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.

Like the cost accounting system is aligned to finance section of above company to minimise
cost.
6. Benefits of function of management accounting.
Cost accounting system- This function is useful in reducing total cost. Same as in above
company, it helps them in reducing the cost of manufacturing.
Job costing system- As per this function of MA, companies can track the cost of job. Like
in above company they get information about cost of job from this accounting system.
Inventory management system- This function is linked with management of available
stocks. The selected organisation gets benefit of this in making important decisions for buying
raw material.
Price optimisation system- Under this companies determines the prices of their products
& services (Marr and Gray, 2012). Like in selected company, it is important for fixing the prices
of their products .
7. Conclusion of application of management accounting.
On the basis of above mentioned part of report it can be concluded that MA is very
crucial for internal management of companies. Like in above respective company, they are
applying job costing, cost accounting, price optimisation system etc. in their operations. As well
as income statements are prepared for three years by absorption and marginal costing that are
helpful in growth.
PART 2.
(a) Benefits and drawback of planning tools.
Types of planning tools:
 Budgets- These are the estimation of future cost and revenue for a specific time. The
above respective company, prepares the budgets for time period of one year.
Advantage- Budgets are beneficial in managing the financial sources effectively as per
estimation of income and expenditure.
Disadvantage- Limitation of budgets is that it is based on the previous information so
organisations can not relay on it for future decision-making.

 Fixed budget- This is a budget that is based on keeping the budget unchanged whether
change in sales or volume (Proctor, 2012). The above company, make this budget for
long time duration. It has following advantages and disadvantages:
Advantage- Its benefit is that it is simple to use because does not need to be change.
Disadvantage- Problem of static budget is that if in future company's sales or volume
changes then it become difficult to use.
 Flexible budget- Budget that can be varies as accordance to difference in sale and profits.
The above company makes this budget which as some limitations and benefits:
Advantage- This budget provide the facility to update the budget whenever company needs to
change.
Drawback- This budget leads to fraud and cheat because some ineffective employees of
companies can manipulate the data.
 Incremental budget- It is produced on basis of information of previous year's budget.
Along with any change in actual performance is marked as a change in the new year's
budget. Like above respective company prepare it for less important activities.
Advantage- This budget saves the cost and time of budget making.
Drawback- Companies can not trust on the information provided by this budget because the
current scenario of companies can be different.
 Zero based budget- This budget is prepared on the basis of justification of each activity.
Above company makes this budget for important activities.
Advantage- It is beneficial in making budgets accurate and reliable.
Disadvantages- It takes too much time and cost for preparation of budgets.
 Variance analysis- This is related to comparing actual income & expenditures from
estimated income & expenditures. The above company evaluate their performance by
help of this tool.
Advantage- It helps in measuring actual performance by comparing actual output with standards.
Disadvantage-Drawback is that lack of accurate standards can effect the overall result.
(b) Planning tools for preparation of budgets.
The planning tools of budgetary control plays important role in preparation and
forecasting of budgets (Brock, Hinings and Powell, 2012). Like the selected organisation, they

apply planning tools like variance analysis, ZBB, variable budgets etc. All these are important
for preparation of budgets. Like the ZBB brings the accuracy and accountability in the process of
budget making as well as variance analysis measure the actual performance and on the basis
they make the budget.
(c) Management accounting in response to financial issues.
MA is developed in recent time period. At present it is not limited till the internal
management but also it is important in context of financial problems.
Financial problem- In this problem do not have fund to run their necessary activities.
Some example of financial problems are as follows:
 Lack of income- In this financial issue companies do not get enough income on the
investment which they do on various activities.
 Mismanagement of stock- As per this financial issue, organisations face the issue of
proper management of stock and due to this they do not able to satisfy the need of
customers.
Method of finding financial issue:
 Ratio analysis- This is a kind of techniques by which companies find the exact financial
issue with the help of ratios. It contains various types of ratios such as profitability ratio,
quick ratios that are related to financial transaction of companies.
 KPI- This is associated with focusing on the ways by companies are achieving the goals
and objectives successfully (Kastberg and Siverbo, 2013). It plays an important role for
finding the issue that cause to lower profitability.
Comparison of two organisations of real world:
Basis Coca cola Pepsi
Financial problem This company facing the issue of
lower income and increasing the
expenditures continuously. Due to
this issue they are facing some
other problems lack of liquidity
In this company, their financial issue is
of mismanagement of their stock. Due
to this their storage cost is high as well
as they do not aware about how much
quantity of raw material and finished

for working capital requirement. goods are available.
Management
accounting system
It can be resolved with the help of
an effective accounting system
and that is cost accounting system.
With the help of this accounting
system they can minimise their
expenditures and it will result in
better result.
This issue can be solve by help of
inventory management system. It can
guide them about how to manage the
stock as well as it provides information
about exact quantity of materials. This
can help to above company from
overcoming the issue which they have.
(d) Management accounting to solve the financial issues.
As per above mentioned task, it can be said that MA is important from overcoming
financial problems. The above companies apply cost accounting and inventory management
system to overcome their different financial issues. Due to implementation of these accounting
systems they achieve the success by solving the issues in less time.
(e) Planning tools to solve the financial issues.
Same as management accounting systems, the planning tools are important in solving
their financial issue (Moore, 2014). For example the above company use planning tools like
ZBB, incremental budget, flexible budget etc. All these tools provide necessary framework to
overcome from the financial issues in less time because it contains financial information and act
as monitoring strategy.
CONCLUSION
On the basis of project report it may be concluded that MA's role is wide for the
companies. The report concludes about various types of accounting systems and reports which
aligned to process of companies. As well as six income statements are prepared under marginal
and absorption costing as per given information. Along with planning tools of budgetary control
such as variance analysis, ZBB etc. are mentioned that helps in budget making. Apart from it
role of cost accounting system and inventory management system is mentioned to overcome
from financial issues of two real world companies.

REFERENCES
Books and journals:
Mussnig, W., 2013. Von der Kostenrechnung zum Management Accounting. Springer-Verlag.
Zhang, Y., Uchida, K. and Bu, H., 2013. How do accounting standards and insiders' incentives
affect earnings management? Evidence from China. Emerging Markets Review. 16.
pp.78-99.
Trucco, S., 2015. Financial accounting: development paths and alignment to management
accounting in the Italian context. Springer.
Kastberg, G. and Siverbo, S., 2013. The design and use of management accounting systems in
process oriented health care–an explorative study. Financial Accountability &
Management. 29(3). pp.246-270.
Moore, M.H., 2014. Public value accounting: Establishing the philosophical basis. Public
Administration Review. 74(4). pp.465-477.
Ji, X. D., 2017. Development of accounting and auditing systems in China. Routledge.
Taipaleenmäki, J., 2014. Absence and variant modes of presence of management accounting in
new product development–theoretical refinement and some empirical
evidence. European Accounting Review. 23(2). pp.291-334.
Brewer, P .C., Garrison, R. H. and Noreen, E. W., 2015. Introduction to managerial accounting.
McGraw-Hill Education.
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
Marr, B. and Gray, D., 2012. Strategic performance management. Routledge.
Proctor, R., 2012. Managerial Accounting: Decision Makling and Performance Management.
FT Press.
Brock, D., Hinings, C.R. and Powell, M., 2012. Restructuring the professional organization:
Accounting, health care and law. Routledge.