Management Accounting: Budgetary Control and Cost Analysis Report

This report provides a comprehensive overview of management accounting, exploring its core concepts, systems, and applications. It begins by defining management accounting and differentiating it from financial accounting, highlighting its role in internal decision-making and organizational control. The report delves into various cost accounting systems, including job costing, inventory management, and price optimization, emphasizing their significance in profitability analysis and cost control. It examines the benefits of implementing a management accounting system, such as improved planning, controlling, customer service, organization, coordination, and employee motivation. The report then analyzes the advantages and disadvantages of budgetary control tools and compares how organizations respond to management accounting for financial problem-solving, including alignment with organizational processes. Furthermore, it explains the concepts of costs, cost-volume-profit analysis, and the importance of cost data in product pricing. Finally, the report touches on forecasting techniques, providing a holistic understanding of management accounting's role in financial management.

Running Head: MANAGEMENT ACCOUNTING 1
MANAGEMENT ACCOUNTING

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Table of Contents
Overview.....................................................................................................................................................3
P1: Management Accounting......................................................................................................................3
P2: Cost accounting system.........................................................................................................................3
Inventory management system................................................................................................................4
Job costing system...................................................................................................................................4
Price optimizing system...........................................................................................................................4
M1: Introduction and benefits.....................................................................................................................4
P4: Advantages and disadvantages of different tools used to control the budget.........................................7
P5: Compare how Organizations respond to the management accounting system for solving the financial
problems......................................................................................................................................................8
D1: Alignment with the organizational processes........................................................................................8
M2: Concepts of costs.................................................................................................................................9
D2..............................................................................................................................................................10
M3 & M4: Forecasting techniques............................................................................................................13
Conclusion.................................................................................................................................................14
References.................................................................................................................................................16

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Overview
Management Accounting is the new concept in the corporate finance and the managerial
accounting. Unlike financial accounting, management accounting has the equal benefits, which
help in recovering the internal issues. Basically, management accounting is the tool that is used
to deal with the business activities. The two types of accounting are financial accounting and the
management accounting and in this report the detailed discussion of the management accounting
is carried out to evaluate the benefits that are going to be reaped by the organization (Modugno,
and Di Carlo, 2019).
P1: Management Accounting
The management accounting is the term used to portray the bookkeeping strategies, frameworks
and systems which, with uncommon learning and capacity, help the executives in its assignment
of augmenting benefit or limiting misfortunes. The use of expert information and aptitude in the
readiness of bookkeeping data so as to help the executives in the detailing of arrangements and in
the arranging and control of the task of the endeavors.
P2: Cost accounting system
A cost accounting system which is also referred to as the product costing or the system costing is
a framework which is used by various organization and firms, in order to estimate the cost of
their products for profitability analysis, valuation of the inventory and cost control. Estimating
the accurate cost of products is critical for majorly profitable businesses and this tool helps in
overcoming such kind of the problem. The examples of the cost accounting system are such as
job costing, activity based costing and a lot more.

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Inventory management system
Inventory management is the one of a kind of the system which is used by the corporate
organization in order to have a balance between the demand and the supply of the goods. This is
used by the manufacturing industries where the turnover is high and the demand keeps on
fluctuating. This is used to create a work order, bill of the materials and the product related
documents. The various examples of the inventory management system are NetSuite ERP,
Quickbooks, Tradegecko, Vend and a lot more.
Job costing system
The job order cost system also known as the job costing system is used when the products are
driven by or created as per the needs of the customer. Each product produced is considered as a
job. The job order cost system must capture and track costs of producing each job to ensure the
viability, which includes materials, labor, and overhead in a manufacturing environment
Price optimizing system
Price optimizing system is treated as one of the mathematical analysis which is used to
determine, how customers will respond with respect to the different prices and the products. It is
also used to determine the prices so that it becomes transparent for the companies to meet the
daily objectives such as maximizing the profit. The four major examples are experiments,
analytics, Economics and yield management
M1: Introduction and benefits
The purpose of the management accounting is used for the purpose of the internal supervisor. It
is not regulated by the law and the major user of the management system of the accounting is the

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management itself, which also facilitates in decision making under the management accounting
the preparation of the financial statements (Maskell, Baggaley and Grasso, 2016).
The executives bookkeeping additionally is known as administrative bookkeeping and can be
characterized as a procedure of giving budgetary data and assets to the administrators in basic
leadership. In this procedure, monetary data and reports, for example, receipt, budgetary
equalization explanation is shared by account organization with the supervisory crew of the
organization. Target of the management accounting is to utilize this measurable information and
take a superior and exact choice, controlling the undertaking, business exercises, and
advancement (Dai and Vasarhelyi, 2017).
The major benefits after the implementation of the management system of accounting have been
outlined below.
Planning
Planning is one of the most important steps that are used to give as support to the organization.
Currently in the scenario of the management accounting, the management can make the plan for
the purpose of the effective operation. For this, the management shall prepare the functional
budgets and the accounting information are executed the product wise, section wise and the
proper planning wise (Ali, Omar and Bakar, 2016).
Controlling
Controlling is one of the key factors and provides the benefit to the organization. With the help
of the management accounting the, factors like controlling will help the management in finding

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out the variances and the reasons for such variances. The factors that are affecting or hampering
the performance of the organization will be assessed in detail and hence, management systems
are treated as advantage in the costing and the system of the budgetary control.
Service to the customers
The service to the customers is the key for the management and hence the better and the
improved services are provided by the management to make sure the right system of the
accounting follows. The better the services the larger will be the customer base (Malmi, 2016).
Organizing
The extent of power and duty of key officials are appropriately characterized and clarified under
administration bookkeeping framework. Consequently, everybody realizes who is in charge of
what and to whom? It helps for appropriate arranging the work in an association.
Coordination
Management system of the accounting helps in bringing the coordination amongst the
organization. Coordination is the key for the management of the accounting and if there is a
proper alignment and he coordination amongst the organization because of the management
accounting system, the organization will flourish (Johansson and Kriström, 2018).
Motivating
The management system of the accounting is the one which helps in motivating the employee of
the organization. This would also help in achieving the cumulative goals rather just focusing on
the individual goals. This would bring out more positive results and the organization would
succeed well (Mishan, 2015).

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P4: Advantages and disadvantages of different tools used to control the budget
Budgetary control is the toll which is used to measure the performance of the business. The
major advantages of the budgetary control are as follows.
Maximization of the profits
The core advantage is the enhancement of the profits as the proper control over the revenue and
the expenditure has been undertaken.
Coordination between the activities
The different departments are aligned with the help of the budgetary control and hence, it would
be an extra benefit to the company.
Driver for measuring the performance
By providing the specific targets to various departments the budgetary control puts them in the
action and tries to find out how many of the targets are lacking or exceeded.
With the advantages come the disadvantages which are also listed below.
Uncertain future
The uncertainty of the future is one of the major challenges that are faced by the company.
Despite the best estimates at times the predictions may not be suitable and are not true. The
dynamic environment results into the changes in the budgetary controls.
Budgetary Revision

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Budgets are prepared with the aim, that there are certain conditions which prevail. Because of the
future uncertainties, the frequent revision is required which reduces the worth of the budget.
P5: Compare how Organizations respond to the management accounting system for solving
the financial problems
It is not very easy to adopt the management accounting system as it taken a long time to
understand the mechanism. It is often said that the financial problems can be solved with the help
of the management accounting system and the behavior of the organization depends upon the
needs and the acceptance level of the firm. If the firm is in need of the system they would
definitely go for the system as it would help in allocation of the funds properly, maintain a
strategic balance and creates a smooth alignment between various departments. On the other
hand if the management tends to introduce this concept as a part of the future growth and
prosperity, it takes time to accept and understand the mechanisms altogether. The financial
problems such as balance in the economy, proper recording of the complex transactions,
transparency in financial statements can be achieved using management accounting system.
D1: Alignment with the organizational processes
Communication as well as interaction is one of the key factors in the course of the management
of accounting system. The communication in the organization is required to discuss the key
factors and in such a case the communication will help in analyzing the situation well. This
would also end up in increasing the arriving at the different alternatives and solutions
(Weingärtner, Bräscher and Westphall, 2015).

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The alternative is finding the administration accountants for the organizations who inspected
more attention on the assignment parts of Management Accounting System to incorporate and
prepare the financial reports with careful consideration. Despite the coordination of the
management system of accounting and this again is required and mandatory (Banerjee, Tarazi
and Akre, 2018).
M2: Concepts of costs
The concept of cost is rightly stated to be the building block of the costing as well as the
microeconomic analysis. The said analysis is characterized by the change in cost as per the
changes in the output volume. The output volume may be the sales, production, or other chief
activity such as the number of patient visits, number of enrolments of the students; as per the
entity under consideration. The cost can be fixed, variable or a combination of both known as the
mixed cost. It must be noted that while the variable costs vary in a linear manner in accordance
with the production level, the fixed costs remain the same within the relevant range (Kaplan and
Atkinson, 2015). The following two graphical presentations describe the difference between the

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fixed costs and the variable costs, and their respective relationship with the levels of the
production.
Cost-volume-profit (CVP) analysis is aimed at determining the relationship between the changes
in costs and volume to an entity’s net income and the operating income. There are included
several assumptions in the said analysis such that the Sales price per unit, Variable costs per unit
and the Total fixed costs are constant. The contribution ration and the contribution margin are the
key calculations done in the said analysis. The analysis enables an entity to calculate the
breakeven point where the level of sales represents zero income (Jia, Li, Tian, Zhou and Li,
2017).
The cost data is undoubtedly the most critical element in the setting of the price of the products.
It is vital to note that the decision of the seller in context of which products to produce and the
quantities of the same is critically dependent on their cost of production. While a lower cost
producer can charge low price which can lead to high sales, the higher cost producer would not
be able to attract and retain the price-sensitive buyers. Therefore, determination of the cost and
the mix of the product are stated to be a strategic decision (Field, 2018).
D2
The cost is divided into several categories as explained follows. The costing method may be
normal costing or the standard costing. It must be noted that the actual materials costs, the actual
direct labor costs, and the manufacturing overhead calculated on the basis of the predetermined
manufacturing overhead rate are involved in the Normal costing. In contrast to this, the standard
costing method makes use of the predetermined direct labor cost, predetermined materials cost,
and a predetermined manufacturing overhead cost (Isaac, Lawal and Okoli, 2015).

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Flexible budgeting
The flexible budging is effective for adjusting and make changes in the volume. The flexible
budget is effective as compared to the static budget due to creating the smoothness in the
business process. The cost could be different from the act. The flexible budget could facilitate to
decide one variable rate per unit instead of determining the total amount of firm. It is illustrated
that the organization could use the flexible budget process for improving the efficiency of the
manager. Further, the flexible budget could be imperative in increasing the probability of
business functions success (Kaplan and Atkinson, 2015).
Cost variance
Cost variance is determined as the difference between the planned and actual cost of the
business. In the current business sera, most of the manufacturing organization used this tool to
complete their daily activity in the least respires and decline additional expenses. This one is the
key section of the standard costing structure (Kaplan and Atkinson, 2015). In addition, it is
examined that the identification of different could also support to control the cash outflows that
would lead to getting higher competitive advantages. The main cause of using cost variance is to
operate the business in a systematic manner. It is also stated that standard costing structure is
effective to comprehend each of the manufacturing costs named as manufacturing overhead,
direct materials, and direct labor (Renz, 2016).
Product Costing
The product costing method is practiced to assign the cost for manufactured goods and services.
The primary purpose of costing tool is to determine different factors named as costing procedure,
direct costing, and job costing (Kaplan and Atkinson, 2015). In the organization, there are
certain tools that apply in the different decision atmosphere to determine the product cost. It is

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illustrated that the product could be determined as the cost which is incurred at the time of
product development. The product costing is determined by the organization by consisting many
factors named as direct materials, direct labor, factory overhead, and consumable production
supplies (Maas, et al., 2016). These factors could be the main part of the firm as it enables to
get a favourable result. It is stated that the product cost could be entailed the cost of labor
that is required for delivering the services to the consumers. It is stated that product cost
could entail all the cost that is associated with the services named as payroll taxes,
compensation, and workforce advantages. The cost of good could also be affected by the
overall outcome of the study. It is illustrated that the product cost could be noted as an
inventory asset if a good has not yet been sold. It could affect the overall productivity of the
organization (Bobryshev, et al., 2015).
Normal and standard costing
The normal costing is the tool that facilitates to the firm to use this costing at the time of cost
derivation. It could use to maintain the expectation of manufacturing overhead rate. Apart from
this, the standard costing is effective to identify total costs that have been used in the business
procedure. This is normally related to the cost of manufacturing organizations. The cost could be
related to direct cost materials, manufacturing overhead, and direct labor. It is illustrated that the
actual cost can be lesser as compared to the standard cost as it means the variance is favourable
(Maas, K., Schaltegger and Crutzen, 2016).
Activity-based costing
ABC (Activity-based costing) is an accounting tool which determines as well as assigns the
amount to overhead act and afterward assigns such costs for the particular products and services.
Activity-based costing tool is a structure that determines the relations among many factors