Management Accounting: Principles, Systems, and Applications

Desklib provides solved assignments and past papers to help students succeed.

MANAGEMENT ACCOUNTING
1

Table of Contents
Introduction......................................................................................................................................3
Assessment A...................................................................................................................................4
Assessment B.................................................................................................................................11
Conclusion.....................................................................................................................................17
Reference List................................................................................................................................18
Appendices....................................................................................................................................20
2

Introduction
The method of accounting that is used in the administration for managing internal financial
information is called management accounting. The origin of this method is Japan. During the
time of revolution of business in 19th century, it has been started to use in the business. It is an
optional method to be used in the business but nowadays it is becoming highly popular for the
several benefits it provides to the administration.
3

Assessment A
1. Explanation of Principles of management accounting
There are generally 4 principals of management accounting that are followed by the
organisations. These are explained below:
Influence
The whole process of management accounting is full of conversation (Van Dooren et al., 2015).
This ensures in influencing the workforce to work in the structures that are prepared by the
management accountants in order to have efficient work.
Relevance
The information that are taken into consideration to prepare the management accounting need to
be applicable in order to have the exact reports of the departments that helps in having proper
workings for the business.
Value
Management accounting ensures in setting values within the business. The reason behind this is
that budgets helps in setting the values that are equipped with the assist of management
accounting.
Trust
Management accounting helps in increasing the trust within the employees of the organisation as
the whole system is prepared by having proper conversation among the employees (Gitman et
al., 2015). This increases the trust among the employees and the management.
2. Role of management accounting and the essential elements of different types of
management accounting systems
The management accounting that ensures the trade to operate well plays various roles in the
organisational context. These are vital for them to operate and understand well. The roles of
management accounting are discussed below:
4

Planning
In this role the management accountants plan as to how the structure will be produced that will
help them to operate the trade well. In this section, proper planning is done by the accountants,
which are then distributed among the employees of the organisation.
Controlling
The next step of management accounting is to control the whole system in such a way so that the
operation is performed without any kind of problems (Chenhall and Moers, 2015). This is a very
important system where the management accountants control the expenses and incomes in order
to have higher profit in the business.
Organising
The third step is to organise the whole system in a proper way making the employees to get
proper targets at the start of the year. This reduces the problems of miscommunication among the
departments and the employees of the organisation.
Motivating
This is the fourth stage of management accounting, where the employees are motivated by
checking their performance reports and providing them with gifts, rewards for their hard work so
that they are motivated in their work, and perform their work with proper care and efficiently
(Lopez-Valeiras et al., 2015).
The essential elements of various types of management accounting will be elucidated below:
Price Optimisation System
This process ensures the management accountants to fix the price of the product by considering
all the expenses in order to get the appropriate pricing strategy for the product so that gets sold in
the market (Aleem et al., 2016).
Cost Accounting System
5

This is very imperative in the management accounting that gives a clear picture of the cost of the
product that is to be manufactured by the organisations. This considers all the expenses that are
incurred to produce the product in respect to get the actual production cost.
Inventory Management System
This system ensures the management accountants to check the inventory as to what quantities of
products are present in hand that can be sold by the organisation (Maas et al., 2016). This
increases the sales and to check the value of the inventories that are present in the business.
3. Different methods used for management accounting reporting
Numerous methods are used for reporting of the management accounting. These help the
organisations to produce different reports for their benefits. These reports will be provided
below:
Budget Reports
These reports allow the management accountants to produce the budgets for the business in order
to follow the process to have proper control over the expenses and the incomes of the business.
Sales Report
The sales report is prepared to check the actual sales with that of the budgeted sales to get the
variance between the two (Collis and Hussey, 2017). This helps in analysing the sales for the
year so that if there are any kind of problems that can be solved.
Performance Reports
This type of report that is performed with the aid of management accounting that helps to check
the performance of the employees working under the organisation (Otley, 2016). The
performance report gives a clear view of the performance of the employees and the organisation
so that the difference can be checked. This also helps in motivating the employees.
4. The use of techniques and methods used in management accounting by presenting
calculations for an income statement using variable costing to show how these financial
reporting and statements support business growth and success
6

For 1st Year
Table 1: Tabular Representation of Absorption costing
(Source: Created by the learner)
Table 2: Tabular Representation of Marginal costing
(Source: Created by the Learner)
For 2nd Year
7

Table 3: Tabular Representation of Absorption costing
(Source: Created by the Learner)
Table 4: Tabular Representation of Marginal costing
(Source: Created by the Learner)
For 3rd Year
8

Table 5: Tabular Representation of Absorption Costing
(Source: Created by the Learner)
Table 6: Tabular Representation of Marginal Costing
(Source: Created by the Learner)
The calculations above provide a clear picture of the two types of costing for a period of three
years. These will help the organisation to understand which method is suitable for them. It can be
analysed that the marginal costing gives the maximum profit for the three years. The reason is
this type of costing uses the process of contribution and the fixed cost is absorbed within the
contributions. This increases the profits for the business. From the income statement, it can be
seen that the net profit for the years are present and to achieve those net profit the amount of
9

sales is also provided. This helps in forecasting the profits or loss for any kind of business so that
they can plan as to how they will run the organisation.
5. An evaluation of how management accounting is integrated within the organisation
Management Accounting is such a process that helps the organisations to perform different types
of budgets so that they can forecast whether there will be profit or loss within the organisation.
This is generally an internal matter of the organisations that are performed by them to predict the
income and expense of the trade. The use of management accounting within the trade also helps
them to check the performance of the employees and motivate them. This ensures that the work
is done properly and there are no issues within the business. These are essential parts of
management accounting that is incorporated within the trade for a better result. This helps in
fixing the price of the product so that the price gets cope up within the market and the people do
not think that the price is very high.
6. The benefits of the function to the organisation
Management accounting has helped the organisations to control the operations of the business.
The benefit of this function is that the expenses get reduced and the exact amount is spent by the
organisation. This also helps in having control over the strategies that are being introduced in the
management. The benefit of this function is that the strategies are now controlled in a better way
that reduces the problems within the business of the organisation.
7. Conclusions that critically reflect the application of management accounting
According to Maas et al. (2016), the use of management accounting in the organisational context
has ensured the management to plan, control, monitors every internal area of the business that
helps in improving the performance of the organisation in the market. This helps in ascertaining
the cost of the product so that the price can also be obtained. On the contrary, Koh et al. (2016)
stated that management accounting has increased the cost of production that is increasing the
price of the product that is beared by the end customers. The price can be reduced only if the cost
of management accounting can be stopped.
10

Assessment B
1. Explain the advantages and disadvantages of different types of planning tools used for
budgetary control
There are numerous planning tools present in the management accounting that can be used by
different organisations as per their usages. The merits and demerits of the different planning
tools will be explained below:
Budgets
Budgets help the organisations in forecasting the income and expenses that helps in budgetary
control so that the expenses can be controlled in a proper manner (Kaplan and Atkinson, 2015).
These are essential for the business in order to have proper functioning within the organisation.
The pros and cons are explained below:
Pros
1. This helps in coordinating among the departments regarding the activities that are to be
performed by them
2. This helps in improving communication among the employees and the management
3. This helps in better allocation of resources
4. Proper records of any kind of activities of the organisations can be maintained with the help of
budgets
Cons
1. Lack in the participation of the employees in the preparation of budgets can demotivate them
2. Perception related to unfairness can be caused with the formation of budgets
3. This sometimes produces politics in the allocation of resources among the employees
4. Budgets are generally applied rigidly and mechanically that creates a lot of problems
11

Fixed Budgets
Fixed budget is such a budget where there is no provision kept for any kind of change in the
market condition. Once the budget is created, it cannot be changed until the budgeted period gets
over or a new budget is needed to be produced at that time.
Pros
1. Clear difference of what is needed and what is required
2. This helps in keeping the payments constant so that the expenses are also controlled
Cons
1. This is very much rigid in nature
2. This do not always provide accurate results causing problems within the departments
Flexible Budgets
Flexible budget is that budget that helps the management accountants to have an alternative
during when the estimates are done in order to have proper provision for the change in the
market (Holmgren Caicedo et al., 2018). The pros and cons will be pointed below:
Pros
1. Costs are checked properly with this form of budgeting
2. Overheads can be kept under proper control
3. This budget helps in the planning process of production and profit
Cons
1. Assumptions related to continuity can be obtained but that is stopped at any point of time
2. Costs are increased with the production of this kind of budgets
3. Problems rises related to the benefits of valuation
12