Management Accounting: Techniques and Cost Reporting - Palmer & Harvey

This report provides a detailed analysis of management accounting within the context of Palmer and Harvey, focusing on various management accounting techniques, optimal cost reporting systems, and key drivers influencing the management accounting process. It begins by outlining the significance of management accounting, differentiating between lean, traditional, throughput, and transfer pricing systems, and highlighting their potential applications within the organization. The report further explores the benefits of management accounting, including enhanced cash flow management, improved decision-making, performance analysis, cost reduction, and increased profitability. It also discusses various management accounting methods such as financial planning, financial statement analysis, and standard costing, emphasizing their role in achieving organizational goals and maintaining a competitive edge. The report aims to provide the General Manager with a critical understanding of the functions of a management accountant and the strategic importance of effective management accounting practices.

MANAGEMENT ACCOUNTING

Table of contents
Introduction......................................................................................................................................2
Task 1...............................................................................................................................................2
Task 2...............................................................................................................................................8
Task 3.............................................................................................................................................13
Conclusion:....................................................................................................................................15
Reference list.................................................................................................................................16
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Introduction
In this study, attempts has been made to illustrate on the various aspect of a management
accountant in an business organization. Efforts have been made in the study to present a detailed
discussion in the form of a report. The report is to be presented to the General Manager of the
organization so that he is able to critically analyze the functions of the management accountant.
In order to provide a precise understanding about the research subject, an organization Palmer
and Harvey has been selected. This study primarily deals with various management accounting
techniques that are applied in an organization, the cost reporting system that is best suited for the
organization and also show a relation between the traditional cost accounting system. In addition
to that, attempts have been made in the study to discuss on the factors that acts as drivers to the
management accounting process of an organization.
Task 1
Introduction
It is evident that with the advent of globalization, the complexity in the business process has
tended to increase to a significant level. Subsequently, it has raised the level of competition in
the market. In this regards, organizations especially those catering to the manufacturing sector
faces several challenges in proper maintenance of records related to the production process. This
has necessitated organizations to adopt management accounting process. It not only helps
the ,management of the organization in guiding at each step of the process but also provide them
with facts and evidences based on which, effective decisions are taken. In addition to that, it
enhances the level of efficiency of the management. In this part of the study, efforts have been
made to discuss on the various aspect of management accounting system to an organization
including its significance and importance.
Management accounting: Its significance and types
The management accounting process unlike the financial accounting system caters to the internal
control of an organization. It is a process of identification of the organizational goals and
objectives, make a critical analysis of the same and communication about the findings to the
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management such that they are able to make effective decision. Earliest this branch of
accounting was known as cost accounting method. Usually, it is seen that the management
accounting process tends to involve use of various information related to the cost implications
incurred internally by the organization. The information aids the managers to critically analyze
the key areas of an organization and accordingly formulate action plan for future operations of
the organization (Bodie, 2013).
Usually, it is noted that, the management accounting process are classified into four different
types. They include Lean accounting system, Traditional accounting system, Throughput
accounting system and Transfer pricing. The explanation of the various types of management
accounting system is given as follows:
● Lean accounting system: It is seen that this accounting method is used in lean
organization and forms an integral part of the managerial system. It helps the managers in
bringing out the full capacity as well as helps in maintaining a consistent level of
performance metrics within the organization. Usually, this form of accounting is used in
organizations in order to tackle many extreme situations that may include issues related
to market strategies or increasing cost implications in the production process. In context
to Palmer and Harvey, it can be stated that, this form of accounting is suited and may be
applied in accordance with the convenience of the management (Fullerton et al. 2014).
● Traditional accounting system: Traditional method of accounting or as popularly known
as the cost accounting system is one of the oldest form of accounting system. Notably,
this system of accounting catered to the internal cost incurred by an organization.
However, it is seen that this form of accounting was entirely based on assumptions and
sometimes gave wrong information to the management. In addition to that, it involved
allocation of the indirect cost although it does not reflect any changes in the consumption
of resources. In context to Palmer and Harvey, it is noted that, the management of the
organization tends to face certain difficulty in adapting to the new managerial system. In
this context, it can be said that the management of the organization may opt for
traditional cost accounting methods in the initial phases in order to mitigate the identified
issues (DRURY, 2013).
● Throughput accounting system: Notably, this form, of accounting system is used by
organization in order to get a fuller utilization of the allocated resources and put them to
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the organizational advantage. It is seen that, this form of accounting helps the
management to get precise information related to the organizational operational and its
corresponding performance. Subsequently, it helps the management to use the findings
and use them to make effective decisions regarding the future operation of the
organization. This form of accounting system is based upon the basic principles of
management accounting system and thus, can be applied to any organizational situations.
In context to Palmer and Harvey, it can be apprehended that, in case of any
organizational issues, the management may at their own discretion adopt this form of
accounting in order to mitigate them (Cohen et al. 2017).
● Transfer pricing: This form of accounting mainly caters to the taxation aspect of an
organization. In addition to that, a single owner or entity can apply this form of
accounting on organizations that are owned. It helps the management of the organization
to get a clear knowledge about the factors involved in the taxation process, identify any
key issues in the process and accordingly devise policies for rectification of the same. In
context to Palmer and Harvey, this system of accounting can be applied in order to
effectively deal with the prevalent taxation system within the organization (Cooper et al.
2017).
Significance of Management accounting system:
● Proper estimation and enhancement of the cash flow system: It is noted that the
management accounting process tends to effectively administer the cash balance of the
organization. In addition to that, it helps the management of the organization to ensure
that a standard level of liquidity is maintained within the organization for setting the
organizational operations (Bebbington et al. 2014). It helps the managers in preparation
of budget and thereby, get a precise estimation of the cash requirements and the
corresponding cash generation of the organization. Subsequently, it helps the managers in
proper allocation of the organizational resources, monitoring the usage of cash in various
activities, identifying any deviations and accordingly in formulation of policies in order
to avoid any future contingencies. Hence, it helps the management of the organization in
effective cash management (Zhou, 2017).
● Helps in making effective managerial decisions: One of the primary aspect of the
management accounting system is that it aids the managers of the organization in making
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effective decisions. Usually, it is seen that, unlike financial accounting system,
management accounting system tends to include both qualitative as well as quantitative
aspect and thereby aids the managers in effective and efficient decision-making. It is seen
that, the managers of an organization tends to use information that are based on certain
assumptions and there lies a probability of taking wrong decisions. The management
accounting system acts as a bridge in mitigating such gaps and thereby helps in effective
decisions (Bouten and Hoozée, 2013).
● Analysis of the overall performance of the organization: the management accounting
process helps the managers of the organization to identify any kinds of downturn or
shortcomings in the organizational operations and helps to formulate control measures for
mitigating the same. It is evident to hate the management accounting process caters to the
internal operations of the organization. It helps in proper identification of the issues or
any kind of deviations related to the organizational operations, monitor the allocation of
the organizational resources and accordingly devise control measures for mitigation of
the identified issues. It helps in enhancing the efficiency of the organization and thereby,
its performance in the market (Bouten and Hoozée, 2013).
● Reduction of the cost implications related to the organisational operations: Another major
function of the management accounting system is effective management of the cost
implications. It helps the management of the organization to efficiently monitor the
overall costs implications as well as put control measures in case of excess expenses
(Cohen et al. 2017). Additionally, it helps the management to get a precise estimation of
the costs to be incurred for various activities of the organization, identify the potential
sources to procure the financial resources and accordingly devise strategies. In addition to
that, the management accounting process helps the managers to make forecasts about
future contingencies and take necessary control measures in order to mitigate them.
Moreover, it helps in effective cash management related to the production process
(Bouten and Hoozée, 2013).
● Enhancing the productivity as well as the profitability of the organization: It is seen that
management accounting process if applied to an organization facilitates the managers
with several benefits. They include reductions in the internal cost implications, effective
decision making, enhancing efficiency in cash flow and thereby, in enhancing the
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productivity of the organization. It helps the managers to get a clear understanding of the
market factors and subsequently identify the requisites to deliver quality returns. In
addition to that, it helps the management of the organization to identify the strategies
adopted by the competitors in the market, analyzed their performance and thereby take
decisions for future operations of the organization (Cooper et al. 2017). Subsequently, it
helps the management of the organization to effectively manage the operations, monitor
the level of sales and production and accordingly boosts the profitability of the
organization. In addition to that, it is noted that, the management accounting process
helps to identify the degree of profitability in various business projects and thereby, make
effective investing decisions. In regards to this, it can be apprehended that the
management accounting process helps an organization to get a competitive edge in the
market and in enhancing the level of profitability as well. Moreover, this process acts as a
tool for the management of the organization to measure the overall performance, identify
any key issues, critically analyze them as well as formulate policies in order to mitigate.
It acts as effective instrument for the management to enhance the performance metrics of
the organization and accordingly increase the level of profitability (Zhou, 2017).
Different methods of management accounting system and its application in Palmer and
Harvey:
The various methods of management accounting system are listed as below:
● Financial Planning: Usually, it is noted that financial planning by the management tends
to include various activities like identification of the sources of finances, estimating the
financial requisites of the organization, etc. It helps the management of the organization
to set both short-term as well as long-term organizational goals and objectives (Cohen et
al. 2017).
● Analysis of the financial statements of the organization: The management accounting
system helps the managers in critical analysis of the financial report of van organization.
It provides the managers with an insight into the financial stability of the organization,
the different costs implications involved and the net earnings of the organization. It helps
to make a comparative analysis with that of the competitor in the market (Bodie, 2013).
● Standard costing: the standard costing method is one of the effective management
accounting system that helps in making a comparative analysis between the actual output
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with that of the budgeted figures. It helps the management to identify any kind of
deviation from the estimated budget, analyze or evaluate the key areas that need
improvement and accordingly devise strategies in order to control the deviations. It helps
the management to analyze the variances and take relevant measures for the same (Zhou,
2017).
● Budgetary control:
This is been utilized as a part of request to controller diverse sort of costs that are acquired by the
business association, particularly the Palmer and Harvey. The different exercises are checked and
controlled so as to dispose of any sort of wastage of the assets of the association and along these
lines the expenses are kept up in such a request, with the goal that the organization can acquire
consistent measure of benefits.
● Marginal costing:
Marginal costing are done in order to gain the analytical results of the accounting valuations. It is
done in order to gain the overall financial information of the firm’s activities and performances.
Marginal costing method consists of break even analysis that contains the financial breakdowns
of the year (Van, 2011).
● Decision making process:
The process is essential in order to gain different marketing strategies and plans in order to gain
the market revenues through financial activities (Scapens and Bromwich, 2010).
● Communication of information:
Communication skills are required to develop the financial activities of a firm. As the practices
and requirements of the essential elements of activities are gathered through communications.
Thus, the marketing and financial activities can be smoother and effective with better
communication and information processes.
● Graphical and statistical representation:
Management accounting helps in the development of different facts and understanding of the
information that are accessible within the workmanship hands. This assists the association to see
any essential information and make distinctive sort of strides in light of such sort of data (Renz,
2016).
Conclusion:
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This piece of the investigation has been done in view of the terms of clarification of
administration bookkeeping and giving the fundamental necessities of various sorts of
administration bookkeeping framework. Further, this part has additionally managed the
significance of administration Accounting and clarification of various techniques utilized for
administration bookkeeping detailing. Distinctive ideas identified with the part of administration
bookkeeping has been perceived and clarified in this investigation. Further, the centrality and
diverse sort of utilized of administration bookkeeping in various sort of business association
have likewise been distinguished and clarified in different parts of this examination.
Task 2
Introduction:
The study is mainly based on the assumptions and calculations that are required. The
accomplishment of the study depends on the calculations and analysis of the evaluation along
with the impact on the financial activated off the firm. It is also to be stated the calculations are
done based on financial figures that are researched and the calculation of costing methods are
done according to the given information. In this, the study costing methods are to be applied in
order to accomplish the calculation tasks. Absorption costing and Marginal costing are to be used
in the study. The study also requires the further extension of the calculation results ads the
researcher have to analyse and identify the deviations and other factors for costing valuations.
Calculation of the net profit using Absorption costing method:
Absorption costing
Year 1
Particulars Amount Units
Production 600
Sales volume 500
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Sales 17500
Less. Cost of sales 400
Net sales 17100
Opening inventory 0
Direct labour 3000
Direct material 3600
Variable expenses 1700
Fixed cost
Administration expenses 800
Manufacturing fixed cost 1800
Less. Closing inventory
Less. Under absorption of fixed cost 300
Net profit before interest and tax 6900
Less. Interest expenses
Profit before tax 6900
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Less. Tax 2070
Profit after tax 4830
Calculation of the net profit using Marginal Costing method:
Marginal costing
Year 1
Particulars Amount Units
Production 600
Sales volume 500
Sales 17500
Less. Cost of sales 400
Net sales 17100
Opening inventory 0
Direct labour 3000 5
Direct material 3600 6
Less. Closing inventory 9900
Variable Production overhead 1200 2
Variable Sales overhead 500 1
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Total variable cost 18200
Contribution -1100
Less. Fixed cost 2200
Administrative expenses 800
Operating profit -4100
Less. Non-operating expenses
Distribution expenses
Interest expense
Net profit before tax -4100
Less. Tax -1230
Net profit after tax -2870
Explanation the difference between the two management accounting techniques:
According to the cost calculations tables it is observed that the marginal costing and absorption
costing methods are different regarding to the calculation methods. The cost overheads are are
valued at a different method in the convulsions and are also allocated differently. The
calculations also demonstrates that the Absorption costing methods are mainly based on the fixed
cost that are incurred by the firm during the accounting year. Whereas the Marginal costing
methods accounts the variable costs that are incurred by the firm during the accounting year. The
profit calculations are also affected by the change in methods. As the tables shows that the firm
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has generated an increased amount of profit when the Absorption Costing method is applied.
However the firm was unable to generate an increased amount of profit after using the Marginal
Costing method, the amount of profit that was generated by the firm during the accounting year
had reduced. The calculations shows that the Marginal Costing method had generated £ -2870
however the absorption costing method had generated £ 4830 as profit margins. The marginal
costing method was done considering the contribution margins of the firm. The differences
between the costing methods can be observed by the observation of value donations among the
methods of calculations (Pipan and Czarniawska, 2010). While, on account of the ingestion
costing strategies, one might say that the gross edge is utilized while making the estimation
under assimilation costing system. In peripheral costing strategy, the overhead expenses are
accused of the predetermined day and age while, if there should arise an occurrence of
assimilation costing, the overheads are charged as conceded costs and they are charged a short
time later or charged a short time later on a yearly premise. Therefore, there are many purposes
of distinction between the systems of peripheral costing and ingestion costing which has been
expounded, clarified and related with the research (Parker, 2012).
Conclusion:
The study consists of several calculations according to the requirements as it can be observed
that the firm had obtained Managerial Costing methods and Absorption costing method in order
to calculate their cost valuations regarding to their production activities during the year. It is also
observed that the firm had generated different margins of profit after applying the costing
methods. As per the absorption costing method the firm had increased the net profit during the
year, however the firm had suffered losses during the implications of managerial costing
methods. This observations has been defended by uncovering the contrasts amongst marginal
and absorption costing systems. Promote different purposes of contrasts between the two-
administration bookkeeping systems have additionally been expounded in this piece of the
examination.
Task 3
Introduction:
In this study the detailed observation and analysis of the accounting talks are to be done in order
to accomplish the study requirements. It is to be stated that the advantages and disadvantages of
the accounting tools are to be analysed. The implications and effects of the accounting tools are
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to discussed along with the section or aspects in which they are applied in order to gain financial
stability. The boundaries of the applications of the accounting tools are a part of this a study as
the study is to be done in order to gain information regarding the accounting tools limitations and
loopholes.
Explanation of the use of planning tools used in management accounting and their overall
advantages and disadvantages:
The accounting tools are basically used in order to accomplish several financial or organisational
purposes.
The purposes for using accounting tools are discussed below-
1. Net profit margin calculation:
The accounting tools are utilized in order to compute the net benefit of an association. This is
been done keeping in mind the end goal to discover and assess over the general execution made
by the business association.
2. Strategic planning:
In order to establish strategic planning for the organisational activities it is important to utilise
the accounting tools.
3. Variance analysis:
The accounting tools are beneficial in conducting the financial performances of the organisation.
The financial performances of the organisations demonstrate the organisational standards in the
international market. The variances analyses are considered in the calculation process (Nixon and
Burns, 2012).
Advantages of utilizing arranging instruments in Management accounting-
● It helps to expand the productivity of the organization by taking up different examination
works. It is done along with providing the organization with various sort of critical and
applicable data.
● Provides adaptability to the working staffs as the reports in the administration
bookkeeping don't need to be set up on any settled time premise, for example, week after
week, month to month or every year. They can be set up at the time chose by the
organization (Nandan, 2010).
Disadvantages of utilizing arranging apparatuses in Management accounting-
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● Not much adaptable for presentation of changes as the entire field of administration
bookkeeping is much backward (Van Helden et al. 2010).
● Records are kept up on a manual; premise. So there remain odds of blunders and
distinctive sort of errors and loss of information of the records.
Comparing ways in which organizations could use management accounting to respond to
financial problems:
Associations can make the best possible utilization of Management accounting in order to
identify and rectify various sort of issues. Management accounting helps in perceiving the
general execution of the organization and on such basis, the difference or the deviations can be
recognized, the reason can be dealt with because of which the organization has neglected to
perform in the required way (Macintosh and Quattrone, 2010). Further, on the premise of such
acknowledgment of deviations, the organization can make and strategize diverse sort of plans
with a specific end goal to acquire change its execution and increment its level of benefits. It is
likewise to keep up various sort of adaptability in association and accordingly, because of this
much innovative environment can be kept up in the general business association. If there should
exists an occurrence of fall in benefits of the organizations (Lukka and Modell, 2010). As
example, Palmer and Harvey and different associations, the administration body can acquire
pertinent data with the assistance of administration bookkeeping and on premise of such
assembled data, the whole of the administration body can make up various sort of strides keeping
in mind the end goal to illuminate out the issues and get a lift its general benefit level.
Conclusion:
The aspects of the entire task has been done in view of some investigation and examination with
respect to different parts of administration bookkeeping. Here, clarification of the utilization of
arranging devices utilized as a part of administration bookkeeping and their general points of
interest and weaknesses has been considered and expounded so as to go ahead with the
examination in a productive way. Further, this piece of the examination or this assignment has
given the chances to bear on through the demonstration of contrasting routes in which
associations could utilize administration bookkeeping to react to money related issues. Along
these lines, one might say that all aspects of the examination have been conveyed in an
exhaustive way.
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Conclusion:
It can be said after completing the whole assignment that a report has been concluded to the
general administrator regarding distinctive parts of the working of organization accounting in the
affiliation. The diverse parts of organization accounting in the affiliation have been inspected and
a point-by-point report has been shown to the boss that is general overseer. For the solace of the
examination, the affiliation, Palmer and Harvey has been chosen for the examination. The
examination furthermore has related to organization accounting and organization accounting
system together with different costing techniques and offering an explanation to engage the
affiliation realize them and get positive needed results.
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