Analysing Management Accounting for Financial Problem Resolution

This report provides a comprehensive analysis of management accounting systems and their application in addressing financial problems. It begins by defining management accounting and its role in modern businesses, using Unilever as a case study. The report elaborates on various management accounting systems such as cost accounting, price optimization, job costing, and inventory management, detailing their benefits and critical evaluation within a company. It also covers different methods used in management accounting reporting, including budget reports, performance reports, and cost reports. Furthermore, the report applies absorption and marginal costing techniques to prepare income statements, demonstrating the accurate application and interpretation of data for various business activities. It also discusses the advantages and disadvantages of different planning tools used in budgetary control and how these tools can be used to prepare and forecast budgets. Finally, the report explores how management accounting systems can be used to respond to financial problems, highlighting the role of management accounting and planning tools in this context. Desklib offers more solved assignments and past papers for students.

Management accounting

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
Understanding of management accounting systems....................................................................1
Different methods used in management accounting
reporting......................................................................................................................................2
Benefits of various kinds of systems...........................................................................................3
Critically evaluating
of MA systems and reporting integrated within company..........................................................4
TASK 2............................................................................................................................................4
Absorption and marginal costing to prepare income statements.................................................4
Accurate application of range of management accounting techniques........................................6
Accurate application and interpretation of data for a range of business activities......................7
TASK 3............................................................................................................................................7
Advantages and disadvantages of different
types of planning tools used in budgetary control......................................................................7
Analyse of planning tools and their
application to prepare and forecast budgets................................................................................9
TASK 4............................................................................................................................................9
Management accounting systems to respond to financial problems............................................9
Role of management accounting in responding to financial problems......................................11
Use of planning tools to respond financial problems.................................................................11
CONCLUSION..............................................................................................................................11
REFERENCERS ...........................................................................................................................12

INTRODUCTION
In modern business era, the procedures related with gathering, reporting, summarizing,
analysing and assessing the overall internal information of a company which facilitate the
manager in order to make precious decision is known as management accounting (Abernethy and
Wallis, 2018). In fact, it is the processes of identifying, calculating, analysing, assessing and
reporting financial information to meet organisation goals. This process is valuable in making
effective policies for company so that future performance of entire staff member and different
processes can be improved. In order to better know the importance of MA Unilever have been
selected that is basically going under reconstruction. The respective company is a oldest MNC
producing 400 brands that are delivered around 190 countries. Company products provide us
with a remarkable chance to bring about meaningful change, expand business and accomplish
main goal to make sustainable living place for entire customer.
In this report, different MAS and reports with their importance to company are
elaborated, costing techniques in order to improve the net profit, several planning tool which
help in controlling budgets and resolving financial problems. In addition report also cover the
comparison of crucial system of management accounting that are support in detecting the
financial issues and making effective plans to resolve these problems.
TASK 1
Understanding of management accounting systems
Management accounting is an information system connected with method of collecting
financial and non-financial data in order to produce inner reports of different aspects. The main
role of MA is that based on internal documents, corporate managers are able to take appropriate
action for corporate success in the appropriate time to attract more and more stakeholders. It also
help in making accurate planning, controlling and decision making which support in proper
utilisation of resources and employees. Manager properly plans about the activities and make
them profitable in order to increase the overall productivity of company. They usually makes
effective decision and tries to control excess usage of available resources, funds to increase
overall profit margin (Alawattage, Wickramasinghe and Uddin, 2017). There are number of
essential MA system that play a crucial role in making company productive and profitable. Some
of these are discussed below:
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Management Accounting Financial Accounting
It basically includes the process of recording
important financial and non financial
information into books which help internal
manager to make decision.
It primarily includes the recording of financial
information into proper books which is
presented to internal and external interested
parties.
There are no basis requirements of applying
any legal standard while preparing different
internal reports.
All financial statements under FA are prepared
by using general accepted accounting standard.
Cost accounting system: This system is the most important styles of MA system which
are linked to assessing the cost related with different processes, activities and daily operation.
The main purpose of this program is to reduce and control the overall extra spending of firm in
specific time frame. In addition this system is effective in situation of over expenses made by
manager on activities which do not deliver better result in defined time frame. In Unilever,
manager can use this system to determine the total cost spend on various process and extract the
actual results from these operation. Managers might also apply this system to make useful
decision regarding those activities due to which cost figures of company are higher, so that total
expenditure can be reduced.
Price optimisation system: As name supports, this is a form of system which is engaged
in the structured process of identifying the demand of consumers for the value of goods and their
usefulness (Anderson and Dekker, 2014). This system also support in fixing the best suitable
price of goods and services which make customer more attracted towards these product. In
respective company, manager can implement this system in order to set the decent price of goods
which improve customer base. This system directly help to increase the profitability of company
in positive manner because at suitable price large number of customer visit the store to buy
needed products.
Job costing system: This MA system is crucial in determining the actual expenses made
by companies on specific jobs and total income from these jobs. Companies that use to produce
large number of product and employee more workforce basically implement this system so that
proper decision are made. Such as manager can get the knowledge about the more profitable job
in company and which are lacking with the help of job costing system. In context of Unilever,
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manage can apply this system to ascertain the total amount spend on different position in
production department and other operations. Thus this support in making decision regarding the
removal of jobs position which are not contributing in gaining the desired profit in the
meaningful time period.
Inventory management system: This is known as the combination of two practices such
as observing as well as the maintaining the storage house within company. Storage stuff can in
three form such as raw material, finished items and goods in production process. This is essential
in companies through production departments to develop effective manufacturing-related
decisions. In Unilever, this system can be useful in maintaining the total quantity of inventory
required to maintain the regular production of useful product that are more in demand. This can
also improve the supply chain of company in order to get the desired profitability in appropriate
time period. Such as FIFO system, allows company to use resources which comes first and sell
those product which arrived first within a specific period of time. On the other side LIFO, is used
to deliver goods first which arrive at last to the company.
Different methods used in management accounting reporting
In businesses, manager use to prepare number of valuable internal management
accounting reports so that overall performance can be analysed (Richardson, 2015). MA reports
are standard accounts provided by auditors to provide details on complex financial and non
monetary components. Several forms of documents are available like:
Budget report: This report is mainly related with preserving the detail information
related with estimated revenue and expenses within an appropriate time period. Budget reports
are meaningful for company in making comparison of actual and projected figures so that main
reason can be identified. It also support manager in making descriptive steps so that activities can
be managed and performed in desired manner to attain the aspected goals. Manager of Unilever
prepare budgets reports in every department so that actual expenses over these activities can be
predicted. This also support in estimating the total income generated through different operation
in company so that defined outcome can be gained.
Performance report: It is consider to be one of the most crucial report for company, as
it help in analysing the total performance of various business operation and total workforce
(Schaltegger, Burritt and Petersen, 2017). Manager can easily record the performance of worker
and make proper analyse to ascertain weather they are doing job as per company requirement or
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not. With the support of this report manager of Unilever can record the overall performance of
total production process and number of worker working on these operation. In case of any
variance among expected and actual performance proper solution are can be made to improve the
entire performance of company.
Cost report: The actual use of cost report within an organisation is to record the total
cost being spend on several operating activities to acknowledge the total expenditure in specific
time period. Manager use to focus on every sudden variation arising the cost figures with the
support of this report and make better plans to reduce the cost. In respective company manager
can use this report to record the overall expenses made on various operation and entire
workforce. The detail information about cost expense support to make better effective steps in
order to decrease
Benefits of various kinds of systems
System Importance
Cost accounting system This is beneficial for businesses to effectively stop undesirable
operational expenses. In above mention company, managers can
use for the purpose of measuring the affectivity of every financial
aspect. By using important information through the accounting
system it enables them manage unnecessary expense burdens.
Stock management system It really is valuable for firms in controlling the buying, trading and
production operations of products. Like with the above-mentioned
company, the production department uses particular system to
optimize use the collected components in ware houses to increase
productivity (Seal and Mattimoe, 2014).
Job costing system It is desirable system for company because as it help in measuring
the expense input individual jobs. Manager gathers data about total
cost of work required and calculates this on the premise of each
unit's costs.
Price optimisation system The cost of goods and services at such an adequate level is
essential for firm to increase profit margin. Based on data obtained
from secondary research on customer requirements, manager in
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Unilever can regulate the cost of manufactured products. This will
directly increase the total sales for company and help in making
stronger brand image.
Critically evaluating of MA systems and reporting integrated within company
In present business era, management accounting system and reports play an important
role in maintaining and executing services according to the requirement. Different system and
reporting methods are beneficial in reaching the pre determined outcome as these are relevant to
one another. Such as cost management system in supportive in distribution of total cost involved
in various operation and process of company. On the other side, with the support of cost
accounting report manager of Unilever use to record the total cost used on various operation and
employees. This help in determining the overall expenditure and total revenue generation from
these activities in order to raise the total profit margin in specific year.
TASK 2
Absorption and marginal costing to prepare income statements
Marginal costing: It is a type of method of costing, related with the unit costs and fixed
costs that are used in producing an extra unit of output which are billed for each period. It has
been used for preparing income statements by determining the contribution to net profit for a
specific period (Vasarhelyi, Kogan and Tuttle, 2015). Below mention figures are taken on
assumption basis in order to determine the net profit for the year.
Cost card
Cost card (Marginal costing)
£/unit
Direct material 75
Direct labour 25
Variable Production Overhead 15
Marginal Cost 115
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Selling price 160
Less- Marginal cost 115
Contribution / Profit margin 45
Profit and loss account
DR CR
Sales revenue @ £160 2880000
Direct material @ 75 1500000
Direct labour 500000
Variable cost 300000
Less : Closing stock -115000
Fixed production overhead 140000
Less: Cost of sales -2325000
Profit 555000
Absorption costing: In this kind of techniques the actual cost of product is mainly
determined by considering the fixed and variable cost for that period. It is also defined as the
historical costing method in which entire expenses are calculated to determine the net profit for
the year.
Cost card
£/unit
Direct material 82
Direct labour 22
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Variable Production Overhead 17
Total cost 121
Absorption cost of product 140000 / 20000 = 7
Selling price 160
Less- Total cost 121
Gross Profit 39
(b) Profit and loss account for month of June:
Particulars DR CR
Sales revenue 2880000
Variable cost
Direct material 1640000
Direct labour 440000
Lees: Closing inventory -121000
1959000
Fixed production overheads 140000
Less: Cost of sales -2099000
Profit 781000
Reconcile of statements
Marginal costing Absorption Costing
Amount 555000 781000
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Accurate application of range of management accounting techniques
In companies manager applies number of management accounting techniques in order to
make the proper execution of various processes to get the desired outcome in meaningful time
(Mahmoudi, Jodeiri and Fatehifar, 2017). Some of these can be applied by the Unilever are
discussed underneath:
Standard costing: The variation in costs among actual and expected estimates is
discussed in this costing techniques. This aids executives in determining the factors that can
impact the existing business condition. It is further support to ascertain the firm's expected
position in future.
Historical costing: According to this costing technique, all the figures in balance sheet
and other financial statements should be recorded on actual amount rather than the book value.
With the help of it, actual position of business could be determined.
Accurate application and interpretation of data for a range of business activities
Costing Techniques Net profit amount
Marginal costing method 555000
Absorption costing method 781000
From the above report, it has been interpreted that net profit from marginal costing is
555000 and net profit from absorption costing is 781000. The main reason for difference in
figure of profit from these methods is due to treatment of fixed cost and in absorption method
gets absorbed with the per unit cost of manufactured good. Thus, it is suggested that Unilever
must use the absorption costing techniques in order to determine the net profit.
TASK 3
Advantages and disadvantages of different types of planning tools used in budgetary control
In modern business world, companies are required to maintain different kind of Budgets
in order to estimate the total requirement of funds to operate and execute different functions. It
also support in predicting the total revenue generated from these activities in specific time
period. In simple words, budget is defined as the actual estimation of upcoming revenues and
expenditure of company monetary resources relevant to several operation. There are number of
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budgets which are prepared by manager of Unilever to make proper usage of resources in order
to gain the actual results. These are discussed underneath:
Cash budget: It could be characterized as a type of expenditure plan that contains data
on expected money proceeds and payments for a certain time frame (Benefits of Cash budget,
2019). Various types of operations, like revenue generation, mortgage recovery etc. are all
included within this cash outflow and inflows. Therefore, it is consider to be most effective
budgets for company that benefit in evaluating the total cash spend and generated with the
support of different activities. The financial manager generates a spending plan in Unilever that
helps to forecast potential money in relation to execute various essential operations. This is also
beneficial in ascertaining the total cash generated through these operation which aid to predict
the future profitability.
Pros:
 It is helpful for company to provide estimation of possible future liquidity.
 This budget also enables manager to detect the suitable activities that generate more
inflows within company.
Cons:
 The main disadvantage is that company does not spend more upon estimated figures as
they threat to bear huge losses if results are not favourable.
Capital budget: This budget is connected to the assessment of firms' long-term capital
investment. Different types of operations like buying land, building, etc. will be included within
long-term investment. In fact, this plan establishes the basis for vast properties to be acquired
and sold by companies in respective period (Brewer, Garrison and Noreen, 2015). Manager of
Unilever used this method for long-term investment and make sure that these spending have a
favourable results in future.
Pros:
 This budget is meaningful is making proper selection of investment that give higher and
better results in upcoming time.
 It also enables the management to make decision regarding the existing investment which
are not so much favourable for company.
Cons:
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 This budget requires proper skilled and professional approach of manager and any kind
of negligence can lead to destructive results.
 The preparation of capital budget requires more time and cost of company.
Operating budget: This represents a budget category that provides the anticipated
revenue and spending of an institution for the potential period (Kenyon and Kenyon, 2016). The
approximate cost and benefit of through operation is contained in this budget. This Budget was
prepared by manager of Unilever in order to estimate the total expenses made on operating
process and income generated from these operations.
Pros:
 It increase company productivity and profit margin by enabling manager to predict the
income from various operations.
Cons:
 This budget also lead to negative impact on the company performance due to wrong
estimation of revenues from various operation.
Analyse of planning tools and their application to prepare and forecast budgets.
The different planning methods are used for designing strategies for future periods. In
present time organizations use various planning tools, including Capital budget, Cash budget and
Operating budget that help in estimation the income level from various business activities and
total expenditure on these operation. Managers adopt the cash spending plan in the sense to
create a cash balance that satisfies the cash criteria. The operating budget is implemented
through budgetary systems for both planning and predicting expenditures so that fixed goals are
met in a limited period.
TASK 4
Management accounting systems to respond to financial problems.
It can be characterized as a major concern when businesses don't have enough resources
to carry out various crucial of activities (Gray and Alles, 2015). This directly reduce the overall
profitability and might sometime hamper the entire workforce due to which results are not
achieved. Several financial problems are referred to Unilever are discussed below:
 Lack of sales revenues- This financial problem is related with less earning of company
from sales in definite period of time. The main reasons for this cause is due to lack of
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selling and promotional activities because of which customer prefer to buy other
company goods.
 Higher expenses- This is a type of monetary issue in that companies' revenues decrease
by huge gap as time passes while expenditures increase significantly. Due to this,
business entities face the problem of lack of monetary resources.
Manager of respective firm uses different kind of management accounting tools that aids
in detecting the actual reasons for these problems. This also support in making valuable decision
to remove these financial issues. These are discussed below:
 Benchmarking: In order to solve actual issues, this is an strategy where the economic
factors of firms are associated to successful rival companies (Ruch and Taylor, 2015). In
the above-mentioned business, management uses this technique to define a real financial
problem that is higher expenses. Manager use to cross check the actual spending of other
companies in same industry and set the appropriate benchmark to detect the reason for
higher spending. It gives the new ways of improving and also opens the eyes of business
that where they are standing in this competitive era.
 Key performance indicators: It is an approach that is related with managing monetary
as well as non- monetary aspect of business. Manager use to mark the activities which
lead to even more expenditure compared to projected targets. It is valuable for handling
short-term business performance by considering the financial indicators so that measure
issues like lack of sales revenue for Unilever can be determined. It gives companies some
criteria to analyse and based on that company can take various important decisions.
 Balance scorecard: By this approach, the current profit and expenses are correlated with
the expected objectives to make changes. If more projections are made of real spending,
businesses may identify the exact problem and prepare strategy for fixing these issues. Financial governance: This can be characterized as an efficient centralized method to
collect, evaluate and handle financial data to monitor financial matters within an
organisation (Hoque, 2018). This is used to avoid economic problems as it contains
almost all of the financial information of a company and helps manager to look for
alternatives for solving the problems. Financial regulation is also used as a business
management tool with additional information on whole currency aspects. As a result,
businesses should recognise certain financial factors that lower the complete results. It
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need elaborated revealing of the substance by using correct standards, compliance and
functional procedures. It refers to the way a company collects, manages, monitors and
controls it's financial information.
Comparison of companies:
Basis Tesco Sainsbury
Monetary
issue
The respective company use to face the
problem related with more spending
then earning from a longer period. Thus
manager are not able to invest in other
promotion activity or other marketing
strategies as income generation is not
appropriate.
In this company the main financial
problem is related with lack of money
management. Due to which resources are
not distributed in significant manner and
most crucial operation are laid behind the
other activities.
MAS In order to overcome the particular
financial problem manager uses price
optimisation system. This help in setting
the most economical price of product
after covering total expenses. It enables
customer to more attracted towards
Tesco product that directly increase
overall earning (Albanese, Andersen
and Iabichino, 2015).
In respective firm manager uses “cost
accounting system that support in proper
allocation of funds. This is important for a
company to focus in every operation that
generate huge income in meanwhile.
Role of management accounting in responding to financial problems
It is observed that businesses face endless financial difficulties when carrying out
productive activities. For Unilever the main financial issues include reduced profits and
revenues. The use of different accounting systems was known to address such issues, since these
systems are able to fully understand and resolve the issues immediately. In contrast to financial
governance, KPI and benchmarking can enable the organization frame innovative solutions and
execute them for the required period.
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Use of planning tools to respond financial problems
In companies, planning methods are applied properly, the correct budget will be designed
to address any kind of financial problem. Planning tools include budgeting and techniques of
regulating such as cash budget, master budget and null based budget which forecast future
unpredictable circumstances while providing an efficient answer to the problems that enhance
sustainability.
CONCLUSION
In end of MA report, it has been concluded that different system and reports are used by
company in order to increase the overall performance and profit margin of company. There are
effective costing method such as marginal and absorption which are used in determining the net
profit from the year. Management of company can implement several planning tools which are
supportive in making precious budgets for future growth. Various management accounting tools
and system are effectively used to identify the measure issues of company. This also help in
making better plans and polices to resolve the financial problem occurred in particular time
period.
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REFERENCERS
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practices in Less Developed Countries. The Routledge Companion to Performance
Management and Control. pp.285-305.
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boundaries and sustaining hybrid organizational forms. Foundations and Trends® in
Accounting. 8(2). pp.75-141.
Richardson, A. J., 2015. Quantitative research and the critical accounting project. Critical
Perspectives on Accounting. 32. pp.67-77.
Schaltegger, S., Burritt, R. and Petersen, H., 2017. An introduction to corporate environmental
management: Striving for sustainability. Routledge.
Seal, W. and Mattimoe, R., 2014. Controlling strategy through dialectical
management. Management Accounting Research. 25(3). pp.230-243.
Vasarhelyi, M. A., Kogan, A. and Tuttle, B. M., 2015. Big Data in accounting: An
overview. Accounting Horizons. 29(2). pp.381-396.
Mahmoudi, E., Jodeiri, N. and Fatehifar, E., 2017. Implementation of material flow cost
accounting for efficiency improvement in wastewater treatment unit of Tabriz oil
refining company. Journal of cleaner production. 165. pp.530-536.
Brewer, P. C., Garrison, R. H. and Noreen, E. W., 2015. Introduction to managerial accounting.
McGraw-Hill Education.
Kenyon, R. and Kenyon, C., 2016. Accounting for KVA under IFRS 13. Risk, March.
Gray, G .L. and Alles, M., 2015. Data fracking strategy: Why management accountants need
it. Management Accounting Quarterly. 16(3).
Ruch, G .W. and Taylor, G., 2015. Accounting conservatism: A review of the literature. Journal
of Accounting Literature. 34. pp.17-38.
Hoque, Z., 2018. Methodological issues in accounting research. Spiramus Press Ltd.
Albanese, C., Andersen, L. and Iabichino, S., 2015. FVA accounting, risk management and
collateral trading. Risk, p.64.
Online
Benefits of Cash budget. 2019. [Online]. Available through:
<https://www.sapling.com/7757509/benefits-cash-budget>
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