Management Accounting Project: Principles, Systems, and Planning Tools

This project report delves into the realm of management accounting, using TPG processing company as a case study. Part A of the project explores the core principles of management accounting, its various systems (including price optimization, cost accounting, inventory management, and job costing), and different reporting methods such as inventory management reports, account receivable ageing reports, cost accounting reports, and performance reports. Part B focuses on planning tools, specifically budgetary control, examining the advantages and disadvantages of budgets, fixed budgets, and flexible budgets. The report also emphasizes the integration of management accounting systems within an organization, highlighting the role of accounting functions and concluding with the impact of management accounting on organizational performance. The report also discusses the role of financial reporting and statements in the growth and success of a business.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is an important part of accounting that is related to the
presentation of business operations in a better way to internal management so that they can take
decision (Marr and Gray, 2012). This accounting system is typically variant from other
accounting systems because it contains financial and non financial information that becomes a
framework to managers in making plans and strategies. To understand in broad sense about this
accounting system, TPG processing company is selected that operates in manufacture sector. The
project report is categorised into two parts A & B. In the project A, demonstration about
management accounting systems and techniques are mentioned. Apart from it, in project B,
planning tools of management accounting and its role to respond towards financial issues of
companies are discussed.
PROJECT PART (A)
1. Principles of management accounting
The management accounting is based on various kind of principles which are needed to
be followed by the companies. In the TPG processing company they are applying various kind of
systems of management accounting and it is required to adopt principles which are as follows:
 Influence- This is the main principle of management accounting and as per this principle
communication is needed in this accounting process (Prencipe, Bar-Yosef and Dekker,
2014). Eventually, it enhance the decision making process through communicating the
needed information in all steps of decision making. Like in the TPG processing company,
they are required to communicate all the information for better decision making.
 Relevance- According to this principle, information should be relevant as per the nature
of business activities. As well as management accounting system gathers information
from relevant resources for effective decision. Like in above respective company, it is
essential for them that information should be relevant and it should not be irrelevant.
 Value- The management accounting system is aligned with the procedure of company
and strategies. As well as it includes understanding of wide economic environment so
impact on the value is evaluated. This is an crucial principle of management accounting
system. So above respective company should follow this principle.

 Trust- As per this principle, the management accountant should be ethical, accountable,
mindful and trusted in their tasks (Proctor, 2012). Such as in the TPG processing , it is
important that accountant should be credible towards the activities and functions of
accounting.
2. Role and different types of management accounting systems.
Role of management accounting- The management accounting plays a crucial part in
the aspect of internal stakeholders. In broad sense, it helps different kind of roles such as:
 Decision making- The accountant of management accounting offers needed information
to the managers for the purpose of short term and long term decision making. Like make
& buy decision, product pricing, financing of project etc. Like in above respective
company, they take important decisions as per basis of management accounting.
 Controlling- Along with it is also beneficial for controlling costs of various activities with
the help of providing reports like standard costs, budgets etc. Same as in TPG processing
company, they controls their activities through this accounting system.
So these are the role of management accounting for TPG processing company.
Different type of management accounting systems: Price optimisation system- Price optimisation system is involved in setting prices of
products and services ( Brock, Hinings and Powell, 2012). This accounting system is not
only organisation centric but also it consider customers value on various pricing levels.
Basically, it is required in determining prices of products and services. Same as in above
respective organization, they apply this accounting system for the purpose of estimating
the prices of their manufactured items. Cost accounting system- It is associated with predicting and computing the cost of
different operations. This accounting system is essential for evaluating about efficiency
of various activities in terms of cost as well as to minimise the cost as much as possible.
As well as essential elements of this accounting systems are direct material, labour etc.
In the TPG processing company, they apply this accounting system for the purpose of
controlling the cost of manufacturing activities that results in higher profitability. Inventory management system- This accounting system is linked with activities of stock
management (Ruch and Taylor, 2015). In other words, the inventory management system
analyse the available quantity of raw material, work in process and prepared products. So

basically, it is essential for taking decision on the basis of information about prepared
stock and raw material which is provided by this accounting system. Along with its
essential elements are optimisation of inventory, financial records etc. In above
respective company, they manage their production and produce as per the quantity of
material to satisfy the need of customers. Job costing system- It estimates the cost of job of various kind of functions and activities.
Due to this companies can estimate future cost which is going be occur into assigning the
job to multi-pal activities. Its elements are material, labour cost and factory overhead. So
this accounting system is essential for controlling and allocating the cost of job in a
significant manner. For example in above respective company, with the use of this
accounting system they manage the cost of job that is allocated to various activities of
manufacturing.
3. Methods of management accounting reporting.
The management accounting reporting are kind of reports that act as basis for internal
decision making process. Herein, below management accounting reporting are mentioned: Inventory management reports- The inventory management reports are key reports for
management of inventories of the organisations. These kind of reports are useful for the
manufacturing entities. As well as due to this companies can prevent themselves from the
additional cost of stock keeping. Such as in the TPG processing company, they produce
the inventory report that helps them in minimising the cost of inventory like ordering
cost, carrying cost as well as in managing the inventories. Account receivable ageing report- It is a type of report that provides a framework for
evaluating about total collectable amount in the market from various debtors (Serena
Chiucchi, 2013). Along with, this report also contains the time period of credit purchase
or sell that helps in computing the interest. Like in above respective company, they
prepare this report which help them in determining the total fund which is being paid by
their buyers or debtors for credit transaction. Cost accounting report- The cost accounting report is a kind of report which includes
information about the cost of various functions and activities. Basically, the main
objective of this report is to providing detailed information to the management about how

much cost is occurring in different tasks and functions. Like in the TPG processing
company, this report helps them in controlling the overheads of their manufacturing
activities. Performance report- The performance report is a report that consists details about
variation in the actual and estimated income & expenses. It helps in analysing actual level
of performance of various activities and human resources. Same as in above respective
company they prepare this report for getting information about actual income & expenses
in relation to the standards.
4. How financial reporting and statements are helpful in growth and success of business.
Herein below two types of costing techniques of preparation of the income statement are
such as:
 Absorption costing- It is a costing technique that is related to considering the both costs
(fixed and variable) in a same way (Lindholm, Laine and Suomala, 2017). Under this
method both costs are taken as cost of product or unit.
 Marginal costing- This a costing technique which is associated with the taking both
costs(fixed & variable cost) in variant way. In this, fixed cost is taken as cost of unit
while variable cost is taken as cost of period.
Basically, financial statements are not limited till the income statements. It consists balance
sheet, profit & loss account, ratio analysis etc. Due to this statements and reports companies can
aware about their actual financial position and can take decision accordingly. In the absence of
these statements companies can not aware about the result of their different activities on which
they are expanding money. In the TPG processing company, they produce balance sheet, P&L
account that helps them in growing their business in a significant manner. This is why because
these financial statements reflects the actual financial position of their manufacturing activities
and on the basis of it they make their further plans.
5. Integration of systems of management accounting with company.
Management accounting system is integrated within organization. This is so because each
accounting system is linked somehow with the functions of organization (Stechemesser and
Guenther, 2012). Such as in above mentioned company they are using various kind of accounting

system that is aligned with their functions and activities. Like the inventory management system
is linked with their effective management of supply and demand of raw material. As well as cost
accounting system is linked with the financial department whose aim to reduce the cost as much
as possible. Same as the price optimization system, is integrated with the sales department to
determination of price at effective level. So management accounting is linked with company
6. Role of accounting functions.
Price optimization system- This accounting function is linked with the determination of
prices of products and services. Like in respective organization due to this accounting system
they manage the prices of their manufactured items.
Inventory management system- In this accounting function companies can manage their
raw materials and finished products. Same as in TPG processing company, they track the current
and future quantity of raw material and manufactured products.
Cost accounting system- This is related to the computing and managing the cost of
various activities. In above respective organization, they reduce the cost of manufacturing
operations in an effective manner.
Job costing system- It function is beneficial in managing the cost of job of different
activities. Same as in above respective company, they keep under control to the cost of allocating
the job to various activities.
7. Conclusions in relation to application of management accounting.
The management accounting contains wide range of systems and reports. All these have
a significant effect on the performance of organization in a systematic manner (McVay, Kennedy
and Fullerton, 2016). Like in above mentioned organization, they prepare various types of
accounting systems like price optimization system, inventory management system, job costing
system etc. All these systems have importance for them. Along with management accounting
reports are also produced for purpose of internal decision making.

PROJECT PART (B)
(a) Benefits and drawbacks of various planning tools of budgetary control.
Budgetary control is a kind of technique that is related to the controlling the financial and
non financial performance of the company. Some kind of planning tools are such as:
 Budget- In general sense the budget can be defined as a prediction of future income and
expenditures. On the basis of this estimation companies make their plans and policies.
The TPG processing company, prepares the budget to estimate their further income and
expenses. Due to this, they are able to implement their strategies according to future
income and expenses.
Advantage- Key advantage of the budget is that it is beneficial in the controlling
expenditures and helps in increasing the revenues.
Disadvantage- One of the disadvantage of the budget is that it requires time and
knowledge.
 Fixed budget- It is a budget which is not dependent on the change in sales and volume.
This is suitable for long time period usually more then one year (Salterio, 2012). The
above mentioned company, makes it for long time period.
Advantage- This budget does not require to update which saves the time.
Disadvantage- One of the drawback of this budget is that it does not allow users to make changes
though if there is a huge change in sales or profit.
 Flexible budget- This budget has different feature in compare to fixed budget. It is a type
of budget that is dependent on level of output or income. In other words, this budget can
be updated as per the change in sales and profits. The TPG processing company, they
prepare this budget for short time period, generally less then one year.
Advantage- Main benefit of this budget is that it is easy in operating.
Disadvantage- This budget encourages fraud due to feature of manipulation of information.
 Incremental budget- The incremental budget is a kind of budget that is being prepared by
applying the information of last year's budget. As well as any changes in new year's
budget is added. The above respective company, makes this budget by allocating the
resources as per the past year's budget.
Advantage- This is helpful in evaluating the effect of change in budget.

Disadvantage- One of the key disadvantage of this budget is that it leads to additional
expenditures.
 ZBB- It is a budget that is prepared from a new basis. As well as in this budget each
activity is justified before adding in the budget whether it is of income or expenditure
(Schaltegger, 2012). The TPG processing company makes this budget without
consideration of previous year's budget.
Advantage- This budget brings efficiency and accuracy in the activities.
Disadvantage- One the other hand this budget takes too much time along with cost.
 Variance analysis- The variance analysis can be defined as a process of evaluating
difference between the actual income & expenditure and estimated income &
expenditures. The above mentioned company, easily finds out the variation between
actual and estimated behavior.
Advantage- It is helpful to act as control mechanism.
Disadvantage- One of the disadvantage of this is that lack of appropriate standard can impact
overall result in a negative manner.
(b) Planning tools for producing and predicting budgets.
Planning tools of budgetary control provide a framework for preparation and forecasting
of the budgets (Songini, Gnan and Malmi, 2013). The budgetary control contains various kind of
planning tools which become a basis of accurately prediction of budgets. In the TPG processing
company, they use planning tools like static budget, variable, incremental and ZBB that help in
preparation of the budgets.
(c) Comparison of organizations to resolve the financial issues.
The management accounting system helps in overcoming from different kind of issues.
Basically, the financial issue is a kind of situation wherein companies face the problem of lack of
monetary resources to complete their functions. Herein, financial problems are described below:
 Increasing in expenditures- It is a type of problem in that companies spends more then
income into different activities (Myers, 2013). Due to this expenses continuously and this
results in a financial issue.

 Poor pricing strategies- Under this financial issue, organizations get unable to allocate the
price of products and services at right level. It overall results in lower sales and turns into
a huge financial crises.
Methods to deduct the financial problem:
 Ratio analysis- It is a type of technique that is related to calculating and analyzing and
interpreting different kind of ratios. Due to this companies can evaluate about actual
financial position and can find out actual financial issue.
 KPI – It is a kind of method of finding the financial issue by analyzing those activities
which are profitable or non profitable for them (Clinton and White, 2012). By this
companies can easily find the non profitable activities that cause to financial issue.
Herein, below comparison of two real world organizations of automobile sector (Apple &
Samsung) is mentioned:
Basis Apple Samsung
Financial issue This company is facing the financial
issue of more expenditures that is
resulting in financial issue. Due to this
they are unable to gain more revenue
and it is overall resulting in a financial
crises.
The above respective company is
facing financial issue of low funds
and sales. This issue is raising this
issue is that they are unable to
determine the right pricing of their
products. It is resulting in lower sales
and reason of financial issue.
Accounting
system
As per above situation they are
required to implement a suitable
accounting system that is “cost
accounting system”. This related
minimise the expenditures as much as
possible. If they will implement this
accounting system then it will be
beneficial for them in overcoming
According to their financial problem
they are needed to implement “price
optimisation system”. If they will
apply this system then it will be easy
for them to fix the prices of their
products at right level. Thus their
financial issue will be resolve
automatically.

from financial issue.
(d) Management accounting in overcoming to financial issues.
The management accounting contains various types of accounting systems that helps in
resolving the financial issues (Houghton, 2013). It depends on the nature of financial issue that
which type of financial issue will be needed. Such as in above mentioned companies they are
using two types of accounting systems which are price optimization and cost accounting system.
Thus management accounting systems are helpful in overcoming from financial issues.
(e) Planning tools to resolve the financial issue.
The planning tools of budgetary control are crucial in solving any kind of financial
issues being faced by companies (Bradbard, Alvis and Morris, 2014). Such as the above
mentioned TPG processing company, they are using various kind of planning tools like fixed
budget, flexible budget, zero based budget etc. All planning tools are not only beneficial in
solving the financial issues but also play an important role in prediction of budgets.
CONCLUSION
According to project report this can be concluded that management accounting system is
a mandatory for organizations. This is so because it consists different planning tools like fixed,
variable, ZBB etc. As well as various accounting systems like inventory management system,
price optimization system help in effective internal management. Apart from it these systems
management accounting reports are also presented and role of management accounting systems
is also concluded.

REFERENCES
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