Management Accounting Report: Techniques, Analysis, and Application

This report provides a critical evaluation of management accounting integration and reporting, focusing on Eastern Engineering Co. Ltd. It explores the benefits of management accounting systems, their practical applications within the business, and the underlying principles. The report covers various techniques, including financial planning, ratio analysis, standard costing, and budgetary control, with an emphasis on marginal and absorption costing methods. It further calculates income statements under both costing methods for January and February, explaining the differences. The report also addresses how management accounting systems can help overcome financial issues, and discusses the advantages and disadvantages of planning tools, such as forward-looking nature, adaptability and the ability to maintain working capital.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Critical evaluation integration of management accounting reporting................................3
Benefits of management accounting systems......................................................................4
Application of management accounting within the business.............................................5
Principles of management accounting...................................................................................6
Different techniques and methods of management accounting reporting.......................6
Task 2...............................................................................................................................................9
Task 3.............................................................................................................................................11
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................1

INTRODUCTION
Management accounting basically uses the financial statement for preparing the
report on the basis of which they managers can easily take decision. If a company
wants to make a plan and analyse the business performance than they have to adopt
this technique also. So, in this context, this report will critically evaluate the integration
of management accounting system and reporting in the Eastern Engineering Co. ltd.
The report further will evaluate the benefits of management accounting systems and
their application in the Eastern Engineering company. The report will also include the
principles of management accounting and the importance of integration of management
accounting within the business. The report will also cover the different techniques and
method of management accounting by using it the company can make decision in less
time. The report will further calculate the income statement under the absorption costing
and marginal costing for the month of January and February. The report will also state
the reason behind the difference between the absorption costing and marginal costing.
The report also defines how the application of management accounting systems help
them in overcoming the financial issues.
MAIN BODY
Critical evaluation integration of management accounting reporting
Management accounting helps the company in maintaining coordination among
the departments by integrating the task among each other. For example, in order to
prepare the budgets each department need to coordinate with each other so that actual
data can be collected. Eastern engineering company by using the management
accounting tools and techniques such as job costing, batch costing, process costing etc.
ascertain the cost between the process, batch and job. This will further help the
company in identifying the unit and department which causes loss to the business. With
the use of activity-based costing the managers of Eastern engineering company can
allocate the cost on the basis of the activity occur to produce products. With the help of
this the unprofitable and low performance activity are easily get identified as well as the
company can also remove it. By integrating the management accounting, managers can
help the company in planning the finances with the help of which they work for the

growth of the business. By capital budgeting company can find out best sources of
funds such as equity, debt etc. as well as with the help of investment appraisal such as
NPV, IRR etc. the company can investment the funds in high return proposals (Pelz,
2019).
By using the budgetary control method, marginal costing method and standard
costing method of the management accounting the company can analyse the variance
between the actual cost and planned cost. After that the company can also adopt best
strategy which help them in removing the gaps if any arises in the actual and planned
budgets. The another step the company can do while integration of management
accounting systems is using technologies which removes the error of human and
increase the time of the processing of work. With the help of cash flow and fund flow
analysis the Eastern Engineering company can identify the sources from where the
cash is coming and where is going from the business. Not only that MA implementation
helps the company in creating cash budgets with the help of which they can maintain
minimum opening and closing cash balance. However, such integration may also bring
conflicts among the departments if the company unable to communicate properly with
them. So, it is important for the company that before implementing MA they must
minimize the communication gap if any and keep motivated their staffs (Pedroso and
Gomes, 2020).
Benefits of management accounting systems
Management Accounting systems helps the companies in such ways which indicate
that if company really wants to increase their performance and productivity than they
must go with MA system and implement MAS in the building. The benefits it provided to
the company involve:
 By using the forecasting technique, the company can analyse and visualise the
past, present and future trends and identify the answers related to important
questions such as whether company should invest in equipment’s or not? etc.
 Management Accounting systems also helps the company in making the decision
regarding whether to buy same products from the supplier and sell it in the
market or to make all the products in the organization only.

 It also helps the company in analysing the rate of return offer by the investment
proposals by using investment appraisal technique. With this the company can
analyse all the probability and expected returns and select the project with higher
NPV.
 It helps in overall decision-making process of the company and identifying the
main area led to business problems by using the variance analysis tool (Solovida
and Latan, 2017).
 The management accounting structure is flexible and their company can shape
MAS as per the requirements of the company. So, for Eastern Engineering
company the MA in the business so that they can produce high quality products
and services.
Application of management accounting within the business
Application of management accounting is useful for every situation from tracking
the productivity of the product and services to understanding the sales trend. By
applying the management accounting practices the Eastern Engineering Co. ltd. can
track their software construction and management services, colour printing services etc.
The application of management also helps the company in managing the performance
of the employees by collecting and evaluating data about the employees. With this the
company can identify the which services are more profitable to the company and which
of their product is causing loses to the business which need to be discontinue by the
company. As it always uses the data provided by the financial statement than it can be
say that it covers actual data and trends and with the help of which the business will
improve. With the application of management accounting systems, the work of the
company will decrease because it might remove human work which generally take more
time. It also helps in removing the human error which is obvious. But as this require lots
of research which might be wrong if the data is not as per the standard which need to
be consider by the company before its application. It also increases the cost of the
company which also need to consider by the Eastern company and need to make
arrangement of funds for the same (OTLEY, 2019).

Principles of management accounting
With the help of effective management accounting principles company can easily
improve their overall decision-making process. It helps the Eastern Engineering Co ltd.
in taking the long-term decisions and also help in analysing their financial statement.
The principles include:
 Influence: Sound communication is one of the principles of MA which helps the
company in identifying the critical information regarding the business process
and it encourages integrated thought process.
 Relevance: It is significant for the company that they must prepare budgets and
reports on the basis of relevant information and resources. And thus, MA
provides best and materialistic information to company for making decisions. It
includes past, present, future dependent, internal, external, financial and non-
financial information.
 Value: MA help the company in linking the business process to its core business
model with the help of which they can adopt new opportunities, concentrate on
risk factors and minimize their expenses. For this the company can involve
situational analysis to review organization decision (Yoder and et.al., 2017).
 Credibility: This provides the responsibility and scrutiny of looking out the whole
task to the authorized personnel. Management accounting experts with their
knowledge and commitments help the company in decision-making and growing
business to the next level.
Different techniques and methods of management accounting reporting
The management accounting reporting provide variety of techniques with the help of
which a company can make decision in short span of time. This includes:
 Financial Planning: This is a technique which help in deciding the financial
activities of the company in advance. The company can determine their both
short-term and long-term objectives as well as they can also form the financial
policies. This is also helpful for developing the financial procedure of the
company.

 Analysis of financial statement: Management accounting is also useful for
analysing the financial information by using the ratio analysis tools. Ratio
analysis helps the company in determining and analysing the financial and
operational performance. This is also used for forecasting which is generally
made by the company for determining future ability and earnings (Rachmawati
and et.al., 2019).
 Standard costing: This technique of management accounting is used by the
company in order to know the difference between the actual and expected
expenses. Every company prepare budgets in which they can estimate the
expected income and expenses along with profits. And if the company actually
incur the expenses and earn the income then with the help of variance analysis,
they can identify the gaps if any. In case, if the analysis is favourable than
company have to further improve it and in case of unfavourable gap than
company have to adopt strategy with the help of which the gaps get easily
minimized.
 Budgetary control: The company can use budgetary control tool for planning
and controlling the various activities of the company. Budget is always crucial for
the business because it works as a base for the next year actual. In order to
move the business in a desired direction the company have to use this
technique. It also helps the company in achieving the satisfied return on the
investment (Ammar, 2017).
 Marginal costing: This is a technique of management accounting in which the
company can use break-even analysis tool and identify the margin of safety level
of the business production. Break-even analysis is helpful for identification of no
profit no loss sales unit of the business because here the contribution of the
business is equal to the fixed cost that the company incur. In order to reach at
margin of safety level the company need to do two thing first is they need to
reduce expenses and second, they have to increase their sales.
 Fund flow statement: It is a technique used for the purpose of identifying the
changes between the financial position of the company between two dates. It
basically tells the business about the sources from where the funds are

generating and actually where it is used by the company in order to generate
higher returns. For financial analysis and control it is very helpful for the company
(Kasasbeh, 2018).
 Cash flow statement: Along with the fund flow statement the cash flow
statement is also helpful for the business in identifying the cash inflow and cash
outflow. It is helpful for controlling and maintain the minimum cash balance in the
business. Cash flow statement show different position of the company as
compared as compared to the financial statement. It is because non-cash items
are not included in the cash flow statement. Cash inflow and outflow from
operating activity, financing activity and investing activity help the business is
making fast decision regarding sources of the cash generation and also cash
disbursement (Bisogno and Vaia, 2017).
The Benefits and Drawbacks of Planning tools
Advantages include:
1.) The planning tools used in general are forward-looking and progressive in nature,
focusing on future planning.
2.) Accounting reports are prepared for internal use by managers and do not need to
adhere to specific guidelines.
3.) Financial planning aids in determining the appropriate rate of return on projects
as well as the maintenance of working capital and cash flow balance (Hiebl and
Richter, 2018).
4.) The tools are adaptable, allowing managers to create reports when needed,
rather than only periodically or annually.
5.) The costing methods employed are effective in calculating overall costs from the
start of the process and providing a summary of all expenditures incurred in the
production of the product, which aids in the determination of sale prices.

6.) Budgetary management techniques aid in the allocation of funds in a systematic
manner, as well as estimations based on the previous year's budget.
7.) Marginal costing aids in revenue contribution.
Disadvantages:
1.) Since the tools are based on cost accounting and financial accounting, data
quality is limited.
2.) Top management could be skewed in their reporting in order to exert greater
control over the company's operations.
3.) A company's ability to compare its accounts to those of other companies is
limited by the versatility of not adhering to specific accounting standards (Odia,
2019).
4.) Since it focuses on long-term planning, errors in financial allocation can occur,
resulting in a loss because estimates are not always accurate.
5.) Other considerations other than costing, such as market competition, must be
addressed when deciding the sale price, which is beyond the reach of management
accounting.
Task 2
a) Income statement of absorption costing
Particulars Jan Feb
Sales 1323000(9800*135) 1568000(11200*140)
-COGS
Variable costs 441000(45*9800) 504000(45*11200)
Fixed costs 343000(350000/10000*9800
)
331130(340000/11500*9800
)
784000 835130
Add:
Opening stock 0 0

Less:
Closing stock 0 0
784000 835130
Net Income 539000 732870
b)Income statement using marginal costing
Particulars Jan Feb
Sales (135*9800)1323000 (140*11200)1568000
-Expenses
Variable costs (45*9800)441000 (45*11200)504000
Gross profit 882000 1064000
Less:
Fixed costs 350000 340000
Net Income 532000 724000
Absorption costing has registered profit more than marginal costing as it distributes the
overhead costs of fixed component as per unit and does not show it as a one line
expense as in marginal costing. Marginal costing takes the fixed overhead costs as a
one line expense.
c) Trading a/c
Particulars Amount Particulars Amount
To opening stock nil By sales a/c 1323000
To purchase a/c (10000*80)800000 Less: Return
inward a/c
Less: Return
outward a/c
To Direct expenses (45*10000)450000 By profit/loss a/c 350000

To profit and loss
a/c
350000
Trading account is statement prepared by business firm. The gross profit is reflected by
the business activities during the specific period. Speaking in other words, trading
account gives details of the total sales, purchases and direct expenses which have
occurred within given time period.
Task 3
Budgetary Planning
Budgetary management is the process of allocating money for operations based on
projections of previous years' capital allocation in different parts of the company.
Budgeting based on previous financials which suit the scheme, but it can also go wrong
due to changes in the organization's structure and market factors (Nuta and Nuta,
2018).
Budgetary monitoring begins with the planning of future budgets, and after that, the
management accountant, after meeting their objectives as expected, prepares a report
to determine the major output deviations. The preparation of a budget allows for the
minimization of significant variations in output and the matching of real performance to
expected performance. Budgets assist in reaching goals with greater ease. Inside the
company, a potential monitoring system may be created to control differences and
eliminate unnecessary activities. Each employee in the company understands what is
expected of them and the benchmarks by which their success will be measured.
The following are some of the benefits of budgetary control:
a) Having a plan: It lays out the strategies for achieving the organization's goals. It aids
in determining what needs to be accomplished early on, as well as checking on costs
and calculating funding sources.

b) Coordination: It focuses on coordinating with other departments or divisions of a
company. The committee establishes departmental roles and obligations and
communicates with them.
c) Variance analysis: It can be used to determine which departments adhered to budget
limits and which departments violated them. This makes it easier to determine which
departments have done well and which departments need additional attention.
d)Measures results: By offering comparative methods, it aids in the measurement of the
performance of different departments. It identifies the factors that cause the budget
standards to deviate.
e)Cost management: Planning and budgeting help control expenses that could
otherwise go unnoticed if not done with a budget in mind. Both departments have been
given orders to keep expenditures within the budgeted limits.
f)Benefit maximisation: It seeks to increase the value of an organization's capital while
reducing costs. The output of all divisions is monitored, and appropriate measures are
taken to improve efficiency.
Budgetary Control's Drawbacks
The following are the drawbacks:
Project inaccuracies: Budgets are framed for potential events that necessitate
estimates. It's also possible that the forecasts would be incorrect due to changing
market conditions. The criteria for different divisions may be higher than those set (Nuta
and Nuta, 2018).
Expensive process: Creating a budget is costly since each division must be taken into
account, as well as different categories that must be assessed. It costs a lot of money to
do analysis and forecasting.
It might be necessary to revise the budget from time to time, depending on the
organization's changing circumstances. As a result, it necessitates daily attention.

Time-consuming: Budgeting takes time, and minute information must be provided to
ensure accuracy and precision. The ongoing demand for various divisions must be
considered, as well as various product categories. As a result, it is a time-consuming
procedure.
The following are some examples of budgetary management tools:
Variance Analysis
This is the difference between the real costs spent in the division and the projected
costs assigned to it. This is divided into two categories: favourable and unfavourable
variations . Real costs that are lower or equivalent to estimated costs are considered
favourable, whereas actual costs that are greater than estimated costs are
considered unfavourable (Chugunov, Makohon and Markuts, 2019).
The following are some of the benefits of variance analysis:
a) It aids in cost management.
b) Finding the causes of variances is easy.
c) It can be used to assess a department's performance.
The following are some of the disadvantages of variance analysis:
a) Market price fluctuations may be a source of variance.
b) A mistake can be made when defining regular material prices.
c) Low-quality goods are purchased, resulting in higher-quality products later.
Responsibility accounting
Another strategy is the classification of centres into three categories. Cost Center,
Profit Center, and Investment Center are three different types of cost centres.
Employees are assigned to one of three groups. Their success is graded
qualitatively or quantitatively, and their promotions are determined accordingly.
Benefits in Responsibility accounting:

a) It aids in the identification of everyone's responsibilities and the delegation of
authority based on the outcomes.
b) Since it compares actual accomplishment, it aids budget placement in that
segment.
c) It simplifies the process by excluding objects that are not under the individual's
control.
Disadvantages of Responsibility Accounting: a) A sound organisational structure is
required for this, which may not be present in every organisation.
b) It can be difficult to calculate since it necessitates an examination of the traditional
method.
Adjustment of funds
This technique aids project managers in changing funds as required. Managers may
adjust funds from a prior project that has excess funds, for example, if an existing
project requires more funds. As a result, it aids in the most efficient use of funds
when possible (Chugunov, Makohon and Markuts, 2019).
Advantages include:
a) It aids in the most efficient use of funds.
b) It aids in the efficient use of capital by adjusting as required.
Disadvantages:
a) The estimates may be incorrect at times, as a project's surplus fund may be
needed by that project at a later time.
b) In order to prevent inconsistencies, entry adjustments must be made carefully
ahead of time.
Zero based budgeting

It notes that if projected revenues exceed estimated expenditures, the budget for the
following year can be zero. This method aids in maintaining leverage over the
amount of money expended during the year.
Benefits of a zero-based budget:
a) It is effective in resource distribution since it uses real numbers in the cash flow
statement rather than conventional numbers.
b) It is precise, since it examines each department's cash flow to create the budget
(Xiao, Wang and Liu,2020).
c) It calculates operating costs and thereby aids in cost reduction.
Drawbacks of zero-based budgeting include:
a) It takes time to interpret each line of cash flow.
b) Calculating each line item necessitates a high level of skill, necessitating
specialised preparation.
c) Compiling too many costs necessitates a large workforce.
The ways in which businesses are dealing with financial problems
Analysing the costs
EECL calculated the total production expense using costing methods. There are many
direct and indirect costs, such as raw material sourcing, manpower, and other
expenses. All of these costs are calculated per unit, and then a profit margin on goods
is established. As a result, costing assists the organisation in calculating expenses as
well as identifying ways to minimise variable costs and increase profit margin (Jansen,
2018).
Prime furniture offers a wide range of items, resulting in a number of variable
costs. Costing analysis aids in the calculation of costs and the implementation of cost-
cutting steps in order to realise a new method alternative.

Financial Preparation
With the aid of methods such as variance analysis, Prime Furniture has been able to
prepare financially for its sub divisions and has received assistance in budget allocation.
It aids in assessing the company's short and long term responsibilities. It has aided the
organisation in the development of financial strategies and procedures in order to meet
those goals.
In terms of optimising return on capital working, EECL has benefited from
financial planning. It has aided in the management of financial resources, as well as the
determination and allocation of earnings to shareholders in the form of dividends.
Analysis of the Financial Situation
In times of recession, Prime Furniture has been able to predict future profits, the ability
to pay interest on securities, and the firm's solvency. The organisation has been able to
assess its account receivables and adjust its credit policies accordingly. The study aids
the organisation in determining which ratios to improve in order to attract additional
investment (Jansen, 2018).
Financial ratios such as operation ratios have been used by EECL to assess its
working capital performance and, as a result, plan an increase in current assets. It has
alerted the company to potential credit risks and performed an earnings forecast in
order to disclose the dividend policy.
Analysis of cash flow and funds flow
In order to analyse the shifts in the financial situation between two terms, Prime
Furniture employs funds flow techniques. It has assisted the organisation in identifying
sources of funds and determining which funds can be increased by the use of fixed
assets. EECL works with a variety of vendors and creditors. The research has aided the
organisation in estimating cash flows in prospective ventures, demonstrating the
potential (Hiebl and Richter, 2018).

EECL works with a variety of vendors and creditors. The research has aided the
organisation in estimating cash flows in prospective ventures, demonstrating the
feasibility of the work done. As a result, the organisation has been able to channel cash
investments and save money.
CONCLUSION
The report concludes the principle of management accounting which required to
be followed by the company in order to cover the correct, relevant and valuable
information. The report also concludes the management accounting system integration
and application in the Eastern Engineering Co. ltd. The report also concludes the critical
evaluation of the management accounting tools and reporting integration and how it
helps the company in managing the performance of the business via use of ratio and
break-even analysis. The report also describes that if company really wants to expand
their business than they must adopt the investment appraisal technique of the
management accounting in the business. The report also concludes the income
statement under variable costing and states how the company can use this technique. It
also helps the company in maximizing the sales even at the time of shortage of an item
or also help in manage sales in every seasons. The company with the help of inventory
accounting can use seasonal sales trends to build promotion.

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