Management Accounting: Principles, Systems, Role - Unit 5 NSAB530B5

This report delves into the principles of management accounting, emphasizing its role in internal decision-making and enhancing organizational strength. It covers key aspects such as inventory management systems, cost accounting, job costing, and price optimization techniques. The report further discusses the integration of management accounting within an organization, highlighting its benefits in planning, target setting, and price fixing. Marginal costing is presented as a superior method compared to absorption costing due to its comprehensive scope. The document concludes by underscoring the advantages of management accounting in streamlining tasks, avoiding duplication, and ensuring timely and effective work completion.

UNIT 5 MANAGEMENT ACCOUNTING

Principles of management accounting
• Management accounting is the branch of accounting which is used for
making internal decisions by the top management so that organisation can
become internally strong and perform well.
• It is helpful to managers to take viable decisions so that organisation may
be benefited in the best possible way.
• Various reports are being provided by it which helps management to
initiate control over various business costs and as such, aids in making
viable decisions.

Cont.
• Management accounting information is not provided various
stakeholders' of the company as it is restricted only to
management.
• It is used for analysing business conditions and then
accordingly take decisions for the betterment of the firm.

Role of management accounting and management accounting
systems
• The role of management accounting is to provide
reports to management
• To take effective and better decisions.
Inventory management system-
• Inventory is an integral part of the company engaged
in the manufacturing sector so that production may be
carried out with much ease.

Cont.
• As such, managing inventory is important to be done by
management so that it does not result into unnecessary
spoilage of the scarce resources.
• In the same way, overstocking also leads to wastage of stock
quite badly.

Cont.
• Thus, in order to solve this issue, inventory management
system is prepared and given to management.
• Afterwards, managers who takes responsibility to ensure
optimum utilisation of inventory makes sure that only required
amount of inventory is purchased.
• This helps to reduce overall wastage of resources and
production is carried out effectively.

Cont.
• 2. Cost accounting-
• Cost accounting is another useful part of company as
it analyses various costs such as direct, indirect,
variable, fixed and other expenses necessary to carry
out production with much ease.

Cont.
• It analyses such costs and as such, records
them so that overall control can be ensured
quite effectively.
• In simple words, it allocates expenditures in
that way so that overall profitability is
maximised and costs are reduced.

Cont.
• Thus, management takes such decisions by allocating
expenses in effective way so that it may not exceed
profits of the firm.
• As such, cost accounting helps to take better and
effective decisions by the management so that
company may flourish and manufacture products with
much ease.

Cont.
• 3. Job costing-
• Various jobs are performed to carry out the production of
commodities in effective way.
• As such, costs of each of the jobs are required to be
maintained so that costs may not exceed revenue of the
manufacturing firm.
• To resolve this issue, job costing is being used.
• It records expenditures incurred on each of the jobs so that
management may be able to keep track on each of them.

Cont.
• It aids to management that which factors are
producing more output and on which company
should reduce expenditures so that only
efficient jobs can be performed and production
may be achieved with much ease.
• Generally, manufacturing costs are allocated to
batches of products quite effectively to track
them.

Cont.
• 4. Price optimisation-
• Price optimisation technique is another useful tool for
management to take viable decisions with much ease.
• It is a mathematical analysis which is used to assess
how change in prices of items and services will
impact customers' behaviour.
• As such, this information is quite useful for
management to analyse and determine how
customers' respond to the change in the prices of
commodities of the firm.

Use of techniques and methods used in
management accounting
• Marginal costing is the better option over the absorption
costing as it takes into total cost so that net profit or loss may
be extracted.
• However, absorption costing in which all manufacturing costs
are only taken and is absorbed.
• This means that marginal costing has much wider scope then
absorption costing as it takes into account, all costs associated
with the production purpose.
• It can be said that company should choose marginal costing as
it has enough clarity as compared to absorption costing.

Management accounting is integrated within an
organisation
• Management accounting is helpful as it provides
much effective information to management to take
internal decisions for overall enhancement of firm's
performance with much ease.
• It is helpful as it helps to plan for future by using
forecasting technique and budgeting as well.

Cont.
• It is beneficial for
management as it
provides essential
information to
management regarding
fixing of target, price
fixing of products and
many more.

Benefits of the function to the organisation.
• It helps to do all tasks in sequential manner
• It is helpful as duplication of work is avioded.
• Work is accomplished effectually and in
timely manner.

REFERENCES
Otley, D., 2016. The contingency theory of management accounting and
control: 1980–2014. Management accounting research. 31. pp.45-62.
P. Tucker, B. and D. Lowe, A., 2014. Practitioners are from Mars; academics
are from Venus? An investigation of the research-practice gap in
management accounting.Accounting, Auditing & Accountability
Journal. 27(3). pp.394-425.
Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2014. Lean
manufacturing and firm performance: The incremental contribution of lean
management accounting practices.Journal of Operations
Management. 32(7-8). pp.414-428
Renz, D. O. and Herman, R. D. eds., 2016. The Jossey-Bass handbook of
nonprofit leadership and management. John Wiley & Sons.

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