Management Accounting Report: Techniques and Analysis for Business

This report provides a comprehensive overview of management accounting, focusing on its role in organizational decision-making and financial management. It explores key concepts such as cost accounting systems, job costing systems, and price optimization methods, highlighting their advantages and disadvantages. The report analyzes various management accounting reporting methods, including budget reports, cost management accounting reports, and performance reports, emphasizing their importance in assessing organizational performance and controlling costs. Additionally, it examines how organizations adapt management accounting systems to address financial challenges. The report uses Unilever as a case study to demonstrate how the company uses these techniques. The report also includes an introduction outlining the significance of management accounting, a conclusion summarizing the key findings, and a list of references.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
Role of Management Accounting in an organisation..................................................................1
LO1..................................................................................................................................................4
P2 Methods of Management accounting reporting......................................................................4
LO2..................................................................................................................................................6
P3 Calculating costs using appropriate cost accounting techniques............................................6
......................................................................................................................................................7
LO4..................................................................................................................................................9
P4 Explaining the advantages and disadvantages of different types of planning tools used in
budgetary control.........................................................................................................................9
P5 Compare howorganizations are adapting management accounting systems to respond to
financial problems........................................................................................................................1
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
In management accounting or managerial accounting, managers use the provisions of
accounting information in order to better inform themselves before they decide matters within
their organizations, which aids their management and performance of control functions.
Management accounting helps the organization in managing the financial aspects accurately and
efficiently. Management accounting is one of the most reliable concept which can be used by
firm and organization. It aids managers to perform better the financial task. It helps managers in
decision making process and achieving goals and objectives(Ax and Greve, 2017). Report will
highlight basic concepts of management accounting. It will also lay emphasis on methods of
budgeting.
LO1
Role of Management Accounting in an organisation.
Management accounting in an organisation is for supporting the competitive decisions
making through collection, processing and communication of information that will help
management in planning controlling and elevating business processes & company strategies. For
surviving in competitive market, related to technological advancement , are required to use
advance methods for working over continuous improvement of quality control and reducing cost
of products. In these circumstances organisations are shifting towards modern information
system avoiding traditional system with long term move towards management accounting. Tools
of management accounting are following growing trend over recent years. For meeting the
economical advancement of companies management accounting has emerged with new
techniques and and systems helping the Unilever to manage its business. Management is helping
company to meet the needs of modern times business. New systems and techniques has helped
companies to manage its accounting needs and requirements (Bobryshev and et.al., 2015).
Business cannot run effectively without management accounting it includes various costing
method that companies adopt as per their businesses.
Types of Management Accounting System
Cost accounting system
Cost accounting systems refers to framework which is used by companies for estimating costs of
its products for analysing profitability , cost control and inventory valuation. It is critical to
estimate product's correct costs in profitable operations. Company must have knowledge about
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each product that is prepared by company which product is making profits and which are costing
much to company. This can be achieved when accurate cost of each product has been estimated
by company. Unilever is estimating cost of it closing inventory using cost accounting method.
Cost accounting system helps management of company to make business decisions. Corporate
accounting does not have to follow set standards that are flexible in meeting the management
needs unlike financial accounting that is required to provide financial information to external
users. Cost accounting helps Unilever in considering input costs of production that are both fixed
and variable.
Advantages
 Cost accounting system help managers of Unilever to eliminate losses, wastes and
inefficiencies through standards. Standards set by company helps to reduce cost of
product.
 Unilever is able to identify reason for increase or decrease in in profit. It help managers
to take remedial actions for maintaining the profitability of company.
 When information of cost is available management is able to make decisions about
whether to purchase or not products from open market. Record of every product is
available with company in costing records (Bromwich and Scapens, 2016).
 Cost accounting is appreciated by managers of Unilever as it is adaptable, can be tinkered
and implemented as per changing requirements of business. Cost accounting is used only
for accounting for internal purposes. Cost accounting is three dimensional which are accounting, calculations and reporting
that could be manipulated by different angles. It helps Unilever by guiding in price
determination, resource allocations and raising capital for meeting the production
requirement.
Disadvantages
 Cost accounting department are available with only cost records where management is
making decisions for future that could be different as costs in previous yaear may not be
same as in succeeding year.
 Accurate cost can be ascertained when only when full capacity is utlized it is not useful
for Unilever when there is partial utilization of capacity.
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 Financial costs are not included when calculating the cost product therefore the correct
costs may not be calculated always.
Job costing system
Job costing system refers to system that assigns and accumulates manufacturing cost of
individual output unit. It is method to record cost of manufacturing job than of process. Job
costing system is useful when different items that are produced by company are different from
one another and are having significant costing. Job costing requires separate cost records for
items that are significantly varying from each other. Job records of Unilever are required to
report about the about direct material and labour costs which are actually used & assigned cost in
manufacturing overhead. With job costing Unilever is able to keep track over cost of every job,
to maintain data, that are relevant to operations of business (Chenhall and Moers, 2015). It is a
specific accounting method that helps Unilever in tracking the expense for creating unique
product. There are advantages and disadvantages of using job costing system.
Advantages /
 Cost of products can be ascertained on completion of job giving scope for controlling the
cost of products taking suitable steps by Unilever. It helps in recognising profits
separately from each job.
 On job completion every component of cost, profit and selling price are comparable with
estimates for controlling and reducing the costs for maximising the profits on every job in
job Costing of Unilever.
 By using the past records of job costing company is able to estimate future costs. It
enables company to compare present and actual costs of every job and to prepare trend
analysis by compiling historical costs of jobs. Unilever is able to identify defects and spoilages arising in each job hence it helps
company to control it.
Disadvantages
 Unilever is required to have effective supervision over job costing as there is no
standardization.
 Company is required to maintain detailed information about job costing which involves
ample amount of clerical work.
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 Costs cannot be controlled in job costing by the company as preventive steps are taken
after expenses are incurred in job costing.
Price optimisation system
Price optimization method refers to using mathematical analysis for determining the customer
responses over different prices of product and services over different channels. Price
optimization is widely used by organisations to describe prices of applications. Price
optimization issued by companies for enhancing its prices for effectively meeting the
organisations objectives. Price optimisation helps company to meet objective of company like
maximisation of operating profit. Price optimisation for calculating the variations in demand at
various price levels and combining data with details on inventory and costs levels for
recommending prices which will be improving profits (Chiarini and Vagnoni, 2015). Unilever is
using pricing optimisation method as strong profit lever that is often underdeveloped. Seeing the
complexity in pricing number of items over high dynamic conditions of market, modelling and
insights helps Unilever in forecasting demand, developing prices and promoting strategies,
controlling inventory levels and improving customer satisfaction.
Advantages
 It helps Unilever to focus and analyse key areas like margin of sale & conversion
numbers. It helps in generating revenues that are noticeable & helps in expansion and
growth of business.
 Requirement of manual work is reduced is reduced under price optimisation systems
because of which human errors are also reduced in company (Hall, 2016).
 It helps Unilever to regularize its prices over channels in alignment with changing trends
of market, without redundancy. It also helps company to analyse the purchasing pattern of customer and their pricing
preferences, and it assists company in making better decisions.
Disadvantages
 Price optimisation is costly processes that increases cost of company. It increases the
costing of product which is being manufactured by company.
 It is time consuming process and involves technical experts, if the data is not accurately
prices of product will be mispriced.
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LO1
P2 Methods of Management accounting reporting
For every organisations it is important for businesses to keep record of each expenditure.
Management accounting report helps Unilever to trim costs of products and expenses, in
rewarding employees whose performances are high and investing in products that are giving
better financial returns to company. Financial reports are generated by company depending on
the project requirements and sensitivity of financial information. Management accounting reports
include (Jamil and et.al., 2015).
Budget Reports
Budgeting accounting report are used to measure performance of company and these report are
generated for large organisations departments wise. Unilever creates budget reports for
understanding the strategies of their business. Budget reports are prepared by organisations using
previous experiences related to the budgets. Budgets of company should be prepared keeping in
view estimates that are arising from previous circumstances. Budget reports contain all earning
sources and expenditures that help companies to carry out manufacturing processes accordingly.
Budgets are prepared by companies so that it is achieving its goals and objectives while being
within budgeted figures (Kaplan and Atkinson, 2015). These budgeted report guides manager of
Unilever in cutting costs that are excessive and are not productive. Company is able to allocate
its resources as per the budgeting reports to activities that are generating more profits for
company. It is essential for companies to make budgeted report that control over expenditure of
company can be maintained.
Cost Management Accounting Reports
Management accounting helps company in computing costs of product which are
manufactured by company. These report covers everything like material, overheads, labour and
other costs. Cost reports gives summarised form of all the information in manufacturing a
product. Cost report helps manager to analyse and capacity for realizing cost prices of different
items with selling prices. These reports help in estimating the profit margins as company is
having clear picture about every costs that are used for manufacturing the products or procuring
article. Cost report helps the managers of Unilever to compare cost of its products with the
budgeted figures. Cost reports are very essential for companies for pricing the product that are
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manufactured by company (Malina, 2017). These reports are important as they gives the
estimates of the cost of products.
Performance Reports
Performance reports are essential as they help company to review their performances.
Performance reports are prepared for evaluating the performance of business as well as
employees of company. Performance reports may be generated department wise, product wise,
or even for processes. These may be generated quarterly, monthly or yearly as per the
requirement of organisations. These performance reports help manger of company in making in
making critical strategic decision relate to future of organisation. It helps company to lay focus
over the underperforming production processes. Performances of management accounting gives
deep insights about working of company. Performance reports helps the company to analyse the
flaws existing in the processes and procedures. (Nielsen, Mitchell and Nørreklit, 2015)
Performance reports are essential for company for measuring its performances of the strategies
laid by them for their mission. Performance reports asses the difference between the budgeted
and actual figures. After carrying out the differences managers tend to formulate strategies to
remove the differences in the budgeted system. Performance reports give the clear picture about
the success of the product performance. Companies than prepare policies and strategies for
enhancing the performance of the compnay so that it can achieve it desired objectives within the
given time frames. Managers and owner review to know how far the strategic that framed for
particular product or service are effective and whether any modification are required.
Managerial Accounting Reports
information reports helps company to analyse the accounting of the various cost and
expenditures of the projects. These reports are generated internally within organisation and
outsourced to professionals who are having skills and experience for carrying out the task
appropriately. They are generating profits as managers are preparing report based on
transactions. These reports are helping the organisation to carry out the best practices which will
be helping it to grow in the market. Managerial accounting are prepared by organisation after
recording all the costs and expenditures related to the product and services. This report help
company to prepare reports containing the differences and the estimated cost of accounting .
Therefore it is very essential for companies to prepare accounting reports containing the records
of each and every project that is undertaken by company. These reports are prepared by
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companies so that it can have the records of all the projects that are used by companies in future
for making budgeted reports. Managerial accounting report helps company to make comparison
between the cost of manufacturing the different products by company (Otley, 2016).
LO2
P3 Calculating costs using appropriate cost accounting techniques
Marginal Cost: Marginal costing technique use to differentiate the variable of cost from the
fixed cost only the variable cost are charged to the unit of the cost. The fix overhead are entirely
excluded by this technique. The cost of production and provide a same cost per unit up to a
certain level of production.
Absorption costing: Absorption costing is a method in which both the variable fixed cost and
variable cost are taken into consideration while evaluating the net profit calculation and therefore
gives a truer image as compared to marginal costing (Renz and Herman, 2016).
Marginal costing
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Absorption Costing
Interpretation: After going trough the calculation which has been provided above it can be
interpreted that the company should use the absorption costing technique to calculate the net
profit for the organization as this method used toi give the more relevant answer as compare to
the marginal costing technique. As can be seen by the data that absorption costing method is
showing more amount of the profit as compare to the marginal costing method i.e. Profit
calculated under absorption cost method is 40,000 which is 8000 higher as compare to that of a
marginal cost in which the profit is 32,000. Another reason behind choosing absorption cost than
the marginal cost is that that costing method does not take fixed overhead into account which
sometime create the situation in which wrong net profit may be calculated as the fixed cost is
also used to play a very crucial role in the success of the organization. But at the same time it
can help the company also as marginal cost is easier to calculate and will also assist the excite
company in controlling their production cost in the organization as it overlooks the fixed costing
and avoids unnecessary increase in the cost for expenditures which are not directly associated
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with the product. In the end it can be said that the marginal cost can give the faulty decision
when compiling the long term profit of the company. Marginal costing technique is also not
compile with GAAP standard and cannot be used for external reporting since it distorts the net
profit that is responded to the stakeholder.
In order to support the suggest that the organization should use the Absorption costing
system, it can be said that under absorption cost both variable and fixed cost is taken into
consideration by the technique while evaluating the net profit will help the company in finding
out the best and the relevant outcome as fixed cost is very important part of the organization.
However their are many disadvantages also of the absorption costing that is skewing the
profitability of the company. It also proves to be redundant to use for the purpose of comparing
the different line of the product together. But when comparing it with the marginal cost than it
can be said that it is better technique. Also as absorption costing technique is approved by GAAP
it can be said that it can be used for external reporting as well.
LO4
P4 Explaining the advantages and disadvantages of different types of planning tools used in
budgetary control.
Budgetary control may be defined as a technique which is undertaken by the firm for
assessing deviations by doing comparison of actual performance in against to the standards.
Further, budget implies for the monetary framework which contains both cash inflow and
outflows pertaining to specific time period. In this regard, there are several planning tools which
can be used by ABC such as:
Zero based budgeting: Under such budgeting technique, business starts with zero as a base. In
this, emphasis is placed on justifying all the expenditures and income associated with new
period. Hence, in ZBB, amount is assigned to each activity after doing analysis of its needs and
costs (Sands, and Gunarathne, 2015). Thus, using this technique ABC can develop competent
financial framework for the upcoming time period.
Advantages
 ZBB facilitates optimal utilization of resources as it focuses on removing non-productive
activities from operations
 Assists in promoting operational efficiency through optimal financial plan
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
Disadvantages
 Time intensive exercise as it includes detailed evaluation of every item of plan
 Highly expensive because for ZBB number of decision packages need to be prepared
Activity based budgeting
This budgeting method can be used by ABC for recording and analysing activities which
in turn leads cost to business. Such modern technique of budgeting is highly effectual which
emphasizes on distributing cost as per the activities carried out by the firm. In this, resource
consumption and cost origination are considered as base for cost determination as well as
allocation (Schaltegger and Burritt, 2017).
Advantages
 Assists in reducing cost by offering meaningful information about cost aspects or
activities
 Helps in improving business process by identifying and removing non-value added
activities from operations
Disadvantages
 It is complex process that is not understood by all the employees of company.
 It requires companies to spend extra time over the activities of accompany and is a time
consuming process.
Cash Budget
Cash budgets helps organisations to prepare the cash budgets of business. This budget is
prepared by company so that it can control the cost of company to manufacture the products.
These budgets are helping the organisation to have control over the businesses (van Helden and
Uddin, 2016).
Advantages
 Cash budget helps company to avoid the over costing of its products.
 These budgets help the company monitor and control its cash inflows and outflows
P5 Compare how organizations are adapting management accounting systems to respond to
financial problems
Management accounting has helped in solving financial problems through:
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 Inventory management: Inventory management is concerned with the process of
ordering, storing and using organization's inventory. It involves adequate management of
all the raw materials, semi finished and finished goods.
 Benchmarking: Benchmarking is concerned with the process of measuring products,
services, quality and sales of an organization with the industry leaders or other
competitors. It helps in overall improvement of company's operations and help them in
achieving competitive advantage.
 Key performance indicators: Key performance indicator define that how effectively an
organization is achieving its goals and objectives. KPI can be related to sales, cost of
goods sold, labour cost etc. Thus, it is imperative for organisation to identify its
indicators in order to measure the overall performance of the business.
 Financial governance: Financial governance is concerned with the policies and
procedures that an organization uses to manage business data effectively and efficiently
(Chiarini and Vagnoni, 2015). Financial governance comprises financial policies, internal
controls, workflow and data security.
 Balanced score card: Balanced score card is a strategic approach used by the business to
communicate the goals and objectives within the entire organization. It also involves
information about prioritizing of projects and products that can contribute to sales and
profit maximization of the company.
Basis Unilever Tesco
Inventory management Unilever company offers wide
variety of products which
sometimes lead to
mismanagement of inventory in
the company. Unilever has
faced various problems related
to inventory management like
increased working capital, high
cost of inventory and storage
cost (Bobryshev and et.al.,
Tesco company also faced
problems related to
mismanagement of inventory
like excessive or deficit
amount of raw materials and
finished goods and this
further hampered the supply
chain operations of the
organisation therefore the
company adopted
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2015). Use of management
accounting has helped the
company in assisting and
forecasting the future demand
for their goods and services
which has further helped the
organisation in predicting the
level of inventory that will be
required thus reduced the
operational cost and increased
profitability of the business.
management accounting to
solve the financial problem
by tracking the effectiveness
of sales and it helped the
company identifying the
products that are high in
demand (Hall, 2016). Thus, it
helped the business in
keeping more inventory of
the product which has high
demand and less inventory of
goods which has low
demand.
Benchmarking Unilever company operates in a
highly competitive environment
and with the increasing entry of
new players in the market the
sales of Unilever had decreased
significantly. Therefore, the
company adopted the policy of
benchmarking in order to
evaluate the quality of their
products with that of
competitors (Nielsen, Mitchell
and Nørreklit, 2015). With the
use of management accounting,
Unilever company developed a
standardized process for
manufacturing of the products
and it further helped the
company in increasing their
Tesco company's
performance kept on
reducing incessantly mainly
because of low emplopyee
motivation and productivity
therefore the company
adopted benchmarking
strategy in order to compare
the actual performance of the
employees with the standard
performance. With the help
of management accounting,
the company analysed the
potential reasons for lack in
performance and then took
corrective actions in order to
increase employee
motivation and efficiency to
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sales and overall market share
thus leading to sustainable
growth in the near future.
perform the job.
Key performance indicator Management accounting helped
Unilever company in identifying
the key performance indicators
of the organization like
manufacturing cycle time, time
taken to produce goods and
carrying cost. Further, the
company analysed its KPI and
improved them effectively and
efficiently.
Tesco company solved its
problem of identifying key
performance indicators that
are inventory sold, credit
sales done and labour costs
incurred. Management
accounting helped in
interpreting the financial
information and thus
contributed towards better
performance of the
organization (Otley, 2016).
Financial governance Unilever company had been a
part of various fraudulent
activities and regulatory
penalties that hampered the
image of the company and also
reduced the confidence of
stakeholders. Management
accounting helped in solving the
problem of financial governance
by keeping a close check on the
internal policies, rules and
regulations of the organization
which led to proper financial
governance within the firm
(Sands, and Gunarathne, 2015).
Improvement in financial
governance through proper
management skills helped
Tesco company in
preparation of sound
financial plans, budgets,
models and accurate
forecasts. Management
accounting solved the
problem of communication in
the organization that also
contribute heavily in smooth
business operations.
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Balanced score card The implementation of balanced
score card management in the
organization improved the focus
and dedication of all the team
members and everyone aligned
towards single mission and
vision.
Tesco company successfully
implemented balanced score
card in their organisation
with the help of management
accounting principles that
further contributed towards
the organisation achieving
competitive advantage (Jamil
and et.al., 2015). The score
card helped Tesco company
in identifying the potential
future threats and allowed the
company to prepare useful
strategies to counter them.
CONCLUSION
From the above report, it can be concluded that management accounting is an important
accounting policy that takes care of all the management related operation in the organization.
Management accounting helps in coordinating operations and motivating employees in order to
increase there overall efficiency to perform the job and helps in timely achievement of goals and
objectives. The report also included various management accounting techniques like marginal
costing, cost accounting, financial planning and how they contribute in improving the
performance of the company. It also explained the importance of planning tools and their
contribution towards achievement of financial objectives. Furthermore, it involved a comparison
between Unilever and Tesco, the multi-national companies of United Kingdom and the problems
faced by them. It also included various strategies like benchmarking, KPI, inventory
management and their successful implementation with the help of management policies. Thus, it
can be stated that management accounting is an effective tool that must be used all the
companies systematically if they wish to achieve sustainable growth in the business.
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