Management Accounting Report: Principles, Systems, and Techniques

This report delves into the field of management accounting (MA), providing insights into its principles, systems, and techniques. The report analyzes MA's role within TPG Processing, a manufacturing company, and is divided into two parts. Part 1 covers MA principles (influence, relevance, value, trust), its role in decision-making and control, and various MA systems like price optimization, inventory management, and cost accounting. It also explores different reporting methods, including cost accounting and budget reports, and the use of marginal and absorption costing to produce income statements. Part 2 examines planning tools such as budgets (fixed, flexible, incremental, zero-based) and variance analysis, highlighting their benefits and drawbacks. The report concludes that MA is crucial for internal management, offering tools for cost reduction, job costing, inventory management, and price optimization, ultimately aiding in informed decision-making and financial success. The report emphasizes the integration of MAS within an organization's processes, and the importance of planning tools in budget preparation and forecasting.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................3
PART 2..........................................................................................................................................13
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
MA is a field of accounting that is linked with providing internal reports to the internal
stakeholders such as managers so that they can make suitable decisions (Mussnig, 2013). This
is done by this accounting because it contains both kind of reports monetary and non monetary
information. Along with it analyse and review all the available information regarding to financial
and non financial transaction that occurs during time period. In the project report, TPG
processing company has been chosen that operates in the manufacture sector. Apart from it the
project report is divided into two parts in which first part includes about various types of MA and
different accounting techniques to produce income statements. Under second part, planning tools
of MA and role to overcome from financial issues is mentioned.
PART 1.
1. Principles of management accounting.
The MA consists four types of principles which are broadly accepted by all the
companies who adopt this field of accounting. Below these principles are mentioned below in
broad sense:
 Influence- This principle is also known by communication. According to this principle,
there should be appropriate communication so that decisions can be taken in an effective
manner. As well as term management accounting starts and end with the communication.
By proper discussion about needs of business, future plans and policies can be created
more reliable and effective. Such as in the above respective company, TPG processing
they complies this principle of MA and by this their decisions become more effective and
successful.
 Relevance- According to this principle, the information of MA reports should be valuable
as well as reliable as per the financial transaction of companies (Zhang, Uchida, 2013).
Same as in above mentioned company, TPG processing company their accountant
provide only those information to their managers which are related to their transactions.
 Value- According to this principle, the management accounting aligns with the
company's strategy to to business model and needs a understanding of wide external
environment.

 Trust- According to this, management accountant are trusted to be responsible,
accountable. Due to this, companies can trust on reports of MA. In absence of it, this
can be difficult to manage the internal environment of the firm. Same as in above
company, their accountant is trustable and responsible towards the duties.
2. Role of MA and elements of different systems of management accounting.
The MA is important for internal management of businesses. This is why because with
the help of this companies can utilise their available resources in an effective manner.
Role of MA:
 Decision making- It is one of the key role management accounting is that it is beneficial
for long and short term decision-making (Trucco, 2015). It is so because accountant gives
crucial information to managers for further decisions. Like in selected company, they
make further decisions as per information provided by management accounting.
 Controlling- Apart from it, the MA is important in controlling different aspects of
businesses. Such as costs and other expenses. Like selected company, MA is important in
controlling of various manufacturing activities.
Various kind of MAS:
 Price optimisation system- This is aligned with fixing of prices of products and services.
The elements of this system are price elasticity, tying price etc. As well as it is required
for determining price of products and services at a level which is suitable for the
customers. Along with price optimisation system, includes the framework to identify the
reaction of customers on different pricing segments. In selected organisation, they use it
with an aim to fix their manufactured products price at accurate level. In general, this
accounting system sets the price by adding profitable amount of company in the cost.
 Inventory management system-This is linked to managing cost and quantity of available
inventories in the warehouses (Ji, 2017). By this companies can take decisions about
buying of new inventories as well as for production of new products. The basic elements
of it, are raw material, labour, work in progress goods, working capital etc. Along with it
is necessary for meeting the balance between the need and supply of inventories. In the,
TPG processing they are using this accounting system and it is helping them in managing
the quantity of raw material for the manufacturing. Along with for taking decisions about
production of new products on basis of available finished goods in the stores.

 Cost accounting system- This is related to providing framework for estimating the future
cost of various activities. Along with providing detailed information about how much
cost and expenditures are occurring in a particular time period. Its essential elements are
direct- indirect material, labour and other expenses. As well as it is required in the
companies for keeping an extra sight of eye on those operations and activities which are
high cost consuming. In context of above respective organisation, they use it for purpose
of keeping cost of their manufacturing under control.
 Job costing system- This is related to find out the cost of job and minimise the cost as
much as possible. The basic elements of it is that direct material, labour as well as factory
overhead. Along with it is required in companies for getting information about cost of
job. Like in selected company, TPG processing this accounting system is helping them
in minimising cost of job of various activities of manufacturing process.
3. Various methods of MA reporting.
The MA reports are related to including quantitative and qualitative information for
taking further decisions.
 Cost accounting report- This contains broad information about all expenses and costs of
different activities during a particular time period. By this report managers can take
decision about which activity is consuming higher cost and which one is not. The above
respective company, TPG processing prepares this report and it helps them in finding
about total cost of production, material, labour etc.
 Inventory management report- This is associated with the including wide range of
information about cost of storage as well as quantity of available stock in the warehouses
(Taipaleenmäki, 2014). In the aspect of selected company, TPG processing they produce
report and it helps them in tracking quantity of raw material for manufacturing as well as
about prepared products. On the basis of this report, they make future decision about
buying of raw material and manufacturing of new products.
 Account receivable ageing report- This is associated to provide the information about
debtors whose amount is due. It also contains date of credit transaction and on the basis
of it companies can calculate total payable interest. In above respective company, this

accounting report helps them in tracking the amount that is due by the debtors in the
market.
 Budget report- This report is linked with containing information about predicted cost and
income as well as actual output. With the help of this companies can measure about the
efficiency of their activities. Same as in above selected company it is useful for them in
evaluating the performance by comparing the actual income & expenditures with
estimated standards.
4. Use of technique to produce the income statement.
Marginal costing- This can be defined as a kind of technique in that fixed production cost is
taken as the cost of period. On the other hand, variable cost is taken as the cost of unit (Brewer,
Garrison and Noreen, 2015).
Absorption costing- This is a kind of technique in that fixed and variable costs are taken as the
cost of unit.

Year 2.

Year 3.

Absorption costing method
Item £ P.U. Amount (£) Amount (£)
Sales 36000 70 2520000
Absorption Cost of sales
Opening Stock 0
Direct Material 40000 12 480000
Direct Labour 40000 16 640000
Variable expenses 40000 20 800000
Fixed indirect production cost 0
Total Variable Cost A 1920000
4000 48 192000
Absorption cost of sales (A-B) 1728000
Gross profit: (Sales – MCOS) 792000
Selling and distribution overheads 10000
Admin Overheads 15000
Profit before interest & tax (PBIT) 767000
Interest expenses 1000
Profit before tax [PBIT – Interest] 766000
Tax @ 19% 116660
Net profit: Profit before tax – tax 649340
Number of
units
Add – Absorption production
Cost
Less – Closing stock – end of year
1 B [opening stock units + Units
produced – units sold]

Year 2.
Item £ P.U. Amount (£) Amount (£)
Sales 40000 70 2800000
Absorption Cost of sales
Opening Stock 4000 48 192000
Direct Material 48000 12 576000
Direct Labour 48000 16 768000
Variable expenses 48000 20 960000
Fixed indirect production cost 64000
Total Variable Cost A 2560000
12000 48 576000
1984000
Gross profit: (Sales – ACOS) 816000
10500
Admin Overheads 15000
790500
Interest expenses 1250
789250
Tax @ 19% 149957.5
639292.5
Number of units
Add – Absorption production
Cost
Less – Closing stock – end of
year 1 B [opening stock units +
Units produced – units sold]
Absorption cost of sales (A-
B)
Selling and distribution
overheads
Profit before interest & tax
(PBIT)
Profit before tax [PBIT –
Interest]
Net profit: Profit before tax –
tax

Year 3.
Item £ P.U. Amount (£) Amount (£)
Sales 60000 70 4200000
Absorption Cost of sales
Opening Stock 12000 48 576000
Direct Material 51000 12 612000
Direct Labour 51000 16 816000
Variable expenses 51000 20 1020000
Fixed indirect production cost 64000
Total Variable Cost A 3088000
3000 48 144000
2944000
Gross profit: (Sales – ACOS) 1256000
10500
Admin Overheads 15000
1230500
Interest expenses 1250
1229250
Tax @ 19% 233557.5
995692.5
Number of
units
Add – Absorption production
Cost
Less – Closing stock – end of
year 1 B [opening stock units
+ Units produced – units sold]
Absorption cost of sales (A-
B)
Selling and distribution
overheads
Profit before interest & tax
(PBIT)
Profit before tax [PBIT –
Interest]
Net profit: Profit before tax –
tax
These financial reports are important in growth and success. As per this, organisations evaluate
about their actual financial conditions and take suitable steps. As well as with the help of the
financial statements companies can reflect the conclusion of all business activities.
5. Integration of management accounting system with organisation.
The MAS is linked with the process of organisation. This is why because different types
of accounting system has significant role in aspect of process of companies (Christopher, 2014).
Like in selected company, they are using the accounting systems like cost accounting system,
inventory management system etc. All these systems are aligned with the process of companies.