Management Accounting Fundamentals: A Comprehensive Report

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MANAGEMENT ACCOUNTING

INTRODUCTION
Management accounting is termed as the series of steps used in preparation of the accounts
and the reports of management that help in the timely short-term decisions related to the
financial information and data (Kaplan and Atkinson, 2015). The management accounting
involves the concepts and the methods that are dynamic for the effective planning of the
business and undertaking the actions and controls which helps in the effective
interpretation of the performance.
This assignment will emphasis on the fundamentals of the management accounting in the
business environment context and will also explore the uses of the financial data and
planning decisions which helps in effective monitoring and controlling of the financial
problems.

PART A
LO1
MANAGEMENT ACCOUNTING AND ITS DIFFERENT TYPES OF SYSTEMS
MANAGEMENT ACCOUNTING
Management accounting is known as the application of the skills and the professional
knowledge such that the policy formulation and planning of the operations at a business
organisation can be ensured (Chenhall and Moers, 2015). This also helps in assisting the
management through effective evaluation of the performance in gaining better insights
leading to better planning and control (Borker, 2016).
PRINCIPLES OF MANAGEMENT ACCOUNTING
Some of the global management accounting principles that need to be followed are as
under:
Influence
This is the principle where management accounting begins and ends with communication.
Through effective influence, the decision making is improved and it allows management in
facilitating the integrated thinking (Bramwell, 2015).
Relevance
It is another management accounting principle which ensures information is relevant and
helps in scanning the best available resources for decision making (Borker, 2016).
Value
This is the management accounting principles which helps in connecting the strategy of the
organisation with its business model and thus helps ineffective analysis of the information to
gain value (Bramwell, 2015).

Trust
According to this principle, the professional is trusted as accountable and ethical towards
the social responsibility and the value of the organisation, this helps in enhancing the trust
and enhancing the reputation of organisation (Bramwell, 2015).
ROLE OF MANAGEMENT ACCOUNTING
The management accounting at TPG Processing plays a vital role as it proves beneficial for
the wider organisational context and it helps in the presentation of the information related
to financial as well as non-financial purposes at regular intervals (Chenhall and Moers,
2015). The management provides better control over the business and helps in injecting the
confidence in the management to face the auditors and regulators ensuring effective
management. It also helps to aid in the preparation of the financial statements at the end of
the year (Borker, 2016).
DIFFERENT TYPES OF MANAGEMENT ACCOUNTING SYSTEMS
Management accounting is a process that undertakes the financial information of the
company in consideration and develops the reports and layouts for the managers so that
effective decision making is ensured. There are many management accounting systems
which help in effective reporting that includes information such as budgeting, breakeven
analysis, product cost analysis and forecasting (Chenhall and Moers, 2015).
Some of the different types of systems under management accounting are as under:
Inventory management system
This is another type of management accounting system which deals with effective
management if the inventory at different locations of a supply network. This is a system that
facilitates effective inventory holing in business and helps to mitigate the issues of the
overstocking and under-stocking (Bramwell, 2015).

Price optimisation system
Under this system, the price is optimised which a customer is willing to pay and helps the
business on a decision on the same price. This is a system that helps in price optimisation in
a B2B and B2C setting which helps in attaining decent profit (Chenhall and Moers, 2015).
Job costing system
Job costing system is the one that helps in effective assigning of the costs for a specific job
that helps in saving much cost and maximising the profits (Kaplan and Atkinson, 2015). It is
a system that helps in accumulating the cost of manufacturing for an individual unit of
output.
Cost accounting system
It is another system that deals with the recording of the production activities in an inventory
system and help in effective tracking of the flow of inventory for a specific project. A costing
system, therefore, will be designed to monitor the costs that are incurred in business and
will also report the revenues, profitability and costs incurred to the management (Bramwell,
2015).

MANAGEMENT ACCOUNTING REPORTING- ITS DIFFERENT METHODS
MANAGEMENT ACCOUNTING REPORTING
The management accounting reports are considered to be the ones that help the small
businesses and their managers in effective monitoring and controlling the performance of
the company. The management accounting reporting helps in rendering the information
which guides the time sensitivity of the financial information (Crowther, 2018).
DIFFERENT METHODS
Management accounting reports are documents that are used for planning and decision
making. These also assist in measuring the performance and regulating so as to meet the
requirements of the project (Kaplan and Atkinson, 2015).
Different methods of reporting under management accounting are discussed as under:
Budgetary reports
This is a reporting system which analyses the performance of the company and helps the
managers in analysing the performance of the divisions and ensures the cost control. The
budgets reports help in presenting the overview of the estimated expenses and income
which can be equated with the actual expenses and income. This helps in providing the
forecasts to the business owners and managers that guide the financial goals of the business
(Crowther, 2018).
Job costing reports
This is another management accounting reporting wherein the job cost resorts depicts the
expense of the specific products (Crowther, 2018). The comparison of the estimates of
revenues with that of the job profitability is evaluated. This method of reporting helps in
analysing eth expenses of the project and also helps in reducing the waste of the jobs. This
helps in effective identification of the higher earning areas of the business which helps in
saving the time as well as enhancing the profitability (Kaplan and Atkinson, 2015).

Inventory and manufacturing reports
This reporting involves physical inventory management where the manufacturing processes
become well-organized. The inventory and manufacturing reports help in comparing the
different assembly lines and boost the performance of the manufacturing departments
(Kaplan and Atkinson, 2015).
Accounts receivable ageing reports
The accounts receivable ageing reports form the critical tool which helps in the effective
management of the cash flows of the business which can then extend the credit to the
customers. This also helps in providing the managers with the insights to find problems and
report on the same taking in focus the company’s collection process. This also helps in
undertaking the analysis of the accounts receivable ageing which helps in ensuring that the
collection department does not supervise its old debts (Crowther, 2018).

MERITS OF MANAGEMENT ACCOUNTING SYSTEMS WITH THEIR
APPLICATIONS
The benefits of the above management accounting systems with their applications are as
under:
Budget reports
This helps in effectively analysing the business performance and it rendered benefits to the
organisation by better cost controlling and rendering insights about the performance of the
departments (Kaplan and Atkinson, 2015).
The budgets reports can be used by the managers to render incentives to the employees
and meet the financial goals.
Accounts receivable ageing
This system is beneficial management accounting system as it involves separate columns for
invoices which helps the managers in discovering the problems related to the gathering
process of the business. It also helps in tightening credit policies (Surum, 2018).
The accounts receivable aging can be used in a case where the problems need to be
identified by the companies in case of the collection process.
Job cost reports
This is also a beneficial management accounting reporting which helps in matching with the
estimated revenues of the business and helps in focusing on the additional efforts which
need to be laid without wasting time as well as the money (Kaplan and Atkinson, 2015).
The job cost reports can be used to analyse the expenses of the projects and identify the
areas where the waste can be reduced.

LO2
INCOME STATEMENT CALCULATION USING ABSORPTION AND MARGINAL
COSTING METHODS
Marginal costing is the cost which is considered to be the additional unit of output and is
used to determine the production quantity at the optimum level and is used to produce
additional units at least amount. This is a method where the profits can be maximised and
are used to determine the product pricing when there is the lowest possible price requested
from customers on specific orders (Surum, 2018).
Figure 1: Income statement from a marginal costing method

Absorption costing system is the method where the variable cots to inventory are assigned
and the overhead costs are charged to the expenses incurred in the period. The direct
materials and the variable overheads are also assigned to inventory and are used in
overhead allocation to inventory (Surum, 2018).
Figure 2: Income statement from an absorption costing method
*The calculations and notes for the test are attached in the Appendix.

PART B
LO3
BENEFITS AND DRAWBACKS OF PLANNING TOOLS
Budget planning plays a dynamic role in managing and controlling a business enterprise. An
important planning tool helps the company to forecast future income and expenses. The
effective implementation of the budgetary control measures helps to achieve the targeted
objectives & results within the desired time (Morano and Tajani, 2017).
Budgetary control measures are efficient methods for short term planning and control.
Thus, it is an important technique of management accounting that helps the manager to
cope up with different situation and problems (Weygandt et al., 2018).
Budget
A budget is the predetermined statement that is prepared for a definite future period. It
includes the estimation of future revenue or expenses for achieving the specified business
objectives and goals (Surum, 2018).
Budgetary control
This refers to the process of establishing a budget and comparing the figures for expected
performance with that of actual performance (Parmenter, 2015). This system provides a
instrument for effective planning and controlling costs.
Essentials of the Budgetary control
 It sets the objective for each function of the organization.
 It helps to ascertain the cause for the deviation between the actual and standard
performance (Weygandt et al., 2018).
 Help the manager at the organization to take corrective actions and achieve desired
objectives.