Management Accounting Techniques: Application for Financial Analysis

This report delves into the realm of management accounting, exploring its significance within B. L. Limited and its role in effective decision-making. It elucidates various management accounting techniques, including inventory management, cost accounting, and price optimization systems, highlighting their advantages and disadvantages. The report further examines different managerial accounting reports, such as budget reports, accounts receivable aging reports, and cost accounting reports, emphasizing their utility in financial analysis and control. Furthermore, it includes the calculation of an income statement using absorption and marginal costing methods, comparing their implications for profit analysis. Additionally, the report discusses planning tools for budgetary control, evaluating their advantages and disadvantages. The conclusion underscores the importance of management accounting techniques in addressing financial challenges and supporting sound business practices.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
P1. Explaining management accounting and different management accounting techniques.....1
P.2. Explaining different method used for management accounting techniques........................2
M.1. Evaluating the benefit of management accounting techniques..........................................3
P.3. Calculation of income statement using management accounting techniques......................4
M.2. Accurately applying a range of management accounting techniques and financial report.
.....................................................................................................................................................6
P.4. Explaining the advantage and disadvantage of different types of planning tool.................6
M.3. Analysing the use of different planning tool and its application in preparing and
forecasting budgets.....................................................................................................................8
P.5. Comparing the ways management accounting system in responding to financial problem.
.....................................................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting is an integral process in any type of organisation which assist a
management in analysing, interpreting and presenting all the accounting information which will
assist them in making significant decision for company. The present report will assist in
understanding the different aspects of management accounting and its requirement in B. L.
limited. The report will highlight the importance of different management accounting system in
B. L. limited . It will also provide a deep insight of significance of managerial accounting report
in efficient decision making process of management. Further, report will also include calculation
of income statement using different management accounting techniques. Report will also discuss
various planning tool that are used for budgeting control. Furthermore, report will assist in
understanding the importance of management accounting techniques in responding to various
financial problem in organisation.
P1. Explaining management accounting and different management accounting techniques.
It can be termed as an essential tool for making efficient decisions and strategies which
used by internal management. The management accounting can be termed as a process of
gathering, analysing, interpreting and presenting the financial and non-financial information in a
manner which assist the management in order to take decisions for growth and development of
B. L. limited (Ward, 2012). It is effective for taking day to day decisions regarding various
departments and operations of organisation more efficiently. There are many types of
management accounting system that can assist in smooth operations of B. L. Holding Limited.
Some of them are:
Inventory management system: It is an effective system which assist a company to trace
and record the flow of inventory at each and every point in its supply chain. Inventory
management can be termed as supervising the flow of inventory in a company by covering each
aspects from manufacturing to retailers and to the final delivery to the ultimate customers
(inventory management , 2019). Inventory management system assist in tracking the record of
the available inventory and the need of inventory. There are various methods used in inventory
valuation such as FIFO and LIFO.
Cost accounting system: its is an essential accounting system for the manufacturing
company as it assist in tracking and recording al the activities of the manufacturing of the
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product. Cost accounting system assist in analysing the profitability of each product by analysing
their cost that ion incurred in the production of that cost. It is an effective system which assist the
manager in estimating the correct cost of the product and also help in ascertaining the
profitability on manufacturing the product.. Cost accounting system is essential for the company
in order to control the cost of the manufacturing process by determining the cost of the input that
is raw material and output like finished product. Cost accounting system are of two types, job
costing system and process costing system.
Price optimization system: It is a significant accounting system in order to provide a tool
to manager in order to control the price of the available resources in the organisation. price
optimization system assist manager in order to decide efficiently the price of various different
products a same time (DRURY, 2013). Price optimization system assist in analysing the change
in the demand or expected change in demand of a product with the fluctuation of prices in
market. It will assist the manager of B. L holding limited in order to determine the appropriate
pricing strategy that will help in achieving and maintaining a stable demand of product with the
cost that will cover all manufacturing cost of a product.
P.2. Explaining different method used for management accounting techniques.
This are the most essential report which assist the internal management in knowing the
financial and non-financial performance of the overall business operation. Managerial
accounting report will assist a manager in order to plan, regulate and decision making and
measuring performance. Managerial accounting reporting is crucial which represent all the
statistical data that are prepared at any time in financial year as per the requirement of the
management in order to formulate various strategies and policies. There are different type of
managerial accounting report that are essential for the management of B.L. Holding limited.
Some of them are:
Budget report: It is the fundamental report or very organisation which help in analysing
the actual performance level of the business operation and assist in measuring the performance of
overall organisation. Budget report are prepared continuously on different time period, the main
purpose of the report is to analyse the company's actual performance as per the estimated
budgeted performance (Parker, 2012). The budget report are prepared on the basis of the prior
year performance by ascertaining the expenses and income and on basis of that the report for
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current year budget will preprepared. This report will assist the management in order to evaluate
and determine the difference between expected and actual performance.
Accounts receivable ageing report: Many company provides the facilities of credit
purchase to its clients and distributors, the account receivable holds all the transaction of the
credit purchase which assist in analysing the current defaulter. This report assist a manager to
ascertaining the defaulter in order to take decision for cash collection process. This report is
essential in order to maintain proper cash flow in order top proper manage the day to day
operations in organisation.
Cost accounting report: This report can be termed as summarizing all the cost like raw
material, direct-indirect expenses cost that are incurred in the manufacturing process
(Wickramasinghe and Alawattage, 2012). This report are essential for the management in order
to control the expenses and taking decisions regarding proper utilization of available resources.
Cost accounting report is vital in providing the information of profitability of a product so that
manager can determine the selling cost of the product. This report is also beneficial to analyse
the unnecessary expenses in manufacturing operations and take decisions to eliminate
unnecessary expenses.
Balance sheet: It is the statement of the financial position of a company which shows the
financial performance of B.L. Limited in an accounting year. It shows the total liability and total
asset of a company (T Y P E S O F M A N A G E R I A L A C C O U N T I N G R E P O R T S ,
2 0 1 9 ). This report is prepared for the eternal users of the company like shareholder and
investors, but is is also vital for the internal management to evaluate the financial performance
and take various decision to enhance the growth in order to attain the goals and business
objectives.
M.1. Evaluating the benefit of management accounting techniques.
Management accounting system in beneficial for the B. L. holding limited, through it has
some advantage ass well as some disadvantage also:
Cost accounting system: this system can be applied in B.L. Holding limited as it will
assist in analysing the profitability by evaluating the production cost of a particular product.
Advantage of Cost accounting:
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 it is effective system in analysing the waste activity, reason for losses and finding
inefficiency in manufacturing process.
 Cost accounting assist in identifying and determining the cause loss in order to enhance
efficiency.
Disadvantage of cost accounting:
 Manufacturing expenses keeps on changing that results in increasing inaccuracy. Cost accounting system focuses on the past performance and does not consider the future
contingencies.
Inventory management system: through successfully implementing various inventory
management software, B. L Holding limited can effectively evaluate the company;'s supply
chain.
Advantage:
 It assist the management in providing the information regarding over-stock and under
stock which assist ion lowering the cost of extra manufacturing (Hilton and Platt, 2013).
 It assist in raising the efficiency of overall operating performance of organisation.
Disadvantage:
 The cost of implementing investment management software is required huge investment.
 It is complex system which would requires skilled employees.
 It also time consuming process.
P.3. Calculation of income statement using management accounting techniques.
There are two methods of management accounting techniques which can be used by B. L
Limited, these are:
Absorption costing method: This method is also known as full costing method, it is a
conventional techniques of ascertaining cost of the manufacturing. In this method, all the cost
including fixed and variable cost are taken into consideration. It is widely used cost accounting
method in order to the valuation of inventory (Otley and Emmanuel, 2013). It involves all the
cost including direct cost and indirect cost. It can be said that absorption costing assist in giving
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more accurate picture of the cost that is incurred in the production or manufacturing process.
Absorption costing method assist a manager to be ensured that all the cost incurred in
manufacturing operations are covered.
Marginal costing method: It is an accounting technique which includes variable cost of
unit and the fixed cos will be assume to be completely written of in proper against the
contribution cost per unit (Malina, 2018). This techniques is also known as variable costing
method as it consider only variable cost in ascertaining the total manufacturing cost of a product.
The marginal costing method considered that cost keep change as per the change in variable cost.
Interpretation: In the above table, there is representation of income statement with
context to both marginal and absorption costing. B.L. Holdings must refer to absorption costing
due to high net profit which has strengthened financial performance in books of accounts.
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Marginal costing Absorption costing
 There is consideration of variable cost
as fixed and product cost with
assumption as cost for specific
duration.
 Overheads nature is of fixed and
variable cost.
 The fixed and variable cost both are
considered in product cost.
 With context to absorption costing,
overheads is quite different such as
distribution, production along with
selling and distribution.
M.2. Accurately applying a range of management accounting techniques and financial report.
Management accounting techniques serves as an essential tool in order to determine the
actual manufacturing cost. It is important in order to determine the total profit or loss that are
incurred in the production process. By applying the accounting techniques of marginal and
absorption costing in order to ascertain the profit analysis of the company.
Financial report:
From the calculation of income statement by using both absorption and marginal costing
method, it can be interpret that the net profit of Conway Ltd as per the absorption costing is
80000 pound. It can be said from the calculation that net profit as per the marginal costing is
50000 pounds (Horton and de Araujo Wanderley, 2018). Thus, it can be said that by using
absorption costing method, the net profit profit will be high as it assist in gives a correct picture
of full valuation by considering both variable and fixed cost. With the above calculation, it can
be recommended to Conway Ltd. To apply the absorption costing method for the valuation of
inventory as it is more appropriate.
P.4. Explaining the advantage and disadvantage of different types of planning tool.
Budgetary control is an essential tool which assist the management in evaluating and
determining the reasons for the variances in the actual performance and the budgeted
performance of company. The budgetary control process will assist the management in taking
decisions in order to control the variances and excess expenses in order to enhances the business
operations. Planning tool for budgetary can be serves as a tool which assist a manager to control
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the performance as per the budgeted one. These planning tool has some advantage as well as
disadvantage, which are :
Financial budget: It can be termed as one of the most important tool that assist in
controlling all the income and expenditure source of a company with a particular period
(Rikhardsson and Yigitbasioglu, 2018). The cash budget and capital expenditure budget are the
essential part of company's financial budget which assist in control the cash receipt and expenses
and all the capital expenditure of a company.
Advantage:
 it assist the manager to control all the financial revenue an expenses of the business.
 It helps to show the financial performance of a company to the management.
 It serves an as essential report in order to prepare the final accounts of the company.
Disadvantage:
 Financial budget are prepared on the basis of estimation of future performance, it doesn't
consider the future contingencies which can affect the budget and performance. The financial can not be changed as it provides limited flexibility.
Operating budgets: These budgets are the estimation plan of the future business
operations which focuses on the income of the daily operations and sales of B. l . Limited.
Operational budget is essential in order to assist the manager in estimating the future financial
position of company and the profit earned with a time period. It assist the manager in making
effective decisions regarding enhancing the operational efficiency by reducing the cost of
operations.
Advantage:
 Operational budget helps a manager in allocating the sort-term funds related to day to day
activity.
 It assist the management in reserving the financial resources of the company (Murthy and
Rooney, 2018).
Disadvantage:
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 Operating budgets needs to be changed with the change in financial budget which is
complex process.
M.3. Analysing the use of different planning tool and its application in preparing and forecasting
budgets.
The use of planning tool and their application for preparing and forecasting budgets:
Cash budget as planning tool:
P.5. Comparing the ways management accounting system in responding to financial problem.
Management accounting system is an important tool for the company which assist in
enhancing its efficiency and profitability. It is an important system for the management which
assist in taking effective decisions in order to maintain the sustainable organisational success,
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there are various management system which assist B. L. limited in responding to its financial
problem that can leads sustainable success.
Financial governance: This techniques is the process of controlling, managing and
collecting all the financial data of the company (Hoozée and Mitchell, 2018). It assist the B. L.
Limited in tracking and recording the transaction accurately which assist the management timely
get the accurate data in order top make effective decisions to enhance financial performance of
company.
Balance scorecard: It is an performance measurement tool which is used as a strategic
management in order to identify and improve the various activities of organisation. It assist the
manager to evaluate and measure the performance level of the company. It is an data collection
process which assist in providing quantitative results in order to make effective decision which
enhances the productivity and increasing the financial performance which assist in responding
the financial problem.
On the hand, N. P. K Holding limited has adapted other method in order to respond to its
financial problem, which are:
Key performance indicator: it can be termed as the measurable value which highlights
the manager to the efficiency of the company in achieving is business objectives. KPI assist N. P.
K Holding limited to evaluate the performance of each department ion order to reach the target
set up the top-management (Booth, 2018). KPI provides a matrix which assist the company to
measure the and compare the financial performance of other company that assist in make
strategies to improve the financial performance in order to respond to the financial problem.
Management accounting system helps in gathering financial data through business
operations related to inventory, sales data and alterations in raw material. The items are
converted to analysis report by appropriate planning, decision making, direct operations and
controlling. In this aspect, this would lead to develop key performance indicators and
benchmarking. Information could be used for determining gaps in operations process to gain
competitive advantage with financial governance, internal control, rules and regulations,
compliance with supervisory and regulations.
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CONCLUSION
By summing up the above report, it can be concluded that management accounting plays
an essential role in order to smooth operation of the organisation. The different techniques and
system of management accounting plays significant role in contributing to the management ion
making more effective decisions for business operations. The present report has analysed the
importance of management accounting system in enhancing the efficiency of the business
operations. Further, it can be analysed that accurate managerial reports assist the managenment
in make timely and effectively the decisions fir business growth and success. The report has
concluded the income statement using management accounting techniques. Furthermore, it can
be analysed from the report the effectiveness of different planning tool of budgetary system the
report has concluded different management accounting techniques that assist B. L. Holding
limited in responding to financial problem.
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