Management Accounting: Analysis, Techniques, and Reporting for Agmet

This report provides a comprehensive analysis of management accounting principles and their significance, focusing on their application within Agmet, a UK-based chemical manufacturing enterprise. It explores the principles of causality and analogy, emphasizing their importance in managerial decision-making and strategy formation. The report then assesses various management accounting reporting methods, including those based on financial statements, such as ratio analysis and cash flow analysis, and those based on cost accounting, like marginal and absorption costing. It also examines the integration of management accounting systems and reporting within Agmet, highlighting the role of training and organizational structure. Furthermore, the report includes the preparation of income statements using both absorption and marginal costing techniques, along with data interpretation. Lastly, it delves into budgetary control, discussing its planning tools, advantages, and disadvantages, with a focus on variance analysis, responsibility accounting, and fund adjustments. The report underscores the importance of management accounting in optimizing financial resources and achieving organizational goals, particularly for a medium-sized enterprise like Agmet.

Management Accounting

INTRODUCTION
Management accounting can reveal better ways to grow the organization in way to
achieve the targets which have been set by the managers and the owners of the company. The
techniques of management accounting can be utilized for managing financial sources in a way so
that they can yield best results. Better performance with most efficient outcomes. In another
words an entity can use its financial and other non-monetary sources effectively through the
bond of the techniques of accounting and management(Kaplan and Atkinson, 2015). Agmet is an
UK based medium sized enterprise which is dealing in the manufacturing of chemical products.
As it is a medium sized entity hence it has less financial resources in comparison to other big
enterprise as a result it requires to get sufficient returns from such available bases. Formation of
strategies and implementing them in execution of plans is the only way to exploit the available
opportunity for cited entity.
TASK 1
1 Explain the principles of management accounting (MA) and its significance
MA tools and techniques are highly significant which business unit can undertake to
manage the activities of it so that it can achieve its objectives without any difficulty and
disturbance (Macintosh and Quattrone, 2010). Some principles of management accounting are
defined below:
 Principle of causality: this principle deals with need of cause and effect
 Principle of analogy: which in actual deals with casual insights of the management
Both the above mentioned principles serving management accountant and the users of
management accounting system for instance stakeholders hence these principles can be
considered as milestone. Both the afore mentioned principles are formed and incorporated in

managerial costing conceptual framework (Baldvinsdottir, Mitchell and Nørreklit, 2010). These
principles consist of managerial decision. It is very important to incorporate such accounting
principles in management activities as managers and leaders of Agmet because they require to
make such decisions so that they can easily frame such strategies through forecasting and other
techniques of cost accounting in which they can clearly estimate that how much they have to
spend for getting their required returns. In other words, they require better facts and figures
through which they can draft a report which can be relied upon. As without any principle or
foundation the statements produced cannot be regarded as credible hence to enhance the
credibility of such statements which contains data related with managerial accounting decisions.
The principles of management brings integrity and efficiency in the management and its process.
Through which it can be said that managerial processes can yield effective and profitable results.
As far as methods designed to carry out these activities they are also designed in away so
that they can support these principles. Managers requires to take various decision some of them
requires to have a glance over the facts and figures of financial statements so that they can get
the data contained in them.
Benefits of management accounting system
There can be several benefits which can be derived out of use of tools and techniques of
management accounting such benefits are described below:
 Reduce expenses: The methods of management accounting can assist Agmet to reduce
and control over the expenditure over the operations of entity. As the cited enterprise is a
small business enterprise hence it can be said that they are having less available funds
hence they are required to control their financial and non financial sources so that they
can earn effective revenue by applying less finance in operating and non operating
activities
 Improvement in cash flow: it can also control and improve the level of cash flow. As
these are controlled through budgetary control methods which be taken as a roadmap
which can be used by managers to improve its cash inflow and to reduce its cash outflow
so that there can be availability of required amount of cash when owners require it. Cash
flow from each and every business activity can be improved through applying the
techniques of management accounting and business managerial principles.

 Managerial decisions require supporting facts to frame any strategy and to make any
decisions so in this way management accounting and its methods can be used by cited
entity for their decision making process. Decision making process should be based on
financial and non financial measures. Managers should consider each and every aspect
whether it is related with finance or it is related with the managing the workforce of the
enterprise.
 Increment in financial returns: through the use of various methods of cost accounting
managerial personnel can implement certain plans through which they can opt the
optimum capital structure in which the financial sources can be used in completely basic
but effective way. As in this those financial sources are selected which have less
obligations attached with it.
2 Assessing the methods which are associoated with management accounting reporting.
There are various methods of management accounting reporting which can be used by
Agmet to produce report over the operations and transactions which are related with such
reporting(Lukka and Modell, 2010). These methods can develop report which can present a clear
and transparent image of firm. Some of the methods are classified and explained below:
 Methods which are based on data derived from financial statements
 Ratio analysis can be used by entity as it presents data which are supported through
scientifically approved formulas (Libby and Lindsay, 2010).
 Use of comparative statements like trends chart and graphs through which the
enterprise can compare the information over the period with the information or data
of some other period.
 Fund flow and cash flow analysis is also come under this category as these are based
on financial statement data.
 Return which is derived on employed capital.
 Methods which are based on cost accounting
1. Marginal costing technique can be used to ascertain the contribution and effect
variable and fixed expenditure.e supported through scientifically approved formulas
(Libby and Lindsay, 2010).
2. Use of comparative statements like trends chart and graphs through which the
enterprise can compare the information over the period with the inf

3. Absorption costing techniques can be used by managers to evaluate the effect of
under and over absorption of overheads
4. Standard costing method can be utilized by managers to detect the factors which are
responsible for the diversion of actual and budgeted expenditures(Hammad, Jusoh
and Yen Nee Oon, 2010).
 Methods which are totally based on future information available with the managerial
personnel. Budgetary control techniques are forecasting technique through which
managers can estimate up to a certain level the extent of expenditure and amount of
return which Agmet can earn through such investment in future projects.
Integration of management accounting system and management accounting system and
management accounting reporting in Agmet
Agmet can integrate the techniques of management accounting and reporting through
giving training to its employees about the managerial decision making techniques and concepts
which are related with financial accounting and how they can implement those facts and data in
their steps in order to achieve the goals and objectives of Agmet(Abrahamsson, Englund and
Gerdin, 2011). Seminars and workshops can form part of training through which they can get
acknowledged of concepts of cost and management accounting. Integrating the management
accounting techniques in organisational structure can lead an entity like Agmet to sustain the
development process and to generate better revenue through the operating and non operating
activities. As management accounting can be considered as the combination of financial
accounting concepts and managerial principles.
TASK 2
M2 Calculating cost by using appropriate techniques of cost analysis to prepare income
statement
TABLE 1: INCOME STATEMENT IN ABSORPTION COSTING
Particulars Alpha Beta Total
Sales 207000 120000 327000
Opening stock 0 0
Full production cost 187500 91000 278500

Closing inventory 15000 7800 22800
34500 36800 71300
Over absorbed overhead 5000
GP 76300
Less Non-production overhead
Variable selling overhead 3900
Fixed administration 27000
Total non-production overhead 30900
Net profit 45400
TABLE 2: INCOME STATEMENT IN MARGINAL COSTING
Particulars Alpha Beta Total
Sales 207000 120000 327000
Opening stock
Variable production cost 112500 56000 168500
Closing inventory 9000 4800 13800
103500 51200 154700
Variable selling 2300 1600 3900
Variable costs 105800 52800 158600
Contribution 101200 67200 168400
Fixed production 105000
Fixed administration 27000
Profit 36400
D2 Data interpretation of management accounting techniques
Marginal costing can be define as there is any change in the cost of production when there
is an additional cost of unit produced such as decrease and increase in the TOC. Whereas,
absorption costing technique is used by an organisation in which all expenses are to be taken that
are concerned with cost that are in variable nature and ignore fixed expenses. Therefore, in both

the costing technique are to be used by organisation for the purpose of determining income
statement. The above table 1 shows that there is an calculation of net profit by adopting
absorption costing method in which only total variable expenses are to be considered for product
Alpha. Whereas, there is one more product Beta in which a total expenses incur that is £14400 in
year 2016 income statement by using absorption costing. Thus, the net profit is calculating in
that method in which there is a net profit in Alpha product and beta that is £45400. It has clearly
finding out that from these data company earn higher net profit from Beta product than Alpha
product as it is due to higher total variable expenses incur in alpha product. Most of the authors
said that the absorption costing is a better techniques for calculating the net profit in income
statement as it is only considered variable expenses. Thus, in the marginal costing technique
which is also used to calculating the company net profit or loss in that it measure a low net profit
as compared to absorption costing. It is possible in these techniques because it takes both type of
expenses are fixed and variable expenses while calculating net profit. The Agmet Company
adopts the marginal costing method for the preparation of income statement it has been shown in
the table 2 in which both fixed and variable expenses are to be taken.
TASK 3
P4 Planning tools used in budgetary control
Budget control system is the formal method that helps in comparing the budget with
actual results. On the basis of comparison organizations take their own decision to improve the
performance of the entity. Dell has found the deviation and on the basis of the information cited
firm has taken measures of minimizing errors. Budget control is the essential tool that supports
management of the company in utilizing the resources well. Advantage and disadvantage of
budget control system are explained as below:
Advantage:
With the help of this tool firms can make effective coordination between various
departments and activities. By this way wastage of resources will get minimized to great extent.
It is the method that supports in knowing the drawback so on the basis of that organization like
dell can turn the strategic planning into actions. In addition to this it assists in allocating the
resources in effective manner and in utilizing the funds properly.
Disadvantage:

In the case when budget is rigid then it creates problem for the entity. It emerges issues
like unfairness and dissatisfaction of workers in the organization.
There are many tools of budget controlling, these are described as below:
 Variance analysis
 Responsibility accounting
 Adjustment of funds
 Zero base budgeting
Variance analyses
Variance analyses is the budgetary control tool that evaluate the performance and
calculate variance between budgeted amount and actual amountIt is the important budget
controlling tool that defines the difference between actual and expected budget. It includes
overhead variance, labor cost, material cost variances etc.
Advantage:
 It is beneficial in minimizing the cost of operations in organization
 With the help of this top managers can make effective planning to get higher profit. Lacking points can be measured effectively so that planning can be made accordingly.
Disadvantage:
 It is time taking method and managers have to look upon various factors.
 Company needs professional persons who can handle the budget related issues well.
Responsibility accounting:
It is another type of budget controlling tool in which single persons is responsible for
preparing the final report of daily performance.
Advantage:
 It helps to enhance efficiency of the operations in the organization.
 Company can make effective control over cost.
 Job, batch, process or contract costing

It is the budgetary control system in which unique items is made and cost separately
traced. In the batch costing each item is being produced as batch and cost is traced into batched.
M3Analyse the use of different planning tools and their application for preparing and forecasting
budgets
The Agmet Company adopt various types of planning tools for the purpose of budgetary
control. Therefore, it has some uses and application for preparing and forecasting budgets that
are describe below-
 Responsibility accounting- In these accounting system it is used for budgetary
control in which only individual person are mainly responsible to report to the
department. It show the company day to day performance so, they can easily make
firm’s decisions in an effective manner.
Uses
 The main reason of responsibility accounting is that they can be used to
controllable and uncontrollable cost (Lukka and Modell, 2010).
 The main use of these accounting is that finding out the company’s performance as
it highly depend upon the cost.
 Variance analysis- It is that type of analysis in which there is a deviation that are
difference among actual and expected budget. It facilitate the firm to take remedial
action so, the variance can be minimized in effective manner.
Uses.
 Manager use these analysis in which they can easily control cost and make
improvement action over cost.
 It is also used by management for the purpose of knowing the company financial
performance.
Application
 The main application of variance analysis for the purpose of estimation budgets
and it can be for the future time period. It can be said that if there is no reason of
variance the budget estimate are to be adjusted.
 Zero base budgeting- In the ZBB there is all the expenses are to be taken to
calculate in each new period. It ignore the incremental basis and it in incur higher
expenses in the previous year at fixed rate.

Uses
 It identifying the main task
 It is also used to finding out the ways and various means to attain the task
 It also use by the company to finding out the solutions and it will also evaluating
various alternatives of data and sources.
 It is also used as set up the budget numbers as well as to make priorities
Application
 The main application of ZBB for the preparation and forecasting budgets in which
they it classify each and every item regard to cash for the purpose of computing
cost.
 The next application of the planning tool is that is provides an efficient allocation
of resources in the preparation of budgeting as well as forecasting. It look at the
actual numbers and ignore the historical data.
D3 Evaluating how planning tools respond the financial problem
Zero base budgeting- The main advantages of zero base budgeting is that they are used by
company as a flexible budgets and it mainly focus on the operation. It can easily respond
the financial problem as they can easily finding out the cost that are mainly impact on
firm’s performance.
Variance analysis- It can finding out the deviation that are arise among the difference
among actual budget and expected budget. It help the cited company to finding easily
finding out the company’s financial problem that are mainly occur due to variation.
P5 Management accounting systems to respond to financial problems
Management accounting system supports the firm in dealing financial problems. They are
discussed as below:
 Throughput accounting system: It is the performance measuring tool, that discuss the
cash element in the accounting. It describes the revenue ratios rather than discussing
about investments. It is the beneficial tool that helps to resolve problems related to
costing. It gives proper information of current performance of organization so that
management can take action to improve their level of performance.
 Lean accounting system: It is another type of management accounting system that
focuses more on cost factor rather than cash. It includes indirect or direct expenditures of

an organization (Yalcin, 2012). It concentrates on reducing the overall cost of company
so that it can get more benefit. It is the major problems in an entity and it is necessary to
make effective control over cost. With the help of lean accounting Agmet can face these
problems and can resolve or minimize its unnecessary expenditures
◦ Pricing decision are the most important part of management accounting system.
Company cannot measure when prices will get raised up. So to deal with such
financial system management has to use job order costing methods. By this way they
will be able to record all transition of all materials. Thus, if cost is increasing then
management can take proper action on time to control over the cost.
Along with the above techniques, by taking into account the below mentioned aspects
Agmet can respond to the financial problems in the best possible way such as:
 Key performance indicators: By setting specific target for KPI’s such as sales, profit etc.
Agmet can achieve the goals and objectives. Moreover, through making comparison of
current sales and profit level with previous year manager can assess the need of
improvement. Along with this, by setting KPI’s business organization can encourage
personnel to make optimum use of financial resources. Thus, by considering all the above
aspects it can be stated that through setting and undertaking KPI’s Agmet can deal with
the monetary problems more effectually.
 Benchmarking or budgetary control: On the basis of such aspect, by making comparison
of actual performance over the benchmark or standards manager of Agmet can find out
the deviations. In this regard, by assessing the causes of deviations occurred manager can
develop and implement competent framework within the suitable time frame. In this way,
tool of budgetary control gives indication for improvement and thereby aid in the growth
as well as success of firm.
 Financial governance: This system of MA lays high level of emphasis on evaluating the
reporting capabilities of firm in relation internal & financial control, data tracking &
security etc. Thus, by evaluating each aspect from internal control to process workflows
manager can assess deficiencies and thereby would become able to respond the same
through the means of sound strategic framework.

M4 Analyse how management accounting system respond financial problem
The Agmet Company adopt the management accounting system that help them to respond
the financial problem that are described below-
Throughput accounting- It is the most important tool that are used as company
performance measuring tool, that discuss the cash element in the accounting. It describes the
revenue ratios rather than discussing about investments (Setthasakko, 2010). It is the beneficial
tool that helps to resolve problems related to costing. It gives proper information of current
performance of organization so that management can take action to improve their level of
performance.
Lean accounting system- It is most useful type of management accounting system that
focuses more on costing factor that are constraint rather than cash (Libby and Lindsay, 2010). It
mainly involves both type of indirect or direct expenses of an organization which help them in
effectively respond finance problem. It mainly concentrates on minimizing the overall cost of
company so that it can get more advantages. It is the major finding out the financial problems in
an entity and it is necessary to make effective control over cost. With the help of lean accounting
Agmet can face these problems and can resolve or minimize its unnecessary expenditure.
CONCLUSION
Summarizing the above report it has been concluded that the management accounting helps
the company's manager in making decision regarding day to day operations. Agmet has adopted
management accounting system are lean accounting, transfer pricing, traditional cost accounting
and throughput accounting. It is used by company in responding financial problem due to which
they take corrective action so, they make adjustments to lead the organisational success.
Thereafter, it has been also analysed that there are various planning tools in which the significant
tool is variance analysis. It helps the firm in comparing the actual performance with the budgeted
performance so, they identifying the variance.