Management Principles, Accounting and Budgetary Tools Report

This report provides a detailed analysis of management principles and accounting techniques, focusing on Eastern Engineering Co. Ltd. It explains key management principles such as management by exception and accounting for inflation, and explores accounting systems like cost accounting, job costing, and inventory management. The report also examines various management accounting reporting techniques, including job cost reports, budget reports, accounts receivable aging reports, and inventory reports. Furthermore, it discusses the advantages and disadvantages of budgetary tools like cash budgets, zero-based budgeting, and activity-based budgeting. Finally, the report compares how organizations adapt management systems, highlighting the use of benchmarking, key performance indicators, and variance analysis, providing a comprehensive overview of management and accounting practices. Desklib is a platform where you can find similar solved assignments and study resources.

Unit 5 Assessment

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Explaining the principles of management and explaining why it is important............................3
Explaining different techniques used for management accounting reporting.............................4
Explaining advantages and disadvantages of the budgetary tools...............................................5
Comparing how organizations are adapting management systems.............................................7
CONCLUSION................................................................................................................................8
REFERENCES ...............................................................................................................................9

INTRODUCTION
Management accounting is process of the preparing reports for the business so that short
and long term decisions might be made effectively. Also, the present report is based on Eastern
Engineering Co. Ltd. that is small manufacturing company and will identify certain principles
followed by the firm over the years. Also, different methods used in management accounting
reports will also be covered under in detail. Lastly, the study will highlight the advantage and
disadvantage of various budgetary tools and will also present the comparison between different
management systems used by two firms to conduct various business operation's smoothly in the
future.
MAIN BODY
Explaining the principles of management and explaining why it is important
Management accounting principles were developed so that integral accounting systems of
the company might be improved and better results might be derived in the future. Also, there are
various principles that are used by management some of them are described as follows:
Management by exception: These principles states that in every organization actual
performance is compared with pre determined standards of the firm so that any deviation might
be easily found out (Principles of Management Accounting, 2022). Also, if any unfavourable
deviations are identified later in the future than less time had to be taken to read and study the
information and take corrective actions.
Accounting for inflation: This principle states that profit of the company cannot be
earned unless the capital is maintained in real values. Thus, this principle believes that it is
necessary for all the firm to assess the value of capital that is contributed by the owners of the
business keeping in mind the rate of inflation to identify the real success of the business.
Integration: It means that all information is integrated so that it might be effectively
used at maximum point and at the same time. Further, accounting service is provided at the
minimum cost.
Furthermore, there are various accounting systems that are described in details as
follows:
Cost accounting systems: It is type of framework that is used by the firms so that the
cost of the products might be identified for conducting various profitability analysis, cost control
and inventory valuation. Moreover, estimating the right cost for the business is crucial task for

Eastern Engineering Co. Ltd so that it might run successfully in the manufacturing sector in UK.
For instance: Quoted firm has appointed individual and the whole department team that is
specialized in tracking and analysing all the fixed and variable costs that are incurred in
delivering of sales of the goods and services to the customers (Kudryashova and et.al., 2020).
Thus, better control might be established on occurrence of unnecessary costs and also effective
pricing decisions might be taken by the top management of eastern engineering.
Job costing system: It is type of system that is designed to keep the track of cost of
individual jobs and the projects of the company. Further, this system looks at all the direct and
indirect costs that are incurred by the company at the given point of time. Also, these costs are
divided into three categories such as materials, labour and overhead. For example : In eastern
engineering company particular job 500 is started. Also, in the first month of operations it was
identified that 1000 pound (4.54 t) direct material cost, 4500 pound (ca. 2 t) indirect material
labour cost and 2000 pound (0.91 t) over head expense. Thus, the total cots of 7500 pounds (3.4
t) was transferred in the inventory under the cost of good sold.
Inventory management system: It is method where goods are tracked throughout the
supply chain starting form the production to the end sales (Gottlieb , Hansson and Johed, 2021).
Thus, it would allow the firm to track the total number of units that are present in the warehouse.
For instance : The quoted firm also have the right online inventory systems where accurate report
is generated that helps in finding out the total stock left in the warehouse so that no sales are
missed.
Price optimization system: This model helps in identifying how demand of any
particular product varies at different price levels and thus allow in combining the data through
gathering information on the costs and inventory levels so that profits of the quoted company
might be improved.
Explaining different techniques used for management accounting reporting
There are various techniques that are used in accounting reporting so that working might
be made easier and smooth. Also, this might be explained through the different accounting
reports that are mentioned below:
Job Cost report: Through this report specific expense relating to any project is identified
so that revenues might be estimated for the same. Also, it helps in evaluating the job profitability
for the business. Further, through this report the quoted firm is able to identify all the higher

earning areas within the organization so that more efforts might be put on those areas rather than
the low profits' margin areas of the business (Pasch, 2019). Moreover, job costs reports also
helps in analysing total expense of any project so that corrective actions might be taken on time.
Hence, the cost of the company is controlled in well-defined manner that allows the firm to
successfully grow in the future projects or undertakings.
Budget report: These type of reports help the firm in analysing the performance of each
unit or department and helps in controlling the cost for the business. Also, in quoted firm the
estimated budget is taken usually from the lasts' year expense that is incurred by the company.
Moreover, such type of reports helps the manger to develop various incentive programs for its
employees so that specific financial goals might be met easily.
Accounts receivable ageing report: This report helps in managing the total cash flow
for the business if any credit is extended to the customers. Also, under these reports' separate
columns are been made for the invoices that are either 60, 30 or 90 days late so that company
collection process might be found out (NGUYEN and LE, 2020). For instance : In the quoted
firm ones that are not able to make the payment on the specified time from long (period) than the
organization tighten all its credit policies for the business.
Inventory report: This type of report are being prepared so that manufacturing process
might be made more efficient. Also, this report include various items such as hourly labour costs,
inventory waste and overhead cost so that all the areas within the workplace might be compared
and the corrective action might be taken on the areas that requires improvement. Furthermore,
based on the collective data within these reports the firm is able to give rewards to the best
performing departments so that employee loyalty might be maintained and goodwill of the firm
is increased within different regions of the operations.
Explaining advantages and disadvantages of the budgetary tools.
Cash budget: It is estimation of the total cash flows in the business over the specified
period. Also, this might be done either on the monthly, annual budget or quarterly depending on
the policies of the business.
Advantage:
 This type of budget helps in avoiding the debt so that additional cash might be saved for
the emergency situations. Also, this allows the firm to spend wisely so that no kind of
future problems are faced by the business (Petera and Šoljaková, 2020).

 This budget helps in making the firm more resourceful so that various methods might be
find out top save the money and eliminate all types of waste in the business.
Disadvantage:
 While using this type of budget there might be cases of serious threats as cash is thing
that might be easily accessed by anyone that wants to steal through the password of any
other source.
 Furthermore, such type of cash budget limits the spending power within the business and
result of which certain activities might not be undertaken by the firm for the same.
Zero based budgeting: It is process through which the companies create budget
according to the monetary needs like month (Englund and Gerdin, 2018). Also, here the top
strategic goals of the business are allocated to the specific functional areas of the business so that
cost might grouped and then measured against the previous results and expectations.
Merits:
 This type of budget helps the manager thinks about the every pound that is spent on the
business. Also, it helps in justifying all the operating expenses and identifies areas that
generates revenues for the business.
 In other methods of budgeting legacy costs are not examined by the firm until there is
any kind of economic shock and hence it tends to grow over period. Furthermore, using
this budget such accumulation of the costs might be prevented by the firm.
Demerits:
 Some says that zero based budgeting is resource intensive and hence lot of time and
efforts need to be put in for the same (Diab, 2021).
 Moreover, using such type of budget chances of manipulation is higher and thus savvy
mangers might manipulate the budget to get more resources for the business
Activity based budgeting: It is system where the researches, record and systems are
been analysed by the company that adds to the cost of the company. Also, here each department
is identifies the cost to gain maximum efficiencies.
Pros:
 It helps in identifying the total operational cost that is associated with each of the
operational activity. Also, it helps in breaking down the cost so that it determines where
the profitability is affected.

 It is more costly and time-consuming process as all the costs associated with the business
activity are tracked and technical details need to be recorded every time.
Comparing how organizations are adapting management systems
Eastern Engineering Co. Ltd. Adapt to the changing management systems through using
the following ways such as it use the benchmarking technique where the current performance are
measured based on the past data, outputs or standards as benchmark or either the comparison is
made with other company . Also, major advantage is that it helps the company in implementing
the creative ideas that might be used on all levels of the company (The Benefits of Benchmarking
in Business Operations, 2022). Furthermore, it increases the competition that leads in increased
productivity within the business. However, major demerit is that sometimes there might cases
where insufficient information is gathered that might lead to huge losses to the firm.
Another method used is the through key performance indicators such as revenue
generation, total sales, units produced etc. that helps the employees to analyse whether the target
is achieved or not. Moreover, major advantage is that it helps the employees to take action
through empowering them. Also, it helps the firm to measure the outcomes and results in best of
manner. Although the major disadvantage is that KPI need time and hence the quoted firm is not
able to get immediate actionable information.
Furthermore, another technique of measurement used is variance analysis where the firm
analyse the deviations based on actual behaviour against the planned or forecasted behaviour of
budgeting (Zadorozhnyi, Muravskyi and Shevchuk, 2018). Also, the major merit is that
significant availability of variance allow the management to look at areas where the planned
activities are different form the outcomes. However, the major disadvantage is when such
variances are applied in decision-making process without doing any kind of further researches.
Eastern Engineering Co. Ltd Ocean leisure company
This company uses the benchmarking
techniques so that whenever there are
situations of excessive costs than corrective
measures might be taken on time. Also, it
helps the firm in getting knowledge of what
competitors are doing.
On the other hand this company uses the balance
scorecard technique for managing all its
management operations because it helps in
aligning the departments and divisions towards
the one common goals of the business. Further, it
has provided the company with the proper

structure.
CONCLUSION
From the above report it can be concluded that principles of management are important
so that working of the firm might be made better. Also, the report had identified the certain
principles such as job costing, price optimization, inventory management and much more
through the appropriate examples. Furthermore, different techniques such as budget report, cost
report etc. had also been discussed in detail. Lastly, merits and demerit of the budgetary tool
along with comparison of the two organizations on management accounting systems had also
been covered under this report.

REFERENCES
Books and journals.
Diab, A. A., 2021. The appearance of community logics in management accounting and control:
Evidence from an Egyptian sugar beet village. Critical Perspectives on Accounting. 79.
p.102084.
Englund, H. and Gerdin, J., 2018. Management accounting and the paradox of embedded agency:
A framework for analyzing sources of structural change. Management Accounting
Research. 38. pp.1-11.
Gottlieb, U., Hansson, H. and Johed, G., 2021. Institutionalised management accounting and
control in farm businesses. Scandinavian Journal of Management. 37(2). p.101153.
Kudryashova, Y. N. and et.al., 2020. The organization of management accounting as a
mechanism to improve the efficiency of agricultural enterprises. In BIO Web of
Conferences (Vol. 17, p. 00028). EDP Sciences.
NGUYEN, H. Q. and LE, O. T. T., 2020. Factors affecting the intention to apply management
accounting in enterprises in Vietnam. The Journal of Asian Finance, Economics and
Business. 7(6). pp.95-107.
Pasch, T., 2019. Strategy and innovation: the mediating role of management accountants and
management accounting systems’ use. Journal of Management Control. 30(2). pp.213-246.
Petera, P. and Šoljaková, L., 2020. Use of strategic management accounting techniques by
companies in the Czech Republic. Economic research-ekonomska istraživanja. 33(1).
pp.46-67.
Zadorozhnyi, Z. M., Muravskyi, V. V. and Shevchuk, O. A., 2018. Management accounting of
electronic transactions with the use of cryptocurrencies. Financial and credit activity:
problems of theory and practice. 3(26). pp.169-177.
Online
Principles of Management Accounting. 2022. [Online]. Available
through:<https://accountlearning.com/principles-management-accounting>.
The Benefits of Benchmarking in Business Operations. 2022. [Online]. Available
through:<https://www.businessnewsdaily.com/15960-benchmarking-benefits-small-
business.html>.