Application of Management Accounting in Business Context Report

This report delves into the core principles and practical applications of management accounting within a business context, using Nisa retail as a case study. It begins with an introduction to management accounting, emphasizing its role in managerial decision-making, and explores different management accounting systems such as cost accounting, job costing, inventory management, and price optimization systems. The report then examines various management accounting reports, including budget reports, accounts receivable aging reports, job cost reports, performance reports, and inventory and manufacturing reports, highlighting their significance in organizational performance evaluation and control. Furthermore, it critically evaluates the integration of management accounting and reporting systems. The report also analyzes different management accounting techniques, specifically marginal costing and absorption costing, providing detailed calculations and comparisons. The conclusion emphasizes the importance of management accounting for effective business decision-making and provides references to support the analysis.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
ACTIVITY 1....................................................................................................................................3
Management accounting system and different types of management accounting system...........3
Different methods of management accounting reports................................................................4
Critical evaluation of integrating management accounting system and reporting in an
organization..................................................................................................................................5
Activity-2.........................................................................................................................................6
Different types of management accounting techniques...............................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting is the financial process of providing relevant information to the
manager of the organization which helps in decision making. It mainly utilized by the internal
management team and is not disclosed to outsiders. The core objective of this is to take better
and accurate decision. In this report, Nisa retail is taken is an organization which is retail grocery
store in UK. This report presents about introduction to management accounting and the different
types of management accounting system. It also includes different types of reports prepared by
the organization.
ACTIVITY 1
Management accounting system and different types of management accounting system
Management accounting is defined as the process through which all the accounting
information is being analysed in order to take the decision for the betterment of the company
(Alaeddin and Thabet, 2018). Them management accounting is very important for the success of
the company as this help the company in analysing the need to take relevant decisions in order to
make the working of company effective and efficient. There are many different types of
management accounting system which can be used by Nisa which are as follows-
Cost accounting system- this is a system which is used by the company in order to
manage the allocation of the cost to all the activities involved in the manufacturing of product
and services. This is mainly used in order to calculate the cost levied and the profit earned
against the cost incurred. The major requirement of cost accounting system are like calculating
cost like direct cost, indirect cost, overheads and many others. Thus, it is very necessary for Nisa
to manage the cost because if the cost will be high then this will not be profitable for company,
and they may face loss.
Job costing system- this is another major system of management accounting and this
system is related with the process of accumulation of all the information relating to different jobs
involved in whole manufacturing process. This management system involves separately
calculating the cost for each and every task which is undertaken to complete the activities of the
whole process of manufacturing. The major requirement of job costing system are like labour
cost, overhead cost, cost of material and many other different types of cost.
Inventory management system- this is another system which is undertaken by Nisa is the
inventory management system. This is an important system because of the fact that the inventory

is very important because without inventory the manufacturing process cannot be undertaken in
successful manner (Ratnatunga, Balachandran and Tse, 2017). Thus, for Nisa it is very necessary
for the company that they manage the inventory in effective manner so that the production and
manufacturing goes smoothly. The major requirements of the inventory management system is to
collect and analyse the data in effective manner so that the availability of the inventory is
assessed and it is very necessary for the company to manage the inventory on time.
Price optimization system- this is another model which works in accordance with some
mathematical programs in order to calculate the fact that how the demand of the goods and
services varies at different price levels within the economy. This help Nisa in identifying the
sales at different prices levels of the prevailing within the economy. Thus, this will help Nisa in
assessing the level of profit which the company can earn at different level of prices within the
working of the economy (Shields and Shelleman, 2016). The major requirement of price
optimization systme is the market forces that is the demand of the goods and the supply of goods
and the related prices prevailing within the economy.
Different methods of management accounting reports
There are different types of management accounting reports prepared by the
organizations as per the requirement. Some most important reports are stated below.
Budget report
This report is very essential in measuring the performance of the organization and is
useful for both small and large organizations. The budget is prepared based on the previous
year's data and performance. But it caters to the need of considering the unforeseen events or
circumstances that might arise (Singhvi and BODHANWALA, 2018). This budget helps
businesses in analysing the performance department wise and cost controls. For example, in the
previous year, the business was gone little over budget and the organization was unable to find
ways to trim the cost and in the next year, the budget will be increased to a certain required level.
This budget can be used to provide incentives to the employees for meeting the specific goals.
Accounts receivable aging report
This tool is effective for managing the cash flow if the huge credit is provided to the
customers or the business depends upon providing heavy credit. This such case, it is important to
prepare account receivable aging report. It provides a complete breakdown of the each customers
remaining balance which helps in identifying the defaulters and also any issue persisting in the

collection system (Butterfield, 2016). This report, presents for how long debt is owed and most
of the time a separate column for invoices is made such as 30/60/90 days late and more. Based
on this report, Nisa can transform its credit policies in order to maintain required level of cash for
the business operation. It also helps in identifying the bad debts which are required to be written
off and also creates provision for the same.
Job cost report
This report shows the complete detail about the cost incurred in the specific project. This
report is matched with the revenue estimated which can help in proper evaluation of the job
profitability (Bromwich and Scapens, 2016). This report helps businesses in determining the high
earning areas so that essential steps can be taken to make additional efforts instead of wasting
time and money on low earning areas. This report will help Nisa in analysing the expenses even
when the project is in progress so that timely action can be taken in order to exercise control
cost.
Performance report
This report is prepared to review the organization's performance in terms of each and
every employee and the organization as a whole. In large organizations, reports are also prepared
departmental wise which assists manager in making strategic decision with respect to achieving
the organizational objectives (Weetman, 2019). Based on this, employees are also rewarded
based on their performance and their commitment towards work. It provides a deep analysis into
the working of the organization. This report will help Nisa in identifying the flaws in the setup.
The core importance of this report is to measure its strategy towards the organization's objective.
Inventory and manufacturing report
This report is very valuable to the manufacturing concerns as it makes the process more
efficient. This report includes the item such as inventory waste, labour cost and overhead
expenses. Also, a comparison can be drawn between various assembly lines which helps in
highlighting the areas of improvement and also provides bonuses to the best departments. This
report will help Nisa in optimum utilization of resources.
Critical evaluation of integrating management accounting system and reporting in an
organization
The integration of management accounting and reporting in an organization results into
integrated system. This will help organization in efficiently analysing the performance of the

business which will help in proper decision making and the managerial reports provides direction
to the managers in order to make effective strategy. These reports can provide assistance in terms
of managing, directing and controlling the business strategy.
Activity-2
Different types of management accounting techniques
There are different types of techniques used in management accounting in cost analysis.
The two widely used techniques are stated below.
Marginal costing
It refers to the costing method in which total cost changes with the change in the quantity
produced by one unit (Cost Accounting - Marginal Costing. 2020). In short, it refers to the cost
of producing one additional unit. This method is used to identify the impact of variable cost on
the total units of production. The break even analysis is the most important part of it. In this, cost
is classified in fixed and variable.
Marginal costing
Product
X
Product
Y
sales (180*4600) 828000 (150*3200) 480000
opening inventory 0 0 0 0
variable cost of production
Direct material (30*5000) 150000 (24*3500) 84000
Direct labour (36*5000) 180000 (24*3500) 84000
Variable production overheads (24*5000) 120000 (16*3500) 56000
Variable selling and
distribution cost (2*5000) 10000 (2*3500) 7000
less: Closing stock (92*400) 36800 (66*300) 19800
Contribution 331200 229200
Fixed cost:
Fixed production overheads (210000/8500*5000)
123529.41
1764706
86470.588
2352941
Administrative costs 31764.705 22235.294

8823529 1176471
Selling and distribution cost
Net Profit
175905.88
2352941
120494.11
7647059
Absorption costing
In this, cost related to the production of the product is accumulated and apportioned to the
products separately (Absorption costing. 2019). In this cost of finished product will include cost
of material, labour and manufacturing overhead expenses. This method is essential for external
financial reporting.
Absorption costing
Product
X
Product
Y
sales (180*4600) 828000 (150*3200) 525000
Less: cost of production
Direct material (30*5000) 150000 (24*3500) 84000
Direct labour (36*5000) 180000 (24*3500) 84000
Variable production overheads (24*5000) 120000 (16*3500) 56000
Fixed production overheads (210000/8500*5000)
123529.41
1764706
86470.588
2352941
closing inventory
45882.352
9411765
19941.176
4705882
Gross Profit
208588.23
5294118
194588.23
5294118
Less: cost of production
Variable selling overheads (2*4600) 9200 (2*3200) 6400
Fixed administrative
overheads (54000/8500)*5000
31764.705
8823529 (54000/8500)*3500
22235.294
1176471
Net Profit
167623.52
9411765
165952.94
1176471

Absorption costing method is better than marginal costing because it takes into
consideration both fixed and variable cost in the cost of production of the product. Also, it
includes fixed cost in the valuation of closing inventory which is justifiable.

CONCLUSION
It can be concluded from the above that management accounting is very essential in
managing the business. The different type of management accounting system that can be used by
the organization based on the needs and the industry and the key benefits associated with it.
Also, the various reports that can be prepared for further evaluating the performance of the
business. This, management accounting is important for business in taking effective business
decisions.

REFERENCES
Books and journals
Alaeddin, O. and Thabet, A., 2018. Management Accounting System and Credit Risk
Management Policies and Practices towards Organizational Performance in Palestinian
Commercial Banks.
Bromwich, M. and Scapens, R. W., 2016. Management accounting research: 25 years
on. Management Accounting Research. 31. pp.1-9.
Butterfield, E., 2016. Managerial Decision-making and Management Accounting Information.
Ratnatunga, J., Balachandran, K. and Tse, M., 2017. Development of management accounting in
Sri Lanka. In The Routledge Handbook of Accounting in Asia (pp. 125-135). Routledge.
Shields, J. and Shelleman, J.M., 2016. Management accounting systems in micro-SMEs. Journal
of Applied Management and Entrepreneurship. 21(1). p.19.
Singhvi, N. M. and BODHANWALA, J. R., 2018. Management Accounting: Text and Cases.
PHI Learning Pvt. Ltd..
Weetman, P., 2019. Financial and management accounting. Pearson UK.
Online
Absorption costing. 2019. [Online]. Available
Through:<https://www.accountingtools.com/articles/2017/5/4/absorption-costing>.
Cost Accounting - Marginal Costing. 2020. [Online]. Available
Through:<https://www.tutorialspoint.com/accounting_basics/cost_accounting_marginal
_costing.htm>.
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