacities of the business
entity.
Various methods used for developing management accounting report
There are various management accounting methods which are used by the business
organization in order to implement and achieve the goals and objectives of the company
effectively. These methods helps in providing a platform which will helps the company to
maintain the financial position of the company to a greater extent. In order to maintain the
highest level of efficiency management accounting reporting makes it sure that the financial
information of the business entity is in accordance to the accounting records and the principles
on the basis of which the financial statements are prepared (Gisch, Hirsch and Lindermüller,
2021). In context to business organization Amoruso, there are some of the methods which are
majorly used in order to implement the management accounting reporting. They are
mentioned with the elaboration beneath:
 Trend Analysis & Forecasting: It is one of the management accounting reporting
method which majorly helps in coping up with the latest trends by taking into
consideration the data of the previous year effectively. This analysis majorly focuses on
the historical financial data so that the latest trends can be implemented and adapted
effectively. In addition to this, it can be considered that the techniques of forecasting
and projecting helps in building the efficient reports of analysis. In order to build the
comparative financial analysis report, trend analysis is the most important component.

Therefore, this will help the company in focussing on the pro active approach to achieve
success in the longer run.
 Margin Analysis: It is another method of management accounting that helps in
identifying and ascertaining the equilibrium point which helps in effectively analysing
the process of production in an optimum manner. The major objectives which keeps on
focusing the business operations is specifically to generate sales amount at an optimum
level effectively. Therefore, it can be considered that margin analysis is a key tool to
effectively maintain the margins of profit to a greater level ultimate;y resulting into
higher level of efficiency.
 Capital budgeting : This is one of the common method of management accounting
which contributes majorly in decision making process in regards to the capital structure
of the company. Capital budgeting also helps in keeping the track of different types of
the capital expenditures in an effective way for a business organization. The calculation
of the elements of Net present value and the pay back period along with internal rate if
return which majorly assists the finance managers to make various financial decisions
for the purpose of building effective capital budgeting.
The integration of the management accounting in the businesses complexities
Management accounting is considered as a vital tool that plays an important part in the
handling all the business operations of a business organization’s financial capacity. The major
factor which is accountable for the purpose of maintaining the performance of the company on
the basis of financial grounds are mainly the two components namely qualitative and the
quantitative data. That's how the management accounting concept has been integrated wit the
complications of the business operations effectively. The complications that often arises due to
many reasons but they play an important role in enhancing the efficiency and the performance
of the company to a greater level (Zhang, Zhao and Gupta, 2018). Therefore, in context to the
business organization Amoruso, it has been considered that it is very important to manage the
books of accounts with the application of the management accounting tools that will ultimately
help in achieving the goals and the objectives effectively. The major reason behind that is a
management accounting system is getting broader as well as wider which is becoming

significantly important for the business firms majorly in the process of controlling and planning
the business activities in making various efficient decisions during the execution phase.
Part – B
Cost Card Using Absorption Costing
Particulars Cost per unit (Amount in £)
Direct Materials 10
Direct Labour 15
Fixed Overheads 25
Selling price 70
Cost Card Using Marginal Costing
Particulars Cost per unit (Amount in £)
Direct Materials 10
Direct Labour 15
Selling price 70
Profit statements using Absorption costing (10000 units)
Particulars Amount in £ Amount in £
Sales Revenue (10,000units x
£70)
Less Cost of Sales:
700000

Direct Materials
Direct Labour
Fixed Overheads
Total Profit
100,000
150,000
250,000
500000
200000
Profit statements using Marginal costing (10000 units)
Particulars Amount in £ Amount in £
Sales Revenue (10,000units x
£70)
Less Cost of Sales:
Direct Materials
Direct Labour
Fixed Overheads
Total Profit
100,000
150,000
10,000
700000
260000
440000
Difference between the marginal and absorption costing is explained below:
Marginal Costing Technique Absorption Costing Technique

 The major objective of the cost data is
mainly to highlight the total amount of
contribution of the product produced
specifically.
 For the purpose of revealing the costs
majorly the conventional methods are
used.
 In this technique, the major
significance is given to the variable
costs.
 In this technique, not only the variable
cost but also the fixed costs are well
thought out in order to execute the
computation of the product costing
and valuation of stock list.
 Marginal costing consider the cost per
unit and it remains identical even if
there are any kind of fluctuations in
the the shifting cost.
 In this case, it is a broad impact of
downfall in the fixed cost while the
variable cost remains the same which
results in the increase in the
production volume.
 The impact of the fluctuation between
the opening stock and closing stock
may not change the per unit cost of
the manufacturing of the goods &
services offered by the business
organization.
 There is a sizeable impact of the
deviation between the opening stock
and closing stock which affects the per
unit cost of the production majorly
because the fixed cost is alos included
in it.
Prepare a flexed budget for the actual activity for the year.
Particulars Actual Budget Flexible Budget Variance
Production 10000 12000 2000
Sales 10000 12000 2000
Direct Materials 50000 60000 10000
Direct Labour 25000 28500 3500

Variable Overheads 12500 15000 3500
Fixed Overhead 10000 11,000 1000
Various types of planning tools used for budgetary control
Planning tools can be considered as the most important and profoundly significant tool that
helps an organization in designing and planning the strategy for the purpose of the achieving
the objectives of the organization which can be long as well short termed (Moghtadernejad,
Chouinard and Mirza, 2018). There are various techniques which come under the concept of
budgetary tools which can be used in the business organization of Amuruso as these techniques
will help in increasing the financial efficiency of the company on a greater note. They are
elaborated below:
 Variance Analysis: It is one of the most significant type of analytical technique which is
often used by the business organizations. It mainly helps in extracting out the deviations
which may occur because of the deviations which may arise due to the difference
between the actual and the projected performance of the business organization. This
analysis helps an organization in providing a viewpoint about the consequences of the
performance which is responsible fr affecting the working of the business organization.
Advantages:
 It helps in having a active approach towards the contingent situations which may occur
in the near future.
 It assists in achieving the objectives and the goals of the business entity by recording the
financial transaction in an efficient manner.
 In order to deliver higher value to the shareholders this anlaytical tool can be effectively
utilized.
Disadvantages
 The considerable time gap between the time at which the financial results are obtained
and when they are released brings a higher level of inaccuracy in the functioning of the
company.