Management Accounting Principles: Analysis of Cost and Budgeting

This report provides a comprehensive overview of management accounting principles, exploring their significance in business decision-making. It delves into the principles of management accounting, emphasizing their role in improving business functions and outcomes. The report analyzes various cost analysis techniques, including marginal and absorption costing, and presents income statements under both methods. Furthermore, it examines different planning tools used for budgetary control, such as activity-based budgeting and zero-based budgeting, comparing their advantages and disadvantages. The report also evaluates how organizations adapt management accounting systems to address financial challenges, offering insights into effective financial planning and control. Overall, the report offers valuable insights into the practical application of management accounting concepts.

Management
Accounting Principles
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK ONE......................................................................................................................................3
PART -A..........................................................................................................................................3
Explanation associated with the principles of management accounting.....................................3
Evaluating the use of techniques as well as methods used in management accounting..............4
Evaluation of the way management account is integrated within organisation...........................5
PART-B...........................................................................................................................................6
Application of different cost analysis techniques........................................................................6
TASK TWO.....................................................................................................................................7
PART -A..........................................................................................................................................7
Comparison and contrast between different types of planning tool used for budgetary control
with their respective advantages and disadvantages....................................................................7
PART -B..........................................................................................................................................9
The way different organisation are adapting management accounting system in response to
financial problem.........................................................................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
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INTRODUCTION
Management accounting is considered to be as the key process which is useful in
preparing the reports associated with the business (Borker, 2016). It is considered to be
prominent for the managers of the company to take long term as well as short term decision
making. This study will focus on developing understanding on the principles of management
accounting. Furthermore, the study also demonstrates the use of techniques and methods used in
management accounting. This study also calculates the cost to use appropriate techniques linked
with the cost analysis by the use of aboriginal and marginal cost. Also, the present study also
determine the advantages and disadvantages of the different planning tools which has been used
within the budgetary control. Lastly, the report will compare and also evaluate ways through
which the management accounting responds to the key financial problems.
TASK ONE
PART -A
Explanation associated with the principles of management accounting.
Management accounting is a key process which is useful in preparing the reports
associated with the business. It is relevant to measure, interpret and analyse the relevant
information to the managers. It is prominent for the managers of the company to take long term
as well as short term decision making. The key principles linked with the management
accounting is considered to be prominent in improving the business functions and helps in taking
prominent set of decision and improve the business results and outcomes.
Influence: The key significant principle linked with the management accounting is that,
it mainly focuses on effectively communicating the key relevant information. It is useful to
effectively strengthen the key process of the decision making (Borker, 2016). The access to the
information must be only with the key relevant professionals within the company.
Relevance: This is another prominent principle which states that the information is
considered to be highly valuable and is considered to be highly useful in the better decision
making. It is relevant to effectively interpret the financial as well as the non- financial details in a
significant and prominent manner.
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Value: This is another prominent principle which helps in estimating the value of the
business and also determines the business operations in an accurate and relevant manner
(Abdusalomova, 2020).
Credibility: This principle tends to effectively demonstrate that, stewardship tends to
form credibility. Scrutiny as well as the credibility is prominent for the better decision making. It
is considered to be useful for the near term interest and must ensure business operations are
carried out in an ethical and reliable manner.
Determining the role of management accounting as well as the management accounting
systems.
The key significant role of the management accounting is that it is useful in the better
decision making activities. It is prominent to effectively determine the existing set of expenses
and is considered to be relevant for the evidence based decision in a significant and reliable
manner. It is considered to be highly significant in analysing the budget and suggesting the
funding and allocation. Management accounting system is relevant to effectively evaluate the
process for the management of internal process within the company (Oyewo, 2020). The key
benefit of the management accounting system is that, it must focus on effectively planning as
well as controlling the key operations of the business in a significant and relevant manner. It is
considered to be relevant in improving the business operations with high degree of accuracy and
key relevance.
Evaluating the use of techniques as well as methods used in management accounting.
Management accounting system is useful in effectively planning as well as controlling
the key operations of the business. It is useful in taking internal decision of the company and
leads to better decision making and improved business operations.
 Cost accounting system: This is the significant framework which has been used by the
company to effectively evaluate and also estimate the cost of the products which is useful
for the analysis of the profitability. It is useful for the disclosure of the unprofitable and
profitable set of activities (Lebedev, 2019). It is significant for the periodical
determination of the profit and losses of the company.
Benefits of Cost accounting system
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This system is prominent to effectively disclose the profitable as well as unprofitable
activities within the company. It is useful in controlling the cost linked with the material and
supplies. It is useful for the reliable set of comparison and periodical degree of determination
associated with the profit and loss of the company.
 Inventory management system: It is considered to be as the key significant procedure
which is relevant to track the key goods which is useful in effectively tracking the goods
effectively throughout the entire supply chain which mainly starts from the production to
the end of sales.
Benefits of Inventory management system
Inventory management system is significant in avoiding the excess stock or the stock
outs. It helps in maintaining optimum level of stock for the specific period. It is relevant in
reducing the risk of overselling and simplifying the inventory management.
 Job costing system: It is mainly involved as the key procedure which is considered to be
prominent in accumulating the key relevant information related with the cost which is
mainly linked with the specific job (What Is a Management Accounting System?, 2018).
It is relevant in submitting the cost information and also helps in determining from where
the cost has been reimbursed.
Benefits of Job costing system
This management accounting system is useful in accurately determining the key
profitability associated with the individual operations linked with the specific job. It i9s also
useful in the prediction of the employee performance benchmark and is relevant to measure the
indirect cost (Borker, 2016). This system is prominent in effectively monitoring the cost linked
with the manufacturing process.
Evaluation of the way management account is integrated within organisation
Management accounting provide key insight to top executive of JMrunsa to take
appropriate decision for growth and success of business by maintain record of financial
information. Integration of management accounting will also contribute manager in taking
correct decision regarding areas that need to be providing more attention as compared to others.
Therefore integration of management account is necessary so JMrunsa manager complete the
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process by maintaining records of data, facts and figure in document thereby they can be used as
and when required for achievement of end goals. Regular reporting, collecting fact and figure
also helped in integrating crucial information or management accounting within organisation.
PART-B
Application of different cost analysis techniques
Marginal costing: It refers to technique in which only variable cot is considered in evaluating
the cost of production and the fixed cost is written off against the contribution (Jagtap, Zagade,
and Khairnar, 2020).
Absorption costing: In this technique, both fixed and variable cost is taken in evaluating the cost
of production this method is used for external reporting a well.
Income statement under marginal costing
Particulars Amount
Sales (350000*£15) 5250000
Less: marginal cost of
production
Variable costs (350000*£5) 1750000
Variable expenses (350000*3) 1050000
Add: opening stock (90000*£8) 720000
Less: Closing stock (200000*£8) 1600000
Total marginal cost 1920000
Contribution 3330000
Fixed costs:
Admin cost 10500
Selling and distributing cost 10000
Fixed costs 120000
Salaries 200000
Depreciation 21000
Fixed expenses 100000
Total fixed cost 461500
Net profit 2868500
Income statement under absorption costing
Particulars Amount
Sales (350000*£15) 5250000
Less: cost of production
Variable costs (350000*£5) 1750000
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Variable expenses (350000*3) 1050000
Admin cost 10500
Selling and distributing cost (350000*£0.029) 10000
Fixed cost (350000*£0.343) 120000
Add: opening stock (90000*£8.4) 756000
Less: Closing stock (200000*£8.4) 1680000
Total cost of production 2016500
Gross profit 3233500
Fixed costs:
Salaries 200000
Depreciation 21000
Fixed expenses 100000
Total fixed cost 321000
Net profit 2912500
Reconciliation of statements Amount
Profit as per absorption costing 2912500
Add/Less under /over absorption of
stock (200000-90000) (110000*£0.4) 44000
Profit as per marginal costing 2868500
Interpretation: It can be said that the profit under absorption costing is more than the marginal
costing which is because the former considers both fixed and variable cost while determining the
cost of production (Bariska, Pásztory and Koloszár, 2019).
TASK TWO
PART -A
Comparison and contrast between different types of planning tool used for budgetary control
with their respective advantages and disadvantages
Manager is responsible for preparing budget of organisation in order to identified actual
expense and income that company will have to earn or incurred in coming year for smooth
operation of business. Better forecasting of budget helps company in meeting all its expenses and
completing task in better manner. So, budget is expected amount of expense and revenue
evaluated by manager to be incurred or earn in future circumstances by an organisation such as
JMrunsa. Therefore, different types of planning tool used for budgetary control by JMrunsa
manager are explained with their respective advantages and disadvantages such as:
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ACTIVITY BASED BUDGETING
It is planning tool of budgetary control in which activities that will lead in incurring cost
to firm are recorded and analysed. This method is mostly useful for new enterprise that has
initially started their business operation. At the same time, this method does not undertake past
year budget while making current budget thus cost are deeply research, identified and analysed.
So, manager of JMrunsa in order to find actual cost that company need to incurred in future
scrutinised activities and its potential cost that helps it in preparing accurate budget for
organisation.
Advantages
Evaluation: The biggest advantages of using activity based budgeting is that it helps in
evaluating and analyzing each cost driver as manager while preparing budget undertake each
step involved in the activity (Mazikana, 2019). Thus manager of JMrunsa has eliminated
unnecessary activities or steps so that maximum outcome can be gained at minimum input or
budget thereby easily gains competitive advantages.
Disadvantages
Required understanding: It can be stated that manager for making use of activity based
budgeting must have deep understanding of several activities or function that has to be complete
by organisation in order to attain its objectives.
ZERO BASED BUDGETING
It is budgeting technique in which zero bases in taken in order to prepare budget for
financial year or in another word, manager justified for all expenses for every new period.
Therefore, manager of JMrunsa in order to make use of zero based budgeting techniques needs to
restart planning of all expense that company will make in future circumstances to attain end
goals.
Advantages
Justification of all operating expense: The benefit of using zero based budgeting planning tool
is that manager need to justified for each dollar company will spend in particular task to attain its
goals. Thus, it will contribute in minimising unnecessary expense as clear justification is given
about where and whom much capital will be required to complete the task (Popova-Yosifova,
2020).
Disadvantages
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Resource intensive: The biggest disadvantages or limitation of zero based budgeting is that it
involves more resources, time in order to closely review and analysis actual cost that company
need to incur in order to achieve its desired goals.
OPERATION BUDGETING
It state overall operating expense and revenue that company will received or spend
during particular accounting period in order to promote its business operation. Manager by
planning in advance or making an report about expect fixed and variable cost is future can
prepare operating budget for the company.
Advantages
Provide assistance to manager: Manager by making use of previous budget can easily and
timely prepare budget for the company so that several activities can be completed and goals can
be achieved. Therefore, manager of JMrunsa can easily make best utilisation of resources by
investing them in different fields for growth and expansion of firm.
Disadvantages
Use of previous year budget: On the other hand disadvantages of using operation budgeting is
that it may use of last year financial budgeting which may not resulted in taking accurate
decision for business.
PART -B
The way different organisation are adapting management accounting system in response
to financial problem
There are different method which has been used by enterprise in order to response to their
financial problem such as they are trying to adapt to management accounting system in order to
promote their growth. Key strategies that are used by organisation in order to resolve financial
problem can be illustrated as follows:
Key performance indicator: Company through this process is able to evaluate its performance
with other competitors that are operating in similar industry to earn maximum profit margin.
JMrunsa manager through improving its financial or non financial key performance indicators
can helped company in gaining competitive advantages.
Benchmarking: It is another approach in which enterprise set a bench mark in respect to its
competitors that helps manager in identifying variation or error, mistake in the process so that
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corrective action can be taken for better outcome. Therefore, benchmarking helps company in
understanding key areas in which it lack thereby helping in formulating key strategies that can be
fruitful for organisation.
Budgetary target: In this method companies set different budget to complete specific task that
helps in comparing whether one firm has effectively utilised its fund or not as compared to other
organisation in external environment (Vatslavskyi, 2016). Thus, necessary steps can be taken by
manager in order to make optimum utilisation of resources so that end goals of firm can be
achieved.
Comparison between two firm regarding the way they have adapted to management accounting
for resolving their financial issue
Walmart has made use of cost account system
in order to make record of all expense or cost
of production that are incurred by company to
complete its specific task. Cost management
accounting system has contributed in
eliminating unnecessary cost thus resolving
some of the financial issue of firm.
On the other hand it can be stated that Coca
Cola is company that has make use of job
costing system in order to resolve financial
problem. Manager through job costing is able
to identified actual cost company need to incur
in order to complete the job or task. Thus, it
helps manager in taking decision to remove
addition cost or unnecessary expense on job
that are not profitable for organisation.
It can be analysis from above comparison that both organisations by adapting to different
management accounting system is able to contributed in growth and success of firm by resolving
key financial issue. Like cost accounting system has helped in maintaining records of several
cost or expense that company incurred in order to achieve their respective objectives (Nielsen
and Pontoppidan, 2019). While, job costing helps in understanding actual expenses incurred to
complete particular task thus contributed in resolving key financial issue.
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CONCLUSION
From the above report it can be concluded that accounting management is process in
which manager ensure that all financial records and reports are kept safe and secure so that it can
be used by interested people or stakeholders. It has also been learnt that there are different
method of preparing management accounting report that is used by JMrunsa to present its
financial information. At last it can be concluded from above discussion that companies in order
to overcome financial problem are adapting to management accounting which has contributed in
growth and success of firm.
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REFERENCES
Books and journals
Abdusalomova, N., 2020. Principles of ties of internal control and management accounting
systems at the enterprises of black metallurgy. Архив научных исследований, (2).
Borker, D.R., 2016. Gauging the impact of country-specific values on the acceptability of global
management accounting principles.
Lebedev, P., 2019. Management Accounting Practices in Mid-Sized Companies in Emerging
Economies: An Evidence from Russia. Knowledge–Economy–Society: Challenges for
Contemporary Economies–Global, Regional, Network and Organizational Perspective,
pp.93-103.
Mazikana, A. T., 2019. The Effect of Budgetary Controls on the Performance of an
Organization. Available at SSRN 3445247.
Nielsen, S. and Pontoppidan, I. C., 2019. Exploring the inclusion of risk in management
accounting and control. Management Research Review.
Oyewo, B.M., 2020. Outcomes of interaction between organizational characteristics and
management accounting practice on corporate sustainability: the global management
accounting principles (GMAP) approach. Journal of Sustainable Finance & Investment,
pp.1-35.
Popova-Yosifova, N., 2020. Opportunities For Improvementof The Financial Managementand
Control Systemin The Budgetary Organizations. Economic Science, education and the
real economy: Development and interactions in the digital age, (1). pp.519-528.
Saukkonen, N., Laine, T. and Suomala, P., 2018. Utilizing management accounting information
for decision-making. Qualitative Research in Accounting & Management.
Vatslavskyi, O., 2016. Question of improvement of budget control at the local level. Baltic
Journal of Economic Studies, 2(5).
Jagtap, P. K., Zagade, S. and Khairnar, S., 2020. Cost and Works Accounting (Paper III).
Diamond Publications.
Bariska, M., Pásztory, Z. and Koloszár, L., 2019. The Efficiency Based Costing Method–Using a
Sawmill as Example. EUROPEAN RESEARCH STUDIES: AN INTERNATIONAL
MULTIDISCIPLINARY JOURNAL WITH TOPICS IN EUROPEAN
INTEGRATION. 22(2). pp.229-243.
Online
What Is a Management Accounting System?. 2018. [Online]. Available through:
<https://bizfluent.com/facts-5460765-management-accounting-system.html>
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