Management Accounting Report: Tools, Techniques and Applications

This report provides a comprehensive overview of management accounting, exploring its role in organizational performance and decision-making. It begins by defining management accounting and contrasting it with financial accounting, highlighting the different users, data sources, and regulatory frameworks. The report then delves into the importance of management accounting information as a decision-making tool for departmental managers, emphasizing its role in supporting strategic goals and integrating sustainability considerations. Various costing systems, including actual, normal, and standard costing, are examined, along with their applications in cost control and product costing. The report also discusses inventory management systems, job costing systems, and activity-based costing, providing insights into how these tools can be used to optimize resource allocation, improve efficiency, and support informed business decisions. Overall, the report offers a practical guide to management accounting principles and techniques, illustrating their significance in enhancing organizational performance and achieving sustainable success.

MANAGEMENT
ACCOUTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A). ...............................................................................................................................................1
b).................................................................................................................................................6
M1...............................................................................................................................................8
D1................................................................................................................................................8
TASK 2............................................................................................................................................9
M2 ............................................................................................................................................10
D2..............................................................................................................................................10
TASK 3..........................................................................................................................................10
M3.............................................................................................................................................14
TASK 4..........................................................................................................................................14
M4.............................................................................................................................................14
D3..............................................................................................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting systems are the most effective tools which assist the firm for
gaining the business in an effective manner. This report states that an important discussion about
the management accounting and its tools and techniques which is used in measurement and
planning for the organization to assess its overall performance and also involves the meaningful
explanations regarding the various management accounting system and they are necessary for the
sound organization activities to be coordinated with the management accounting reporting (King,
Clarkson and Wallace, 2010). This will help to make an understanding in regards to the
management accounting system. It involves the preparation of statement of income on the basis
of absorption and marginal costing. The reports will also talk about the usage of many tools of
planning which are mainly used in budgetary control as an evaluation of organization
performance appraisal.
TASK 1
A).
Management Accounting: It is also known as managerial accounting. Management
accounting is a well-defined process to recognizing, analysing, measuring, explaining and
communicating information for the chasing of an organization’s goals. This accounting covers
all the accounting fields aimed at advising management of business operations (Fullerton,
Kennedy and Widener, 2014). Management accountant uses information relating to the costs of
goods or services purchased by the organization. With the help of management accounting, the
manager formulates the policies, decisions, and strategies for day-to-day business operations of
an organization.
Implementation areas of management accounting:
 Performance evaluation: It helps out the organization in evaluating the performance and
productivity of an employee. The performance evaluation can be done with the help of
comparing the actual performance with the planned performance which shows the
deviations on which needful steps can be taken and applied.
 Risk appraisal: Another advantage of the management accounting is that it determines
and appraise the risk factors within the organization which can be eliminated with the
help of the well-defined organization management.
1

 Presentation of the financial statement: Management accounting provides a proper
manner to present organization financial position with the help of necessary useful data
and information. Various data helps and make an easy way for the organization to
prepare the reports for strategies and decisions- making.
 Apportionment of resources: An organization becomes capable to achieve the
utilization of resources in an effective and efficient manner with the help of allocation of
resources in a proper way to various divisions and departments within the organization.
This makes sure that the organization achieves its objectives and goals for a long-term
period.
1. Management Accounting vs. Financial Accounting:
There are so many differences between the management and financial accounting are
discussed as below:
Users of both accounting: - The management accounting mainly uses in internal by the
managers and employees of an organization whereas external users or outsiders of an
organization uses the financial accounting for decision-making that whether they invest their
money or not. External users include creditors, shareholders, and financial institutions.
Sources of data: - The management accounting uses the financial and non- financial data
in an organization whereas the financial accounting uses only the financial data which are based
on the accounting system of an organization.
Set of rules and regulations: - In management accounting, no standards or external rules
is applied whereas in the financial accounting various set of rules and regulations are applicable
to the organization.
Nature of both accounting: - The nature and source of information in the financial
accounting are historical which was related to the past performance of an organization whereas
the nature of information in the management accounting is primarily past, present and future-
oriented.
Reporting: - The management accounting provides information in an efficient and
effective manner to the management of an organization whereas the financial accounting gives
information regarding income and profit earning of the organization and also tells the sound
position of the organization.
2

Audit and publication: - The audit and publication of the management accounting
statements and reports are not required, because these are used in the internally whereas in the
financial accounting the financial statements of the organization are published for the use of
general public and they are audited by the professional persons having qualified degree.
Following are the importance of the management accounting information as a decision-making
tool for department managers.
2. Importance of MA information as a decision-making tools for departmental managers:
Management accounting is the most effective tool which helps the organisation for
gaining the sustainability in an effective manner. Here are some of the benefits of the MA
systems. The management accounting role in the sustainable success of the organization business
can be explained and summarized in below:
 The manager of the organization will need to support the sustainable and strategic goals
with the policies and strategies which are previously developed.
 The management accounting assists in the manufacturing and production reports that
involves sustainability information, which helps the managers in understanding the
pricing and decisions regarding the budgets and planning of essential strategies (DRURY,
2013).
 The management accounting techniques and useful tools like standard costing, ABC,
marginal and absorption costing etc, will assist in the integration of matters in the
sustainable which involves various processes of decision-making.
 Assists the organization in the development of a reporting strategy that will consolidate
with the issues of sustainability which in turn will allow accessing the non-financial and
financial useful information.
Activity-based costing method: - It allocates the overhead to those items which are
actually produced and use it. The ABC can be used to minimize the targeted overhead costs. It
best works in an environment which is complex, where there are so many products and machines
are used to manufacturing. It helps in identifying the activities that an organization performs and
then assign indirect costs to products which are produced. It helps the organization to make and
develop a much better way focus on corporate and strategy regarding the costs (Dillard and
Roslender, 2011).
3

Make or buy decisions: - The main use of management accounting information is to
render useful information which is used in manufacturing the products. A make or buy decisions
is the action of selecting in between manufacturing a product or purchasing it from the outsider
or external suppliers.
Utilization of useful and relevant data: - The management accounting information
gives a data which is useful to make a strategy and decisions for the growth of an organization
business..
3. Cost Accounting Systems (actual, normal and standard costing): -
The cost accounting system helps the organization to forecast the cost of the product
which they want to produce. The managers of the organization make the analysis of profitability,
inventory and cost control of the products. Cost accounting is the major concept of the
management accounting which offers the useful tools and techniques of budgetary control,
standard and marginal costing and inventory control which are used by the management of the
organization to improve their productivity in the product (Contrafatto and Burns, 2013).
Actual costing: it records the costs of the product on the basis of following factors:
 The actual cost of materials
 The actual cost of labor
 The actual overhead costs incurred and allocated using the actual quantity.
 The main point in an actual costing system is that it uses only the actual costs incurred
and allocated using the actual quantity produced. It does not use any budgeted or
standards. It is very simplest costing which is not required any pre-planning of standard
costs.
Normal costing: It is used to derive the product costs. It includes the following factors:
 The actual cost of materials
 The actual cost of labour
 The standard overhead rate that is applied by using the actual usage of the product of
whatsoever allocation base is being used (machine hours or direct labour hours)
 The normal costing is different from the standard costing, in the standard costing, the
standards cost is pre-determined, while in the normal costing the actual costs are used for
the materials and labour.
4

 The normal costing means a manner to find out the cost of a manufactured item using the
product costs.
Standard costing: It involves the creation of estimated or standard costs for some or all
the activities of the manufacturing company. The standard costs are a close approximation of
actual costs. The cost accountant of the company calculates the variances. It also changes the
standard costs to bring closer alignment with the actual cost.
The following elements used by the accountant in the standard costing are:
 The standard cost of materials
 The standard cost of labour
 The standard overhead rate
It is the most effective and important method available for the controlling the costs and
the performance.
4. Inventory management system: - This method of management accounting system is
concerned with the management and supervision of inventory of the organization. This system
track goods and raw materials through the entire supply chain or the portion which are used in
the manufacturing operations. It covers almost everything from production to retail and all
movements of inventory. The process of TECH (UK) LTD. can be mixed with this type of
system to attain effective and efficient flow of stock inside the organization and at the time of
sale. The organization must have an effective inventory control system to control the wastage of
the inventory and the essentials elements are: -
 Identification and classification of inventories.
 Setting minimum and maximum limits for each and every part of the inventory in the
organization.
 Economic order quantity.
 There should be adequate storage facilities.
 Adequate reports and records.
 Coordination, budgeting, and internal check.
Inventory management system is optimum used after knowing the final inventory in an
effective manner. But the problem is that, inventory management system is effectively used by
using FIFO, LIFO AVCO method which would ultimately assist the organization in order to
assist the organization for making the business sustainability
5

FIFO method: This stands for “first in first out”, which simply means that the raw
material which comes at the beginning of the year would ultimately release firstly.
LIFO method: This stands for “last in first out” which simply means that the goods
which comes at last is ultimately released firstly.
AVCO method: This stands for average inventory costs during a certain period of time.
This is calculated by dividing cost of goods in stock by number of goods in the inventory level at
any point of time.
5. Job costing system: This system of costing includes the process of collecting information
about the costs which is associated with the particular production job. A job costing system
accumulates the following three types of information:
 Direct materials
 Direct labour
 Overheads
Job costing system customized the requirements of the customer. Some customers only
permit certain costs to be charged to their jobs (Cinquini and Tenucci, 2010). The TECH (UK)
LTD. uses this costing system when the products are identical or customized according to the
customers need and keep track expenses on these jobs. It consists the following procedures are:
 Receiving inquiry from the customers about the price, quality of the materials are used to
complete the job.
 Keeping the tastes and preferences of the customers in the mind while manufacturing the
products.
 The order will be placed to the customer when the price is assured by him.
 Each and every cost related to the production process is to be recorded (Christ and
Burritt, 2013).
 Once the job is complete, a report is given to the cost department of the organization for
finalizing the job costing. The comparison is done with the help of estimated cost which
was already prepared by the cost accountant.
Job costing systems are of various types. Some of them are: Batch Costing, Contract Costing,
process costing, and service costing. These are defined in details:
6

 Batch costing: Under this, cost of a particular batch is calculated. This is a kind of
particular order costing. Within each batch, a number of identical units are comprised but
each batch would be different.
 Contract Costing: This is a kind of knowing of the costs which are linked to particular
contract with a consumer. For instance, an organization bids for a huge construction
project along with the prospective consumer, and two parties have decided in a contract
for a particular kind of reimbursement to the organization.
b).
1. Different types of management accounting reports are: -
The management accounting uses different kinds of reports to help the organization
management in preparing the accurate management reports and also help to make the decisions
regarding in critical business situations. They also give the reliable and accurate data and
information of the financial position of the organization to the managers. The various reports are
prepared by the management accountant and their advantages are discussed as below: -
Reports on budgets: - The budgets are prepared to analyse the company performance in
all aspects. With the help of budgets, the managers of the organization review and analysis each
department performance and the related cost which is incurred. The estimated budgets are
usually depending upon the actual costs from the previous years (Østergren and Stensaker,
2011). With the help of this estimation, the actual figure is compared with the budgeted figure
and then analyses it in an efficient and effective manner. The TECH (UK) LTD. uses budget
reports to control the unexpected costs and expenses and also compare the actual outcomes with
the budgeted. If the variances or differences incurred are favourable to the organization, then it
reflects the good performance of each and every department. But if, variances incurred are
negative or adverse, then the managers will overcome these adverse issues more efficient way.
Accounting receivable report: - This type of report is basically concerned with the
receivables for those organizations which want to extend the credit policies to their loyal
customers. Under this accounting receivable reports, all the earnings which are arises or assumed
that earnings which are received in the future, are to recorded properly (Parker, 2012.). This
report helps the organization to analysis the credit policy and at what point they need to tighten
the policy of the credit. This assures minimizing the old bad debts and liquidity of the
organization should be maintained.
7

Job cost report: - Job cost reports show the costs or expenses and profitability of the
specific job. It helps the organization to determines the more profitable areas so that they could
fully concentrate on these areas rather than wasting the time and other resources on jobs which
are less profitable. It is used to review the costs and other expenses at the time when the products
are manufacturing which helps the managers to reduce the unwanted waste before the costs
maximize.
Inventory Management report: - When the organization doing the manufacturing
process they have to prepare this kind of reports so that the inventory utilized in the more
appropriate manner in the manufacturing process. This report helps the organization, to track the
inventory level whether it is maximum or minimum and in danger level. With this report, the
managers take the accurate decisions regarding the inventory. This report includes the various
cost related to the labour and overhead per unit and wastages concerned with the inventory.
Performance report: - In this report, the information regarding the performance of the
organization is recorded, after analysing the actual performance with the planned performance.
The performance report is prepared annually. With the help of this report, the managers make the
effective and productive strategy which helps the organization to earn more benefits in the
future. Various stakeholders use this performance report to analyse the performance and after
that, they invest in the organization (Frezatti, Aguiar, Guerreiro and Gouvea, 2011).
2. Importance of implementing accounting reporting systems:
It is crucial for the management accounting reporting which provides assistance to the
organisation to identify the organisation entire crucial financial transactions in the elaborated
structure. By using of all the above mentioned report, company could assess the organisation for
assessing their performance level, lowering the wastage of the resources, limiting the unwanted
costs, enhances their productivity and much more. These kinds of report assisting to make
strategies, goals and pre-set objectives for the future period of time.
M1
By using management accounting systems, cited company could implement an effective
strategy that could implement in an effective manner. As Job costing system will assist the
TECH (UK) LTD. in the approximation of all kinds of expenses or costs related to the
manufacturing the products. It also helps in overall check on the quality performance done by the
labour.
8

Accounting systems Benefits
Cost accounting system It is vital for the company to evaluate total cost for estimating the
cost of their product for increasing the productivity of the company.
Inventory management
system
According to this system, it has been seen that overall management
and control of stock those are kept by the company can be determine
effectively under this report.
Job costing system It is used to deliver various unique advantage those are set as
important process in costing methods.
D1
Budget reports: The integration in between the process of TECH (UK) LTD and the
budget reports make a way for the company activities and the managers can concentrate on the
objectives and targeted results in a proper manner.
Accounts receivable report: The integration between both of them, helps the managers
to collects the receivables on the time and also helps to create the proper collection policy that
should be analysed on daily basis for the accuracy and its flexibility.
Job cost reports: The TECH (UK) LTD. activities should be oriented towards the cost
objectives achievement and the job cost reports which make easier to finalize the strategy
regarding the price and minimizing the whole cost regarding the products (Baldvinsdottir,
Mitchell and Nørreklit, 2010).
There is certain other reporting method which will be helpful in recording all essential
transaction that are done during an accounting period of time. Inventory management report can
be used to record opening and closing stocks of the company. while in case of performance
report that consists of specific information about company’s current year performance to the with
past one.
9

TASK 2
10