Management Accounting Report: Techniques for Financial Problem Solving

This report provides a comprehensive overview of management accounting, encompassing various techniques and tools essential for financial analysis and decision-making. It begins with an introduction to management accounting, highlighting its role in analyzing financial activities and supporting managerial decisions. The report then delves into the calculation of production costs and the preparation of income statements using both marginal and absorption costing techniques, including detailed calculations for opening and closing inventory using the FIFO method. Furthermore, it explores the advantages and disadvantages of different planning tools used in budgetary control, such as fixed, flexible, incremental, and zero-based budgets, along with pricing strategies and variance analysis. The report also evaluates the adoption of management accounting systems to address financial problems, discussing tools like ratio analysis, key performance indicators (KPIs), benchmarking, and the balanced scorecard. Overall, the report aims to provide a thorough understanding of how management accounting principles can be applied to improve financial performance and achieve sustainable success.

TOPIC:
Management
Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
P3 Calculation of cost of production and preparation of income statement using marginal and
absorption costing techniques.....................................................................................................1
P4 Advantages and disadvantages of various planning tools of the budgetary control..............4
P5 Evaluating adoption of management accounting system to respond to financial problems. .6
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting is a branch of the management in which the managerial
accountant analyses all the financial activities of the business organisation. further, in the process
of management accounting, the managerial accountant summarised each detail related to the
financial activities of the company and transfers to the managers as to help them in taking their
decision regarding financial activities of the business. The present study shows disadvantages
and advantages of different types of tools of planning that are used for budgetary control
arrangement and their application in preparation and forecasting various budgets of the company.
Further, the study also shows an explanation about various management accounting techniques
that can be used by the managers in order to enable the company in responding to various
financial problems and helping the whole company in achieving a sustainable success as well.
MAIN BODY
P3 Calculation of production cost and income statement with the help of absorption and marginal
costing techniques
calculation of opening and closing inventory using fifo method
particular
Opening stock
(a)
Produ
ction
(b)
Sales
(c)
Closing
stock
(a + b- c)
Year 1 0 40000 36000 4000

Year 2: Closing stock calculation
particular
Opening
stock
(a)
Productio
n
(b)
Sales
(c)
Closing stock
(a + b- c)
Year 2 4000 48000 4000
36000 12000

Year 3: Closing stock calculation
particular
Opening
stock
(a)
Productio
n
(b)
Sales
(c)
Closing
stock
(a + b- c)
Year 3 12000 51000 12000
48000 3000

Interpretation
Both marginal and absorption costing techniques helps the managers in the
preparation of the financial income statements of the company. Both techniques provide
different results in terms of profit. The major reason behind the difference between the
profit from both the techniques are the difference in the calculation of cost of production.
The marginal costing considers variable production costs as a part of cost of production.
Fixed cost sustained by the business are being measured as a period cost in the marginal
costing techniques.
Further, when calculating cost of production cost in the absorption costing
technique, the cost sustained by the business when producing services or services are taken
into account.

P4 Advantages and disadvantages of various planning tools of the budgetary control
Budgetary control is a system of used in the management accounting in which the
managers forecasts each activities of the business on the basis of its last performance and the
objectives of the company (Appelbaum and et.al., 2017). The budgetary control helps the
business in setting short term goals through which it can achieve its long term objectives easily.
In this system various budgets like operating budget, cash budget, etc, are being prepared by the
business by forecasting various activities of the company.
Budgets are a part of financial statements that contains the details about the forecasting of
managers about regarding various business activities. These reports helps the business in setting
their short term goals of enhancement of efficiency of the business. The managers prepares these
reports after analysing the past performance of the business and evaluation of the set goals and
achievements of the business. These reports are being prepared as to provide the success criterias
to the business so that its performance could be improved by them.
Planning tools of budgetary control
For the purpose of forecasting each activity of the business, the managerial accountant
prepares various budgets that can be termed as the planning tools for the budgetary control. As
these budgets can help the managers in performing their managerial functions effectively. With
the help of analysing these tools, the managers analyses the actual and predicted performance of
the company. In this regard, these leads in providing help to the company as to enhance the
performance of the company 12 (Dyson, 2010).
some of the major planning tools can be summarised as under:
 Fixed budget: Fixed budget refers to that kind of budget that does not change with the
change in the amount of sale or volume of production of the company. This budget
remains same over the year therefore, they are not needed to be prepared on frequent
basis.
As the fixed budget does not change periodically, this budget is used by the managers ad a base
of the business objectives and goals.
Advantages Disadvantage
These budgets need not to be made frequently. This makes the operations of the company

quite rigid.
Preparation of this budget does not need any
professional skills of the managers.
This budget fails when the company expands
its business.
 Flexible budget: Flexible budgets are those that remains changeable with the change in
amount of sale or production or any other activity of the business (Nitzl and Chin, 2017).
further, due this nature of the budget, these are needed to be prepared periodically.
As this budget takes into account all the changes of the business, theses are helpful for the
managers in determination of the actual performance of the business.
Advantages Disadvantage
It segregates the use of financial resources of
the business.
This budget is needed to be prepared on
frequent basis.
With the help of this budget, cost inured in
each operations of the business can be easily
determined.
For the purpose of preparing this budget, the
managers are needed to gather a huge range of
information of the company.
 Incremental budget: The incremental budget can be defined as a report that contains the
prediction of the extra resources needed by the business as to expand its business
operations.
This planning tool helps the managers in detecting the need of extra resources by the company in
case it wants to expand its business operations. In this regard, this system also helps the
managers in easily expansion of the business.
Advantages Disadvantage
It is a stabler budget that changes in some
gradual situations only.
Managers assumes that al;l the activities of the
business will be performed in the same way
while preparing this budget (Nguyen and et.al.,
2017).
It helps the business in maintaining
coordination among various activities of the
This budget doers not provide any incentives
for the development idea of the company.

business.
 Zero based budget: Zero based budgets are those that are prepared by the managers by
analysing each activity of the business from the starting point.
With the help of this budget, the managers can monitor each of their activities of the business in
a detailed manner.
Advantages Disadvantage
This budget helps the company in reducing the
errors from the budgets.
This budget requires a detailed attention of the
managers.
This budget helps the business in becoming
more strategic.
As mangers needs to analyse each activity from
its starting point, preparation of this budget is
quite complex process.
 Pricing strategy: Pricing strategy is the planning tool through which managers can set
the most appropriate price for the product or services rendered to customers. It enables
company in generating appropriate amount of profit from business operations.
Advantages Disadvantage
This planning tool enables company in setting
such a price that can be fit as per customer's
preceptive.
It needs a deep analysis of customer's
preceptive over different range of profits.
It enhances the customer attraction towards
company's product and services.
It restricts company to generate a fixed sum of
profit from sales.
 Variance analysis: Variance analysis is that process of management accounting in which
they analyse and compares the actual performance of the business with the planned
performance.
This analysis helps the managers in detecting the inefficiencies of the company and developing
the strategies and plans for the business accordingly (Nitzl and Chin, 2017). In this regard, it can

also be analysed as a planning tool of budgetary control, as it enables the managers in
developing better plans for the business as to eliminate all the inefficiencies and enhance its
performance as well.
P5 Evaluating adoption of management accounting system to answer to financial problems
Management accounting
Management accounting is a process through which the managers enables to analyse
various financial operations of the business, detects problems in each operation and develops
effective business strategies as to resolve the problems and helping the company in achieving
sustainable success as well.
Management accounting majorly involves 4 phases i.e. financial control, gathering
information for effective management planning and control, developing policies for reducing
wastage of financial resources and creating values through which business could develop
effectiveness in using various financial resources (Atrill and McLaney, 2009).
There different tools by using which managers detect the problems in the business like:
 Ratio analysis: Ratio analysis is a that past of financial analysis that provides a quick
examination of financial performance of organisation. With the help of various ratio
analysis, the company can analyse various key functioning areas of the business in terms
of current ratio, profitability ratio, Market value ratio, etc. further, there are standard
ratios for each of the above ratio. In case any of the ratio is being evaluated and observed
over or under the standard, it indicates the problem in the business.
It becomes easy to compare one company's financial position with other companies, if the
comparison has been made on the basis of ratio analysis.
In this regard, the managers can easily detect the areas in which the financial problems may
occur in the business.
 Key performance indicators: The key performance indicators are the measures that
provides the information about effectiveness in various performances of the business
(Warren, Moffitt and Byrnes, 2015). There different indicators with the help of which
the managers can analyse performance of various business activities like, gross profit
margin, net profit, Current ratio, etc.

It can help management in measuring the values that could demonstrate effectiveness of
company in achieving its set objectives and goals. Adoption of KPI enables business in regaining
success and achieving targets as well.
By analysing these indicators, the managers can key performances of the business like,
profitability, liquidity, etc. In this regard, they easily become able to detect the all the major
issues and problems of the business.
 Benchmarking: In the benchmarking, the managers analyse various business activities
and selects the major areas that have key influence over the financial problems of firm
like, purchase, sales, profit, production, etc. Adoption of this system leads in reducing
the stress level of the managers (Benchmarking, 2018.). The managers analyse and
monitors the selected business areas only. As these areas have major influence over the
company's performance, effective monitoring of these businesses can help the managers
in easily detection of the financial problems of business.
It also enhances the ability of a company in developing effective comparison among teams and
groups of business organisation.
 Balance score card: The balance score card helps the managers in developing a
different preceptive towards the business operation. In this technique of management
accounting, the managers interrelates all the business operations and develops a view
towards various business operations.
With the help of this system, management can have effective control over internal functioning of
business and their impact over external functions of it as well.
Managers monitors all the activities of the company and when it detects any of the inefficiency,
by interrelating it with other business operations, they easily detect the problems that can be
arisen through that specific inefficiencies of the business.
Management accounting system
The management accounting system is a set procedure performed by the managerial
accountant as to provide relevant information to managing person in order to help them in
performing their managerial performance like decision making, strategic development, etc. for
the purpose of managing financial activities of the business.
In the management accounting system, there are some techniques that can be used by the
managers for the purpose of analysing various financial problems and developing their

appropriate solutions as well (Ofosu, 2018). Some of the major management accounting systems
for the purpose of analysing and solving various financial problems can be understand as under:
 Cost control system: This system of the management accounting is being adopted by the
Sainsbury plc. Adoption of this system helps the managers in involving better cost
control over the overall business operations.
In this system, the mangers prepares cost budget which provides information about costs to be
insured by the business in the near future. in this regard, the managers can maintain sufficient
funds in the business. It leads in responding to the major financial problem i.e. insufficient of
financial resource, incapability of paying debts, etc.
 Inventory management system: The inventory management system enhances the ability
of the company as to monitor the flow of inventory. The Mercedes-Benz being a
manufacturing company, adopts this system in its business operations. with the help of
this system , company maintains various records that provides detailed information about
the flow of inventory within the business. This enables the managers in detecting the
wastage of the inventory.
Further, Mercedes-Benz also enables to detect the minimum requirement of the
inventories through which they maintain the sufficient volume of the inventories. In this regard,
the business can easily respond to the financial problem that can be generated through
insufficiency of inventories or wastage of inventories like, being able to meeting the demand of
customers, enhancement of need of funds in the company, etc.
 Price optimisation system: Amazon adopts this method for the purpose of determining
the price of its products sales by it to its customers. This system helps the company in
enhancing its profitability of the business. While adopting this system, the managers
analyse the response of customers over the various price level of the product. They sets
the best price of each product which the customers can easily pay for the product and that
can provide the sufficient amount of profit to the company as well.
After balancing both the factors i.e. customers satisfaction and profit motive of the company,
the company sets the most appropriate price of the product (Maelah and Yadzid, 2018). In this
order, this system management accounting aid managing person in responding to the financial
problem of losing profit due to customers dissatisfaction due to inappropriate price of the
products.

In this regard, from the above management accounting techniques and tools of the
management accounting system, it can be analysed that adoption of these techniques and tools
can help a business in having better analysis of various financial activities and enhancing the
effectiveness of the managers in detecting various financial problems.
In addition, through the analysis of management accounting tools, it can be evaluated that
various companies are adopting these management accounting tools these have become unable to
respond to various financial problems and enhancing the profitability of the firm as well.
Management accounting for providing success to the company by responding to the
financial problems
When with the help of various management accounting tools, managers effectively detect
the future financial problems, the managers also develops the strategies and plans as to make the
company unable to face those problems. In this regard, when those problems arises in the future,
the company effectively manages those problems easily without affecting any business
operations.
In this order, it results in smoothly working of the overall business activities that leads in
enhancement of efficiency of the business and help it in attaining the success as well.
CONCLUSION
From the analysis of the above study it can be concluded that the management accounting
is an important part of the business. it helps the business in enhancing the efficiency of the
managers in managing the financial activities of the business. there are various planning tools of
the budgetary control system, with the help of which managers enables to forecast the future of
the business and maintaining sufficiency of the financial resources in the firm as well. further,
the study has also concluded that there are numerous techniques and tools of the management
accounting system, through which the managers can easily forecast the future financial problems
of the business and determining their effective and most appropriate solutions as well as to
provide sustainable success to the company.

REFERENCES
Books and Journals
Appelbaum, D. and et.al., 2017. Impact of business analytics and enterprise systems on
managerial accounting. International Journal of Accounting Information Systems. 25.
pp.29-44.
Maelah, R. and Yadzid, N.H.N., 2018. Budgetary control, corporate culture and performance of
small and medium enterprises (SMEs) in Malaysia. International Journal of
Globalisation and Small Business. 10(1). pp.77-99.
Nguyen, T. T. and et.al., 2017. Effect of transformational-leadership style and management
control system on managerial performance. Journal of Business Research. 70. pp.202-
213.
Nitzl, C. and Chin, W .W., 2017. The case of partial least squares (PLS) path modeling in
managerial accounting research. Journal of Management Control. 28(2). pp.137-156.
Nitzl, C. and Chin, W. W., 2017. The case of partial least squares (PLS) path modeling in
managerial accounting research. Journal of Management Control. 28(2). pp.137-156.
Ofosu, E., 2018. Budgetary Control in Local Government Administration: a study at Kwahu
East District Assembly(Doctoral dissertation).
Warren Jr, J. D., Moffitt, K.C. and Byrnes, P., 2015. How Big Data will change
accounting. Accounting Horizons. 29(2). pp.397-407.
Dyson, J. R. (2010). Accounting for Non-Accounting Students. 8th edition. Harlow: Pearson
Education Ltd.
Atrill, P. and McLaney, E. (2009) Management Accounting for Decision Makers. 6th edition.
Harlow: Pearson Education Limited.
Online
Benchmarking .2018. [Online] Available Through:
<https://www.shopify.in/encyclopedia/benchmarking>