Management Accounting in Decision Making: A Case Study Report

This report delves into the core concepts and techniques of management accounting, using Creams Limited as a case study. It explores the differences between financial and managerial accounting, highlighting the importance of managerial accounting in decision-making, risk management, and achieving business goals. The report covers various managerial accounting systems such as job costing, price optimizing, cost accounting, and inventory management, along with their essential requirements and applications. It also examines different types of managerial reports, including budgeting, accounts receivable, inventory, performance, and job costing reports, explaining their significance and how they aid in effective management. Furthermore, the report contrasts marginal costing and absorption costing, providing income statements for illustration. The report emphasizes the integration of managerial accounting systems and reports for maintaining sustainability and achieving competitive advantages, particularly for companies like Creams Limited.

Management Accounting Concepts and Techniques in Decision Making
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INTRODUCTION
Management accounting (MA) can be use as tool of accounting process which is apply by
business organizations to effectively utilized their accounting information for managerial
process. In other words, it is a procedure in which data collected by accounting procedure has
been used to take essential decision in order to attain future goal of the businesses organization.
It is also use for risk management purpose (Barros and da Costa, 2019). In order to understands
the concept, Creams limited is selected for this report. It is located in United Kingdom and this is
a medium sized plc which offers creams, ice cream and other dessert products to the consumers.
In the project use of various managerial accounting system and their importance with reporting
tools has been critically described. It also considered the reason of how companies suffers from
financial problem and use of managerial accounting principles and tools to overcome theses
problem has been clearly briefly.
TASK 1
MA is systematic procedure of recognizing, assessing, collect, and representing book-keeping
data in an effective way to various stakeholders.
Financial Accounting: This is defined as a form of accounting which is linked to preparation of
financial statement at the end of financial year. (Badolato, Donelson and Ege, 2014).
Managerial Accounting Financial Accounting
Under it, both monetary and non-monetary
data are contained.
In this only financial data is included.
In it, managerial reports are produced as per
the need of company.
While in this accounting different kinds of
financial statements are prepared.
There is no need of auditing under this
accounting.
In this, auditing is done of all prepared
financial statements.
Business organizations use various methods for managerial accounting system which are
prescribed below:
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Job Costing System: Technique is implementing used for the purpose of identifying rate of
manufacturing each product of the company. It is a systematic process which starts with enquiry
received by manager for customer’s order and ending up by recording each element cost during
manufacturing process. This system used for tracking expense of each order received by business
organization.
Essential requirements- This is necessary for the above organization to measure costs separately
per growing operation. This is achieved by calculating spending rates in order to generate one
package of waffles and doughnuts in chocolate.
Price Optimising System: This system is implanted within business organizations in order to
determine prices of multiple products (Napitupulu, 2020). Manager use different pricing
strategies according to the life cycle stage of their organization, they decide price discounting,
and penetration when product is at its initial stage or decide high rice rate when it s at boom
stage. This system is used to analysis how demand affect price of the product.
Essential requirements- In Creams limited, the requirement for this accounting method is that
sales director decides waffles and chocolate doughnuts rates at a standard that is appropriate for
all groups, including consumers and business. This is achieved by carefully evaluating industry
dynamics and input from consumers.
Cost Accounting system: This system is formulated to understand the effect of cost on profits
and business performance of the organization. Manger uses various cost accounting techniques
to determine costs of manufacturing product and expense incurred during distribution process.
Job costing and process costing are part of it. It also considered standard costing which help in
analysis differences of standard and actually costing.
Essential requirements- It is needed to figure out cost of growing operation in Creams Limited.
The business's monetary department utilizes expense accounting framework to independently
classify costs of waffles and chocolate doughnuts in the products.
Inventory Management System: In this system various tools of stock valuation have been used.
With the help of LIFO, FFFO, average stock valuation method ma, maximum inventory level,
minimum stock level, EOQ, VED, ABC analysis techniques has been use through which
mangers can effective manger heir stock and control cost of maintaining stock within the
organization (Deepa, Palaniswamy and Kuppusamy, 2014).
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Essential requirement- In Creams limited this accounting method is needed for successful
management of retained inventory rates. Because they sell different forms of baked goods, and
with the aid of this accounting program, director is conscious of how many items are left unsold
at the end of each month.
Report is used by mangers as a statement of proof which describe detail summery of event.
Managerial accounting report is framework which are reared for take essential decision.
Following are the report prepared by business organizations:
Budgeting report: It is prepared for identifying performance of the business entity during the
process of evaluation of various departments’ performance. For preparation of budgetary report
past data has been utilized. This report also uses for analysing incentive amount given to
employers on the basis of their performance (Rosenthal, 2019). It included epees and income
amount of various quarters of the company. In the context of above Creams limited, their
accountants prepare this report which consists all kinds of information such as cost, income as
well as variation between actual and estimated outcomes. This detailed information is used by
finance division in order to take corrective steps for success of organization.
Account receivable report: It is formulated for improve credit policy of the company. These
type of report has been describing the number of default debtors and it also assist in identifying
causes of slow growth rate of the company. With the use of this report mangers formulate
effective policies through which debtor can pay their liability at given time period. Generally,
this report is mainly used in the institution where higher-based payment transfers are carried out.
Via it managers may decide their debtors' performance. The finance department in the
aforementioned organization Creams limited, in this report, uses vital information to recover
loans from debtors on time.
Inventory report: This report is use for determining stock level of the company. It contains
every details related to the stock. With the use of this report manages formulate effective
inventory control policies. This report describes detail regarding each stock level. It is most
useful report it also uses for effectively utilized business organizations scares respires. It is useful
for managing all the stock and risk of the company. The main purpose of this report is to
facilitate the division of manufacturing in taking the necessary steps on how many units are
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required. The above-mentioned Creams limited, in compliance with the details of this report,
manufactures various forms of food items. Data on all forms of commodities such as raw
resources, WIP and packaged items is included in this Report. This type of knowledge makes
administrators taking the correct steps.
Performance report: These types of report are prepared by business organizations in order to
identify performance of the work force within given time period. It is prepared on the basis of all
the reports prepared by manger (Situngkir and Napitupulu, 2019). It is summery of budget,
account receivables and cost report which is use for analysing performance. With the use of this
report mangers decided incentive to their employer which has performed outstanding. It will also
use for comparison of the performance of the company with their rivalries. This report is also a
tool for performance volition process and controlling proceed of management procedure of the
manger. In the context of above Creams limited, their human resource department utilize key
information about performance of each and every aspect.
Job costing report: This report has been formulated on the basis of information collected from
job costing system , on the basis of this al the essential decision has been taken regarding with
controlling the cost of fulfilling requirement of customer. This will useful in formulate strategies
ad proved base for run business in effective manner. Job costing system useful in formulate
budget .
Management accounting reports and system are different from each other even both are
consider as part of management accounting approach. However accounting system is use to
prove base for formulation of management accounting report as well as these provide essential
information which manager further use in order to preparing different types of accounting
reports.
MAS play vital part for Cream limited. Manager of this company use cost accounting
systems identify their cost and they use stock system through which they can analysis level of
their stock. Managerial account system uses to increase profitability and minimize cost of their
manufacturing process. It will also help in determining essential tools of business organization.
With the use of these accounting system mangers easily identify activities which are essential for
running business organization.
Essential requirement sf management accounting system
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Particular system Benefits
Cost accounting system This management accounting system are used
for identify cost incurred for run particular
business activities. Organization n the basis of
using technique of cost management system
which include, marginal, activity based
budgeting and standard costing can recognize
value of profit as well as this will useful it
attain objective of management accounting
which is decision making. They proved base to
organization structure.
Price optimization systematic Manage of Creams Limited use this system for
identify and formulate policies which is related
with select correct price through which
manager can able to provides satisfaction to
customers as well as attain profits. This is help
in attaining business profit which is related
with the dynamic nature of management
accounting.
Inventory management system By using various technique of inventory
management system Creams Limited able to
control their cost of manage inventory as well s
identify the value and range of maximum or
minimum level of stock required.
Job accounting system Implementation of job costing system is useful
for identify cost of each order which help in
find out business opportunities . Manager of
Cream Limited use this to recognize cost
required for find out value of each order.
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D1 integration of managerial office system and reports
Manager of Creams Limited apply managerial accounting system and report for
maintaining their sustainability level within the economy. Cream limited use various managerial
accounting tools through which they get essential information and prepared budgetary report.
This report is use as basis of decision taking. Manager takes decision regarding heir
predetermine goals and formulated effective strategies and policies to achieve competitive
business advantages (Chiang, 2014). The price optimization system is connected in the selling
team for example in the Creams limited to growth phase. The stock report is in relation to the
department of development. In above-mentioned business, for example, their administrators use
multiple reports for enforcement measures in the retail sector. In fact, other records are often
related to divisions of organizations such as the sales department of the above-mentioned
business making decisions on credit facilities to consumers in conjunction with receivable
accounts. The link among organization structure and accounting systems contributes to greater
performance of corporate organizations.
TASK 2
Marginal costing: It is most useful managerial cost calculation technique. In marginal costing
profit calculate on the basis of changing of profit from addition of each addition using it will help
in identify effect of additional unite changing profit ratio of the business organization. It helps in
decision making process and cost controlling process of the company.
Absorption costing: Under this technique cost calculate by using a systematical format. It is
useful for manufacturing business organizations (Lebedev, 2019). Main distinction between
absorption and marginal quotation are is that marginal costing does not consider fixed cost they
only show effect of additional unit and consider variable cost thus managerial costing also
known as variable costing on the other side absorption costing consider all the cost debit the
process of profit calculation.
Income Statement of Prime Furniture (Absorption costing)
Particular January February
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Sales 2500000 125000
Cost of sales:
Direct material 50000 50000
Direct labour 30000 30000
Variable production
overheads
20000 20000
Fixed manufacturing
overhead
40000 40000
Closing stock - 70000
Total 140000 140000
Gross profit 110000 55000
Less:
Variable selling overhead 30000 30000
Fixed overhead 30000 30000
Net Profit 50000 50000
Marginal Costing Statement
Particular January February
Sales 250000 125000
Marginal cost
Direct material 50000 50000
Direct labour 30000 30000
Closing stock - 50000
Marginal Production cost
Variable overhead 20000 20000
Variable selling overhead 30000 30000
130000 80000
Contribution 120000 45000
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Less: Fixed manufacturing
cost
40000 40000
Fixed selling overhead 30000 30000
Gross profit 50000 - 25000
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M2 a series of managerial secretarial technique and organization reporting
Various management accounting technique use to play important role in Cream Limited.
Cost accounting system marginal costing, absorption costing, job process costing inventory
management technique all are used for maintain day to day transaction of the business
organization (Jasmin and Schiff, 2014). Inventory techniques are help in maintaining stock level
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