Management Accounting Practice Report: Changes and Techniques

This report delves into the evolving landscape of management accounting practices, examining the impact of changes and new regulations on business organizations. It explores key areas such as cost allocation methods, the role of management accountants in the contemporary business world, and the crucial relationship between customer value and shareholder wealth. The report also investigates contemporary resource management techniques, including ABC costing, LIFO/FIFO methods, and target costing. Furthermore, it presents a practical analysis of a management accounting problem, discussing its implications and offering concluding insights. The report emphasizes the importance of adapting to economic changes, strengthening accounting frameworks, and increasing transparency to stakeholders. It also highlights the significance of creating customer value and maximizing shareholder wealth through effective management accounting practices. The report includes literature reviews, practical analyses, and recommendations for improving management accounting processes.

Management accounting practice 1
Name of the student
Title topic-Management accounting practice
University name-

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Table of Contents
Task 1..........................................................................................................................................................3
INTRODUCTION...................................................................................................................................3
LITERATURE REVIEW:.......................................................................................................................3
Changes in the focus of management accounting practices.....................................................................3
Management Accountant’s role in the contemporary business world..................................................4
Customer’s value and Shareholder’s wealth........................................................................................7
Contemporary techniques of resource management.............................................................................9
Task 2........................................................................................................................................................12
Cost allocation Methods........................................................................................................................12
Report....................................................................................................................................................13
Background.......................................................................................................................................13
Practical analysis of the problem.......................................................................................................13
Implications.......................................................................................................................................15
Conclusion.................................................................................................................................................16
Appendices........................................................................................................................................17
References.................................................................................................................................................21

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Task 1
INTRODUCTION
This report reflects the key understanding on the accounting practices and particular
changes arise after implementation of newly adopted accounting practices and rules. In this
report, key area of management accounting is related to the management accounting practice and
benefits arise from the newly introduced accounting practice on the business organizations. With
the increasing ramification of economic changes, management accounting practice has been
changing throughout the time and it is becoming cumbersome process for accountant to comply
with implemented rules and regulations in determined approach. In this report, various newly
introduced accounting rules and adopted management process system have been taken into
consideration. It is considered that management department has to ensure all the changes in
accounting rules and regulation with a view to adopt new process system and process
management in determined approach. These accountants have to evaluate whether company is
complying with all the rules and applicable standard while running its business effectively in
organization (Muckstadt & Sapra, 2010).
LITERATURE REVIEW:
Changes in the focus of management accounting practices
As per the perception of Muckstadt & Sapra, (2010) it is reflected that with the increasing
ramification of economic changes, management accounting practice has been changing and it is
becoming cumbersome process for accountant to comply with implemented rules and regulations
in determined approach. These changing factors are imposing the requirement on business to
change their ways of operating a management of business. There are several big organizations
such as G.E. capital, Wesfarmers, Woolworth and Morrison plc. That has adopted changed
management accounting practice in their accounting and reporting frameworks. These changed

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have been adopted with a view to strengthen the accounting and reporting frameworks of
organization and increasing transparency of business functioning to their shareholders.
As per the perception of Christ, & Burritt (2013) it is reflected that there are several management
accounting techniques which have been adopted by organizations such as cost management
technique, ABC accounting technique, LIFO, FIFO methods, overhead absorption and
apportions accounting technique and costing technique. However, accountants have become
aware about these accounting techniques to manage their accounting practice in determined
approach. Nonetheless, Multinational organizations set up different big rules and regulations for
the management accounting practices with a view to strengthen the accounting and reporting
frameworks and increasing transparency of business functioning to their shareholders. Ideally,
when companies adopt different management accounting practice, then they have to evaluate
various factors such as life cycle of business, size of business, regulatory requirements,
modernisations of techniques and inventory management techniques.
Management Accountant’s role in the contemporary business world
As stated by Needle, (2010) it is reflected that with the changes in economic factors and
business conditions, accountant has various responsibilities of management accountant and other
executives of management. Management accountant has covered not only accounting task to
manage the business transactions but also play important role in playing financial tasks in
determined approach. However, there are several reporting and analysis work which are played
by accountant in an organization.
Reporting and analysis work:
As per the views of Hada, Chakravarty & Mukherjee, (2014) it is divulged that Reporting of
financial statement to stakeholders is an important functioning of organizations. The

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management accountant is responsible for preparation the management accountant is responsible
for preparation of reports on the functioning of various operations and to identify the root causes
of any deficiency in the operations. Also the accountant is required to apply the analytical skills
to the data of the company to compare the actual results with the benchmarks and to report the
deviations, if any with the suitable recommendations.
Formulation of Strategies: The management accountants are responsible to formulate the
strategies for the management and the effective implementation of the same so as to achieve the
targets and the goals effectively.
Decision Making: The decision making function is the most crucial function in any organization
as it require good amount of information to take important decisions for the company. The
management accountant provides material and necessary to the top level management.
Interpretation of Information: Management accountant helps in the interpretation of financial
information provided to the management so that it becomes easy for the managers to understand
the operating results.
Advisor: Cost management is supposed to provide the best advice relation to various crucial
matters on which management has to take firm decisions. The accountant is required to provide
the advice which is best suitable to the company so as to improve the overall performance of the
different functions of the company.
Change Manager: As organization has to adapt to the changes that are rapidly occurring in the
environment in which it is operating, the management accountant will help the firm to cope up
with the changes by identifying and assessing the need and implications of changes through
provision of updated information (Christ, & Burritt 2013)

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Performance measurement: The management accountant helps the organization in measuring the
performance of overall organization as well as the performance of individuals of the
management such as employees and the managers.

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Customer’s value and Shareholder’s wealth
As per the views of Iyer, et al. (2015) it is divulged that creation of customer’s value is
very important business functioning of organization. It is considered that if amount paid by
customer to buy goods and services from the market is high as compared to the satisfaction they
get from the market then customer’s value would be high. It is further observed that in case if
customers get high satisfaction from the purchased goods and services then in this customer’s
value would be high. It is observed that accountant management could increase the overall client
satisfaction if they implement proper management accounting system to record financial and
non-financial transactions in determined approach. There are several companies such as G.E.
capital, Wesfarmers, Woolworth and Morrison plc. who have created core competency in
creation of customer’s value and shareholders wealth. These companies have developed
organization culture by implementing proper level of policies and frameworks and delivering
best level of services to clients. Customers in the market could evaluate the brand image and
value chain activities of organization by understanding financial statements in determined
approach. Application of different level of accounting practice and developed accounting plans
has helped G.E. capital, Wesfarmers, Woolworth and Morrison plc. to creation customer’s value
in the market. This has not only increased overall clients buying habits but also enhance the
brand image of company in market. This creation of customer’s value is key pillar for the
success of organization and it could be created by increasing the overall quality of client and
production efficiency in determined approach (Iyer, et al. 2015).
Shareholder’s wealth
Shareholders are the key persons of company who make investment and provide capital
to run the business. With the help of effective accounting management practice, company could

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increase the overall transparency of business and showcase the real earning to its stakeholders. It
is further observed that if company increase the earning per share then it will eventually increase
the overall shareholder’s health. Companies like G.E. capital, Wesfarmers, Woolworth and
Morrison plc. have been offering high amount of earning per share to its shareholders. Morrison
plc. offered 1.23 points average EPS to its shareholders since last five years data. On the other
hand, Woolworth and Wesfarmers shared approximately 1.92 points average EPS to its shares.
Company could increase the shareholders health by offering dividend, bonus shares and other
retained earnings for the betterment of shareholders earning. However, various companies such
as BP Billiton and Rio Tinto instead of offering dividend to its shareholders plug back all the
profit earned in the business functioning of organization. This process will not only increase the
overall value capital of the organizations but also provide high level of value creation to
shareholders who invested their money in organization. It is observed that if company must focus
on maximization of company’s performance and increasing the overall value of capital. If
companies fail to create value of investment then it will decrease the value of company in
shareholders’ mind. However, each and every companies issues dividend, shareholders rights
issues and other right to its shareholders with a view to establish proper level of nexus between
company’s welfare and shareholders wealth in effective manner. This shareholders wealth could
be increased if company have proper level of harmonization in plugging back of profit and
distributing overall earning to its shareholders (Iyer, et al. 2015).
As stated by Muckstadt & Sapra, 2010 it is reflected that after evaluating these two issues
given above, it could be inferred that if organizations are making proper level of efforts then
these two issues could be mitigated in determined approach. It is evaluated that company needs
to identify the best possible efforts method such as issues of stock options, issues of right shares,

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dividend and other benefits to shareholders to increase the overall shareholders wealth. It is
considered that shareholder’s wealth is completely dependent upon two factors such as
distributions of company’s benefits to shareholders and increase in the invested capital of
company. Another issue is related to providing customer’s satisfaction to clients in the market. If
company re-engineering its value chain activities to increase the effectiveness of overall
efficiency of business then it will also increase the client satisfaction and brand image of
company in the market.
Contemporary techniques of resource management:
It is observed that if company manages its resources such as financial, operating and
other resources in effective manner then it will result to following benefits to organization such
as creation of synergy in market, development of core competency and offering high level of
quality and management of business (Muckstadt & Sapra, 2010).
Resources management is the system of management of resources of company in easy
and determined approach with a view to create value of investment and efficiency of business.
With the help of this resources management of business, company could reduce the wastage and
by products of business. However, there are several techniques and methods which are very
crucial for the management of business resources in company such as ABC costing technique,
cost management method and absorption and appropriation of expenses in different department
and determining the economic batch quantity by establishment of Economic order quantity of
business. However, management of resources is done by using LIFO and FIFO method in
inventory management technique (Hansen, 2011). It is considered that LIFO, FIFO and setting
economic order of quantity is the most common method which company could use with a view
to reduce the wastage and overburden of inventories in warehouse of the business. There are

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several companies such as G.E. capital, Wesfarmers, Woolworth and Morrison plc. who have
been using inventory management business technique to maintain proper level of inventory in
warehouse.
Target costing: This is the technique which is used to determine the margin company needs to
earn after selling products and services. This target costing also helps company to reduce the
complexity of business and reduce the byproducts (Baker & English, 2011).
Activity Based Budgeting- This is the budgeting process which helps organization to prepare
budgeting process to analysis the cost attributable for the different department of organization.
This Activity based budgeting assists company to evaluate the revenue and other associated cost
of particular department and organizations in determined approach. This Activity based
budgeting will help company to evaluate the historical budget information and prepare an
effective inventory management plan. This will not only help in reducing overall cost of
particular process system but will organization to create core competency in the production of
organization This Activity based budgeting provide effective control on the management of
expenses and inventory management of business. Nonetheless, this is very costly process and
may result to increment in overall production cost for the particular time period (Lambert &
Pezet, 2011).
Total quality management: This technique is developed with a view to increase the total quality
of offered goods and service for the better satisfaction of clients. This TQM assists in increasing
the overall efficiency of business and customized overall goods and services in determined
approach. This TQM method is used by organization to set up particular standards and quality
benchmark to increase the overall efficiency of business.

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Resource levelling: This technique is developed with a view to increase the overall efficiency of
company to increase the satisfaction of clients managed in order to handle the constraint
effectively.
Six sigma: This is the set standard which is used by company for the quality check or proof
reading of work. This Six sigma process is highly used by GE capital to evaluate its value chain
activities (Hirst, Thompson & Bromley, 2015).
Logistic management: This process is used to manage the flow of goods and services from one
place to another place. This logistic management implement efficient business functioning and
decrease the complexity of value chain activities.

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Task 2
Cost allocation Methods:
Allocation of cost is different department is very necessary task for determining the cost
of productions and units produced. However, there are several methods such as ABC costing,
traditional costing and other methods to make bifurcation of cost in different department in
determine approach (Dunning, 2014).
Direct Method: This method is most common method in which all the cost is directly bifurcated
into different department of organization.
Step down Method: In this method all the associated department and functions share the
expenses and overhead cost in different particular department.
Reciprocal Method: With the help of this method, proper allocation of expenses in different
department is based on the recognition of corresponding services to the service departments.
However, this method is complicate and result to high level of complexity to determine the
reciprocal allocation of indirect expenses in concerned department (Needle, 2010).
However, it is evaluated that direct cost is allocated directly to the concerned department
but allocation of indirect cost is based on the different cost drivers such as variable cost, number
of hours and labour machinery working (Boxall & Purcell, 2011).
The cost is allocated by using cost actual labour or machinery working in the business process of
organization.
Note- Allocation of same cost could be done on the basis of Machinery hours and working rate.