Management Accounting Concepts and Techniques: A Detailed Analysis

This report provides a comprehensive overview of management accounting concepts and techniques, focusing on their application within Connect Catering Services. It begins by defining management accounting and outlining its essential requirements in various systems, including planning, risk assessment, and performance management. The report then explores different methods used for management accounting reporting, such as budgeting reports, aging reports, performance reports, and cost managerial accounting reports. A significant portion of the report is dedicated to cost analysis, specifically comparing and contrasting marginal and absorption costing techniques, including the preparation of income statements using these methods. Furthermore, the report examines the advantages and disadvantages of different planning tools used for budgetary control and analyzes how organizations adapt their management accounting systems to address financial problems. The report concludes by summarizing the key findings and emphasizing the importance of management accounting in supporting effective decision-making within organizations.

Management Accounting
Concepts and Techniques
for Decision Makers

Table of Contents
Introduction......................................................................................................................................3
Task1................................................................................................................................................3
P1 Management accounting it's essential requirements of different types of management
accounting systems......................................................................................................................3
P2 Explain different methods used for management accounting reporting................................5
Task2................................................................................................................................................7
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs. .........................................................................7
Task3..............................................................................................................................................11
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control......................................................................................................................11
P5 Compare how organizations are adapting management accounting systems to respond to
financial problems.....................................................................................................................13
Conclusion.....................................................................................................................................14
REFERENCES..............................................................................................................................15

Introduction
Management accounting can be defined as a application that includes measuring,
analysing, understanding and most importantly communicating and presenting to their managers
in order to accomplish organisation goals (Alsharari and et. al. , 2015.). It provides support to
the manager to make timely as well as inform decisions within the Organization. They utilize
information that is associated with cost along with sales generated in exchange of the goods and
services offer by the company to their customers. This ultimately helps them to make both short
term as well as long term decisions.
Connect catering services is the company that has been operating their business from last
thirty years in United Kingdom (U.K). They are family oriented and provide the best quality
foods as well as services. They do this by their highly talented and motivated workforce with the
aim of providing to ensure maximizing their customers satisfaction. This project is undertaken
to assist their Senior management for providing them a better understanding Management
accounting. This will be done by addressing their concerns relating to understanding as well as
application of different technique, usefulness of planning tool and also comparing how the
accounting will solve financial problems.
Task1
P1 Management accounting it's essential requirements of different types of management
accounting systems.
As Management accounting comprises of two words ''Management'' and ''Accounting''.In
simple terms it studies management aspect of accounting (Binns , 2018). It basically deals with
analysis,interpretation and presentation of accounting by referring to management and cost
accounting. The ultimate aim of management accounting is to plan,implement policies aid in
decision making process of handling day to day operations.

Management accounting takes into accounts diverse areas of company's financial
outcome and fulfils different requirements which mainly includes revenues, sales, operating
expenses and cost controls. Below are the high-level areas which company mostly employees to
improve financial metrics of the company.
Planning, Forecasting and Budgeting:
Managerial accounting mainly involves predicting and planning in order to project the
direction relates to company's finances in the coming years to come. This planning requires a
high-level thinking in the form of preparation. This is done by altering different accounting
information in various functional budgets (Butler and Ghosh ., 2015. ).
Risk assessment:
Another crucial benefit of management accounting it easily identifies and assesses risk
factors within the organization and can be controlled and minimized through effective
management (Collier, 2015)
Performance management:
This is another important benefit of performance using managerial accounting can aid the
management to make effective decision in real time. This help them to maintain cost and remain
competitive in the long run (Dekker , 2016.).
Influence: Communication is one of the most important aspect in management accounting as it
improves the decision-making process. The accurate and integrated communication encourages
diverse thoughts which helps in generating new ideas which will aid the company in getting
closer to their desired objectives. Through effective discussion of the business requirement, it is
way easier to implement and get the most required information. It can be inferred that
recommendation are vital for managers as it allows them to gain authority.
It is also vital for the Company to go through different roles and principles of Management
accounting in order to be apply it appropriately: Some of the main roles can be explained below:
Relevance: Information is valuable for all it is just that each one of them need to segregate the
required information from the all the available resources. Management accounting check
accurately both the information that is important as well as people and method being employed
for making such decision. It is primary and most important for any company to look for the well-
being of all their shareholders to take the most relevant and valuable information for making the
appropriate decision and the same is important for doing the required arrangement for evaluation.

Value: Management accounting links to its core model through which it derives value to its
customer. In simple terms, it can be referred as grabbing the available opportunity as well as
concentrating on risk, expenses and most importantly generating value from best available
opportunities. It also requires an in-depth knowledge of the micro economic environment. This
implies gathering information from all the direction where valuable information is can be
accessed, assessing all the available opportunities and carefully focusing on all the risks,
expenses and most importantly the value generated from the possible opportunity. This help to
analyse the situations in taking more informed decisions. This is ultimately helpful in analysing
the result of selecting the most appropriate, maximizes their profitability by discarding the waste
that is increasing the cost of the company.
Creditability: It is very much important for improving the decision making process to a large
extent (Gibassier and Schaltegger , 2015.). It is important to undergo a careful investigation that
helps in taking reliable decisions. Thereby, support the Company to fulfil their objectives. It is
important for management accounting experts to look towards the interest of all its stakeholder
and on a timely basis by taking regular feedbacks and addressing their overall issues at the
earliest. That in turn will be fruitful for the organization to improve their productivity on a
regular basis. This will further aid them in creating a positive impact in improving by being more
creditable and also aids the company enhance the value of their brand in comparison to their
competitors in the industry.
P2 Explain different methods used for management accounting reporting
There are diverse forms of management accounting reports that assist the management in
preparation of the management reports which enables them to make crucial business decisions.
(Jiambalvo , 2019.) It helps all the stakeholders of the company to assess reliability and get fair
as well as accurate financial information. The various reports are discussed as under:
Budgeting reports: The primary role of the budgetary reports is that it enables the company to
compare it’s current financial performance with that of planned or budgeted performance. A
budget is primarily made on the basis of historical performance of the company (Lavia López
and Hiebl , 2015) .But, a useful budget is one which is highly reliable that considers the
emergency or unforeseen conditions that may arise in the near future. The budget mainly
includes all their sources of earning and expenditures with the ultimate aim of getting closer to

their goal along with staying within their respective budgeted amount. This reports helps the
employees to earn incentives that inspires them to accomplish the company's goal.
Account receivable aging report: The purpose of the report is to manage the account receivable
of the company and it's importance is highly dependent on the nature of activities it is involved
in. It would be easier for the manager to identify the defaulters of the company. The outstanding
balance is divided into specific periods and is helpful in identifying the problems that exists in
the collection process of the company (Kaplana and Atkinson, 2015.). If a particular situation
arises when there are many defaulter than company has to take strict action to reduce their credit
policy as cash flow is one of the primary concern for them. It aids the company to carefully the
net cash flow generated. Then, depending on their liquidity can plan to increase or decrease
their credit policy.
Performance reports: The main purpose for which this report is created is to monitor the
performance of all their talented workforce at each and every stage(McLaren and et. al., 2016.).
This report can be prepared on monthly as well as quarterly basis. These reports are generated to
review the performance management of company along with the individual performance of the
employees. In context of large organization even department performance reports are generated.
It helps the companies to provide systematic review of their total expenditure of particular period
and it also helps the managers to take significant decisions about the future action of the
company.
Cost managerial accounting report: This report is mainly responsible to compute the cost of all
the goods that are manufactured. This mainly includes cost of raw material, labour or any other
related cost to determine the profitability of the company. This reports, ultimately helps to
determines their profit margins and in turn takes appropriate measures for the same. This is
mostly beneficial for small businesses to analyze each job individually and determine whether it
is feasible to take similar projects in the future.
Inventory management: This report aids the company to produce as well as maintain their
inventory in order to improve the efficiency of their processes. This mainly comprises of items
such as wasted inventory, hourly labour cost and most importantly per unit overhead costs. It is
then beneficial for the firm to compare the different lines of their business and accordingly take
steps to reward high performing department and also focus on the areas that requires
improvement.

Other Managerial reports: All the other managerial reports that aren't characterized under
specific reports comes under this report (March.Reichert and et. al., 2015.). This mainly include
order information report,project reports,and many other report that are important for almost
every business. The best results varies as per capabilities on the task force to foresee
requirement of the organizations. The individuals who are involved in professional services are
comparatively more capable to do the task as they have more skills or experience to do the
similar task. Henceforth, this report is a must for managers to get accurate,creditable as well as
original management accounting report.
Task2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs.
It is important to use appropriate technique and it' usefulness depends upon the nature of
company. There are various technique that can be used . As, it is specifically mentioned to apply
marginal as well as absorption costing. For it's better understanding we will understand it detail
both the techniques below:
Marginal Costing: This costing considers all the cost that are incurred at the initial level when
individual units are being produced(Schneider and et. al., 2015.). They have variety of
characteristics that they constitute. Some of these include classifying the cost into fixed as well
as variable cost. Also while calculating variable cost is taken into account. Adding to this, the
prices are computed as per marginal contribution and profitability is determined as per the
margin contribution generating in the particular financial year.
Absorption Costing: It is also called by another name as managerial accounting method and
computes all the costs that are related such as direct material, direct labour, rent are accounting
generally on the basis of financial year. This costing is mandatory and needed by generally
accepted accounting principles ( GAAP).
Some of the major difference in the two type of costings can include in the way different
cost are allocated. This can include fixed cost is distributed across the period in absorption
costing. While marginal costing treats as lump sum and assigns all these fixed cost altogether.
1 Preparation of income statements:
Cost per unit under absorption costing-

Activity April May
Variable Manufacturing cost per unit 4 4
Fixed Manufacturing Overhead per
unit
6 5
10 9
Income statement under absorption costing
Particulars April may
Sales 16000 16000
Less: Cost of sales 20000 23000
Fixed Manufacturing
Overhead 15000 15000
Variable Manufacturing cost 10000 12000
Closing stock 5000 9000
Opening stock 0 5000
Gross loss -4000 -7000
Less: Fixed Non-
Manufacturing Cost -4000 -4000
Net loss -8000 -11000
Cost per unit under absorption costing-
Activity April May
Variable Manufacturing cost per unit 4 4
Particulars April may
Sales 16000 16000
Less: Marginal cost of sales 8000 10000
Variable Manufacturing cost 10000 12000
Closing stock 2000 4000
Opening stock 0 2000
Contribution 8000 6000
Less: Fixed Manufacturing
Overhead 15000 15000

Less: Fixed Non-
Manufacturing Cost 4000 4000
Net loss -11000 -13000
Reconciliation statement:
Particulars April may
Net loss under absorption
costing -8000 -11000
Less: Closing stock -3000 -2000
Net loss under marginal
costing -11000 -13000
2 a
1. Identify which costs are fixed and which costs are variable.
Fixed costs:
Activity Amount
Manager’s Salary 5000
Rent 5000
Insurance 500
Utilities 500
Advertising cost 1000
£12000
Variable cost:
Activity Amount
Direct material costs per Pizza 3.50
Direct labour costs per Pizza 1.50
Direct overhead costs per Pizza 0.50
£5.50
Break Even Point (BEP)
2. Show the Break-even point using a Break-even graph.
BEP (In units): Fixed cost/contribution per unit
Contribution per unit: Selling Price-Variable cost per unit
= 9.50-5.50

= 4.00
BEP: 12000/4
= 3000 Units
BEP (In revenues): Fixed cost/PV ratio
PV ratio: Contribution/selling price*100
= 4/9.50*100
= 42.10%
BEP (In revenues) = 12000/42.10%
= £ 28503
3. What would be the Margin of Safety if the organization managed to sell 2500 Pizzas?
Margin of safety= Sales units- BEP in Units
= 2500-3000
= -500 Units
4. If the manager’s salary is increased to £6,000, how will this affect the BEP in units and in
sales value?
If manager’s salary will increase than it will affect to fixed cost and revised fixed cost will be of
£13000.
New BEP (In units): 13000/4
3250 Units
New BEP (In revenues): 13000/42.10%
= £30878

2 b Preparation of graph:
Activity Amount
Total Costs (12000+55000) 67000
Revenues per Unit (95000-67000)/10000 2.8 Per unit
Total Fixed Cost 12000
BEP point 28503
Variance analysis report:
Actual units sold= 12000
Budgeted units sold= 10000
Budgeted price per unit= 9.50
Sales volume variance= (Actual units sold - Budgeted units sold) x Budgeted price per unit
= (12000-10000) *9.50
= 2000*9.50
= 19000 Favourable
Flexible budget
Items Actual Budgeted Variance
Sales price 10 9.50 .50 Favourable
Sales units 12000 10000 2000 Favourable
Revenues 120000 95000 25000 Favourable
Fixed cost 15000 12000 3000 Adverse
Variable cost 5 5.50 .50 Favourable
It can be interpreting the company has incurred loss in comparison to previous years and need to
implement the necessary measures to improve its performance.
Task3
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control
A Budget in simpler terms is prediction of revenue and expenses over a fixed period in
the near future and it is stated in a comprehensive statement on a period to period basis (Theriou,
2015). It is also re-evaluated to confirm that we are taking into consideration almost everything
that is essential. Along with this, also see to it that be regularly implementing new changes

according to latest developments. It is made for variety of purposes, and it is generally made by
“Connecting Catering Services” mainly for performance measurement and improve their
productivity.
Main advantages of different type of planning tools are stated as follows: Identifies their Stand:Budget's first and fore mostly aids the entity to shift their focus
from short term to long term objectives. Budget for this company i.e. 'CONNECTING
CATERING SERVICES UK’ will help them know identify their competitive as well as
their solvency position. This further aids them to do improvement mainly by forecasting
the cash flow statement by different methods including historical average of last 3 to 5
years , latest year or others methods. Flexibility: The other advantage it has they follow a flexible structure. This will further
aid them to analyse their productivity in measurable terms in order to take significant
business decisions. These decisions consist of shutting down a line of business that is
suffering continues losses or add create new offering either by product or market
development (Williams and et. al., 2015). Planning: The budgets are based on well-structured plan. This will provide a fixed
amount each department is required to spend. This further aid them to make the best use
of amount each one of them are required to spend in order to maximize the return of
organization as a whole. Communication: The budget is considering the information collected regarding the
quantity of supplies required and accordingly discuss with all the different department
heads. This builds a two ways communication that provides a clear direction and in turn
improve the efficiency of the company.
 Control: Budget is thoughtfully planned in advance. This helps to compare actual
performance by each of the department with that of their standard performance (Yaakob
and Gegov., 2016). This is dual advantage for the company. One is that they will be able
to reward the ones that has able to accomplish their task and another is that they will be
able to identify as their weak point and take necessary control measure to improve the
performance of the company.
Some of the main disadvantages of Budgetary Control can be stated below:

 Risk of inaccurate estimates: The budget is prepared on the based-on estimates and is
mainly done by ways of predicting and forecasting the happening of the future. The
effectiveness of this budgetary programme is highly dependent on the accuracy of the
estimation made with respect to amount allocated to each of the department. Changes of Situations: Budget are prepared properly based on existing conditions. It is
must to revise the estimates due to the changes occurred in the industry or their economy.
If these changes are done on constant basis, then it may be difficult for each and every
one to implement as well as follow appropriate. This may even create a feeling of
frustration and may even lesser the involvement of their talented workforce. Thereby,
negatively impacting the performance of the company.
 Conflict among Different Department: Budget set the standard the cost they can utilize
and should able to realize their target. This may make different department heads to be
selfish to get maximum funds and may set their own targets. This may further result in
raising conflicts among different department. It will further weaken the co-ordination and
may even results be reducing the productivity of the entire company.
Some of the various planning tools that help in establishing budgetary control practices can be
described below:
Marginal cost pricing, this can be implemented by the company, if they are able to
become successful in accomplishing their actual cost and price volume. Competitive pricing will
enable them to set their price by closing observing their competitors including Green Fortune and
the Crown Partnership. Activity based costing can be applied where the company can witness
their growth by being able to adopt latest technology. Standard costing, can be utilized by
obtaining historical data that enables to measure their actual performance with that of their set
standards.
P5 Compare how organizations are adapting management accounting systems to respond to
financial problems.
In today's changing times there are many types of different organizations are constantly
adopting with the different management accounting technique's as well as with their competitive
environment (Nielsen and et. al., 2015,). This is done my them in order to solve their financial
problems. It primarily helps the companies to improve their standards by improving their
operational efficiencies. By implementation of proper management accounting practices

companies can get ahead in competition through more stringent and sound control. Management
accounting is a tool that helps to set standard by focusing on the financial gains. This aids the
companies to identify the financial gains they receive from their different activities and
accordingly aid the financial managers to focus on the areas that requires improvement and in
turn enhances their operating efficiencies. Adding to this, capabilities of different functions
including finance varies due to way the companies utilize management accounting practices.
This is mainly dependent on the nature, objectives and maximizing their respective return on
investment by maximizing their profitability. For example, an organization that is generating a
very higher cash inflow will undergo a details research and development where they expect to
utilize their valuable investment that will aids them to maximize their profitability. On the other
hand, any firm is generating a very low cash flow then they also undertake an in-depth research
for evaluating and selecting a source of the fund that is most reliable as well as results in
increasing their cash inflow. Along with this, Balance score card approach is one of most
effective and commonly used technique to evaluate, improve as well as sustain financial
performance. This acts as a support for financial managers to view and show their growth in
respects of different parameters. Some of the main indicator that external and stakeholder's look
at can include profit margin, growth in revenue, market shares and return on equity (Doorasamy
and Garbharran,2015). These financial indicators are broadly characterized into four ratios that
consist of profitability, solvency, turnover and liquidity (Elmassri and et. al., 2016). This will aid
them to constantly monitor and improve their performance thus, enhancing their brand in turn
becoming trustworthy and meeting their credit requirements by ways of witnessing increase in
their credit limit. It will be beneficial for them to enhance their productivity that is a must for the
long-term growth of their organization. Along with this, this technique will further to fruitful for
them to overcome the short-term financial issues that is presently faced by them and improve
their operating efficiency. Thereby, it will be useful for 'Connecting catering services' to generate
and present sustainable and accurate financial information and be able to become leader in their
industry.
It is important for the managers to develop the strategies in order to be able to make a
valuable contribution while adopting sustainable practices in order to be successful to fulfilling
the objectives of the company. This is to have a thorough analysis of the different tools and
techniques that is most appropriate for them to improve their decision-making process. These

techniques will be beneficial for the financial managers to produce reports by carefully
understanding the pricing and budgeting decisions accordingly develop reliable and powerful
strategies. This report will aid in creating sustainability reports that combines both financial and
non-financial information.
Accounting Tools
Capital Budgeting
It is known as a budgeting of the company's capital, either initial capital or working
capital. It is critical to examine capital budgeting because it aids the company in forecasting
future expenses and identifying areas where savings can be made. It is possible that if it is not
done, it will result in significant expenses and a reduction in savings. As a result, using this tool
in an organisation is critical.
KPI
The term “key performance indicators” refers to the process of observing and interpreting
a company’s performance in order to improve future cost analysis. It assists the company in
determining what they need to focus on and what they can let go of. It is necessary to examine
such indicators in order to properly manage costs.
Comparison
Connect catering services Ginger jar food
Problem: The company is experiencing working
capital shortages as a result of a lack of proper
capital budgeting methods and skills to use such
tools.
Solution: Capital budgeting is a method for a
company to solve its financial problems related
to working capital shortages.
Problem: Mispricing is a problem that the
company is having due to a lack of proper
KPI formulation and the ability to use such
tools.
Solution: KPIs are a way for a company to
figure out what's causing their financial
problems, such as mispricing.
Problem: The company is experiencing good
sales but low profit because they lack proper
balanced scorecard knowledge and skills to
apply such tools.
Solution: A balanced scorecard is a tool that can
Problem: The company is experiencing
payment delays as a result of a lack of proper
capital budgeting planning and the ability to
use such tools.
Solution: Capital budgeting is a method by

help a company solve its financial problems
while also increasing profits.
which a company can determine the source of
their financial difficulties, such as payment
delays.
Conclusion
It can be concluded from the above-mentioned report, it is important for the company to
utilize management accounting in order to improve its financial performance through appropriate
techniques. They need to also utilize various planning tool explained above and adopt them to
improve their performance.

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