Management Accounting and its Tools: A Comprehensive Analysis

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Management Accounting and its tools

Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
Task 2.............................................................................................................................................13
Conclusion.....................................................................................................................................22
Reference List................................................................................................................................23

Introduction
Application of professional knowledge in managing accounting information, then this can be
defined as management accounting. It assists an organisation to plan business operations as well
as provide support to control it. The concept of management accounting (MA) is quite old it was
used in middle east. Economic advancement in this place was evident and Trace of business
records were found in there. After examining these evidences, it was found out that these papers
were from Chaldean-Babylonian era. Some other civilisations were there and it has been found
that Chao dynasty took MA to a newer height of sophistication. They used double entry methods
and were the first of its kind to introduce this technique. The real change of advancement came
during industrial revolution in British civilisation. 1830 was the time, when MA was taking step
towards reaching zenith. Due to increase in population and opening of various industrial projects,
Britain had to invest and keep track of huge amount of capitals. It was necessary for them to
come up with new accounting methods to improve their MA (Bromwich and Scapens, 2016).
MA holds great importance for any organisation because it can give control in hands of
companies to run the business the way they want. Sales forecast is possible for Unilever through
MA. The process of taking decisions can become much easier to them, as they can invest money
in better way. They can forecast cash flows with ease and this is quite a strong reason for
implement MA techniques. MA is important for preparing budgets. Budgets are important for
financial success of Unilever (unilever.com, 2019).

Task 1
Part 1
A. Explain management accounting and give the essential requirements of different types
of management accounting systems.
The process for analysis of cost and calculation is known as management accounting. The
improvement of interior functions as well as financial events in possible. Financial report and
recording financial activities become easy for managers. Busines organisations mainly use this
and it is used for budgeting.
Different MA requirements systems
Cost accounting
Cost accounting in administrations is used for managing expenditure related to any kind of
production as well as costing. The main importance of cost accounting is that it assesses inputs
given at every step of this system. Determination of costs of every step is possible. Unilever can
opt for cost management method of accounting to ease their decision-making process. This
method helps in taking decisions by taking consideration of construction cost reduction. The cost
of MA depends upon information received. These information comes to business organisations.
Many kinds of organisms are there for cost accounting and these are used inside a business
organisation. If expenditure is managed easily, then Unilever will be able to control their
business more effectively. In case of any irregularity, the company can refer to cost accounting
and it will help them point out factors, which may have given rise to the cost.
This system holds major importance in business organisations. Many problems in production
system can be identified by locating the root cause of it and it helps the organisation for solving
these problems. The trends in costing can be found through using this system. Revenues of
organisation as well as expenditure can be compiled by using this cost object analysis. The
capacity of cost bearing in context of the organisation can be determined and it helps to form the
budget (Bragg, 2016).
Job costing

This system accumulates job connected to production system. Cost for various job can be found
and determined separately in production process. Product prices could be easily quoted by taking
help of this system. The method for job costing accumulates information about overhead
expenses, labour expenditures and direct material cost. There are many expenses in running a
business. Unilever has to maintain labour wages at great extent and this requires them to spend a
huge sum of money. There may be change in labour costs due to some reason and therefore it is
necessary to identify job costs. In some cases, there are some additional overhead expenses and
considering it is mandatory (Brewer et al., 2015).
Unilever is greatly benefited from this Unilever and they are becoming more attractive to their
consumers. It can ascertain cost for each job. This helps in lessening up total cost and faulty
calculation such as double counting is easily eliminated. This system is necessary in Unilever for
requisition in material. It makes the billing process easier and helps to accommodate wages. This
company will yield many benefits if they are able to manage overheads in production process.
Standard costing
Evaluation is possible for business costs and budget can be planned by using this method. Cost
estimation becomes easier by this. Costs regarding any direct material could be found and
manufacturing cost can be found. The expenditure company has to bear for labours can be found
and Unilever can find costs they have to bare for direct material. The method is applicable for
several systems in a business organisation for costing. Cost control will see a huge improvement
if Unilever uses this and they will be able to take decisions, as they will have control over money
(Shi, 2016).
Cost involved in manufacturing process can be found for Unilever. Inventory management will
become much methodical by using this method. This allows setting cost for merchandises and
they can set the price by competitive pricing strategy. Standard costing will no more be in use in
Unilever. Inventory management can be effective if the inflow and outflow is tracked properly.
There are many costs, which are not necessary for them to bear and it is important to eliminate
these from their daily activities.
Inventory management

Inventory management is very important for scheduling inventory. The scheduling is related to
production process of the organisation. Wastage, which is often found in inventory, can be dealt
with and as a result, earning will be more. The delivery process should be prompt for Unilever.
Unilever can yield benefits by this system. This can happen due to increase in tracing of their
delivery process. Transparency will be high in production process and therefore, this is quite
beneficial. Software can be used for inventory management and tracking assets is possible for
Unilever.
Unilever uses FIFO, which is a very efficient inventory system. This helps to sell their products
at faster rate. Inventory management quality is greatly increased by this method. The production
quality is improved too, as management is better. This system is quite advanced, as it lets them to
manage their inventory in efficient way (Muller, 2019).
Price optimisation
Administration usually uses this system and the company understands willingness of consumers
in context of buying products made by this organisation. It helps to increase attractiveness of a
product. It is possible for competitive management by using this system. This system lets
Unilever to assess volume of their products as well as prices for these. They get to analyse
revenue and sales of this organisation by implementing this price optimisation method in
administration of Unilever (Bai et al., 2016).
Product prices can easily be analysed by this method. The analysis in average spending of
consumers can be found. This can be determined by good amount of market research. This
calculates cost of production process. Profitability can be augmented in this business
organisation. This helps Unilever to decide prices for different brand in administration.
B. Explain different methods used for management accounting reporting.
This is a very significant objective in management accounting, as it helps for authenticating
information inside Unilever’s administration. Various organisms in MA track financial
information. Many kinds of reporting system is going to be included here.

Budget report
This report helps to analyse disparity amongst benchmark performance and the real one. This
report is vital for controlling performances of resources in business organisations. Cost can be
found and revenues can be determined with this and budget report can do this. Variance between
actual and notional budget is determined by this reporting system. There are always some errors
in budgeting and this method allows a person to find these errors. The budget report can be
revised if it is necessary and efficiency can be increased for various processes. A correct budget
is important and budget report allows the company to do that. That is why, budget report is a
very important factor for them. Internal problems can be solved in administration through this
report. Company’s expenditure can be found by efficiently implementing a budget (Mauskopf
and Earnshaw, 2017).
Sales report
Detailed production volume can be found by sales report. Organisation can know about their
sales from this report. Various areas of this business organisation can be found. Determination of
resources and their performance can easily be controlled by using this sales report. The trend,
which will occur in future, is forecasted by sales report. This data can be analysed and
performance of Unilever can be increased by this method. Sales team should track performance
of this organisation. It will help in improving effectiveness. This report gives a clear picture of
financial condition of the organisation and they can prepare future actions by taking feedback
from it (Cokins, 2016).
The report of divisional department
In this report, there are varieties of reports included. This kind of report decides the sales of
various divisions of the organisation, as well as the performance of the different departments, are
recorded in this report. The divisional department report incorporated the cost as well as sales of
various divisions in a single report (Lepistö et al., 2018). The best performance of the department
can be decided through this report as well as the selling point of the management can also be
identified by the assistance of this particular report.
Report on Cost

The cost report consists of the details of the costing of the production department in an
organisation. This report comprises of the total cost of the report of the cost (Appelbaum et al.,
2017). Through this report, the expenditure made by ion in the total production of the goods can
be verified.
C. Evaluate the benefits of management accounting systems and their application within an
organisational context.
Management accounting is quite essential for a company. It has various functions or roles that
can be applied in the administration system to assist the business in becoming effective. The
various functions of the management accounting would be explained below:
Plan
The goal or objectives of the organisation can be determined by the assistance of efficient
planning. It enhances the resources’ efficiency as well as provides direction to various
departments of the business (Kaplan and Atkinson, 2017). The risks of a business can be reduced
by the assistance of strategic planning. Effective planning in the organisation can decrease the
activities that are not required in the company. Unilever Ltd. would be able to perform in an
effective manner as well as the innovation in the organisation would increase through proper
planning. The decision-making of the organisation concerning the various departments would
become simplified if proper planning is done and standard control methods incorporated in the
company.
Organise
Management accounting enhances the various departments of the organisation. Proper organising
would help the company in enhancing the clarity of the relationship of various systems of the
business (Nielsen et al., 2015). If the resources were used properly, the organisation would be
affected in a positive way. The organisation should make changes in the administration system as
well as in the various departments so that the company would be able to perform in an effective
manner in every section.
Control

Management accounting also assists in making control over the performance of the human
resources of the company. Maintenance of control in the organisation helps in improving the
quality of work of the workers (Otley, 2016). The idle elements of the company should be
removed or can be replaced by some productive elements in the organisational process. It can be
done by controlling the processes of the company. Unilever should control the performance of
the elements to enhance the profit of the business. Through this method, the company would be
able to achieve the goal or objectives. In this method, discipline is significant to make proper
control over the resources as well as to enhance the organisational culture of the firm.
Decision-making
The management accounting records the activities of the different sections of the business. It also
assists in making the decision for the success of the business (Collier, 2015). The act of making
decisions requires assistance from the various departments of the company in planning as well as
controlling the processes so that the decision would be effective and implementation would be
carried out in less time.
D. Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes.
It can be said from the above discussion that the different systems of management accounting are
utilised to carry out various functions of the business. The system of cost accounting records the
details of the cost of the business (Laudon and Laudon, 2016). The cost of the business is
reported by the cost report. The performance report of the organisation consists of reports on the
performance of the business of every department. These reports are reported by the assistance of
sales report and helps in identifying the strong and weak areas of the company that needs to be
worked upon. This particular system should be applied to improve the performance quality of the
employees as well as the report is made to trace the performance for future consideration.
It can be deduced from the assessment that the accounting and reporting systems are parts of the
business to enhance its performance.
Part 2

Analyse three planning tools used in management accounting, indicating how effective you
judge each to be and why.
There are different tools for planning in management accounting. They are provided below:
The tool of activity-based costing
In the technique of activity-based costing, the cost is not certain according to diversification in
the activities of the process. Through this method, the cost is determined for various activities
(Helms, 2016). The activities of individuals are recognised and the costs of various processes are
united for various processes of the company. This tool helps in allocating expenses in various
processes of the company as well as the synchronising in the processes would be enhanced
through the assistance of this specific costing method.
Advantages
The activity-based costing technique assists the company by assigning the appropriate cost to the
goods. The dependability of the cost of the products can be increased through the help of this
method of costing (Christopher, 2016). The costing based on activity can help in recognising the
behaviour of the cost. The cost can be decreased of the processes, as well as the activities would
be enhanced through this tool. The activities can be recorded through activity-based costing
method, and the expenditure cost can be identified. Even the management of costing would be
done in an efficient way, and cost reduction would be made properly through the application of
activity-based costing in the organisation. This particular method is helpful especially for the
service industry.
Disadvantages
One of the disadvantages of activity-based costing technique is high cost of the system. This is a
complicated technique and would be difficult in applying to the company (Cooper, 2017). Even
the method of selection of drivers of the various processes would be difficult and cannot be
applied in small companies.
Break-even analysis

This tool is carried out in the firms to have the knowledge of the sales amount that should be
attained in the company for avoiding loss of the business. It offers the units numbers that should
be sold by the company to earn income to manage the cost of the business (Apostolides, 2016).
Some assumptions are connected to this method, such as the cost is variable of the company.
According to this tool, the fixed cost is unalterable in any stage of production. It has the
assumption that the fluctuation in variable costing equals the volume of production of the
organisation. The selling rate of the goods of the company as per this tool remains constant
disregarding the completion form of rival companies.
Advantages
In this method, the loss and profit of the company can be evaluated at various levels. It helps in
assuming the alteration in price of the sales of the goods. The connection between the various
costs can be assessed with the break-even analysis system. Through this system, the influence of
cost-effectiveness along with the alteration in profit can be analysed.
Disadvantages
The major disadvantages of the company are the assumptions. This method assumes the
permanency of the fixed cost and fluctuation of the variable cost of the products in every stage of
the production. This process takes a lot of time and does not regard the alteration in sales price
disregarding the competition.
Discounted cash flow method
This method is utilised for the evaluation of investment in the business. It also assists in
considering the options that would be more beneficial in making investment in the company.
Advantages
The method of discounted cash flow would be helpful in estimating the difference in the value of
the cost as well as this method is helpful for valuation of the projects of the company. Through
this method, the company would be able to prepare cash flow that would contain discounted rates
as well as the conditions based on short-terms of the market (Whittington, 2016). This method’s

value cannot be changed due to non-economic aspects. This method is beneficial when there is
full confident on the cash flow of the future.
Disadvantages
The disadvantages of this process are that it has high sensitivity that can cause changes in the
assessment as well as this method is complex. There is not accuracy in the value of this method
because of small adjustments. The values are also changed frequently in their method. This takes
time and a lot of money to carry out the function of making plan of the expenditures. This cannot
be applied in small enterprises because of its expensiveness.
Conclusion
Unilever should revise the management accounting system in the business. In the above study,
there has been discussion on the various techniques of management accounting. There has been
provision of the knowledge on the different techniques used in the management. The advantages
of the systems of management accounting have been given. These systems of management
accounting are used in performing different functions of the organisation. The tools of planning
are utilised in making strategies for future of the management and the assessment of planning
tools has also been provided. Unilever should use various tools of planning as well as variety of
reporting systems of the management accounting to improve the performance of the company.
This would assist the administration in earning more profit.