Management Accounting: Principles, Techniques, and Budgetary Control

This report explores key aspects of management accounting, starting with an introduction to its principles and importance within an organizational context. It delves into various methods and techniques used for management accounting reporting, including budgetary reports and account receivable reporting. The report then analyzes profit calculation using both absorption and marginal costing techniques, providing detailed calculations. Furthermore, it examines the advantages and disadvantages of different planning tools employed in budgetary control. Finally, the report discusses how organizations can apply management accounting to address financial problems, offering a comprehensive overview of the subject. The report is a valuable resource for students and professionals seeking to understand and apply management accounting principles in real-world scenarios.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Principle of management accounting and importance of management accounting in
organisational context.................................................................................................................1
P2. Different methods and techniques used for management accounting reporting...................2
TASK 2............................................................................................................................................4
P3 Analysation of profit by using absorption and marginal costing technique..........................4
TASK 3............................................................................................................................................5
P4 Advantages and disadvantages of various type of planning tools used in budgetary control5
P5 Ways in which organisations could apply the management accounting to respond financial
problems......................................................................................................................................7
CONCLUSION ...............................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Management accounting is a concept adopted by the managers and accountants to support
the structure of organisation (Routledge, Tucker and Lowe, 2014). As per chaining business
requirement scope of management accounting has become vast. Objective of this project is to
define the principle of management accounting which is applied on organisations. Importance of
management accounting subject to integrate accounting system within an organisation. Various
types of methods used for management accounting reporting are also defined in this context.
Calculation of profit by using marginal and absorption costing are discussed here as well.
Advantages and disadvantages of planning tools used in budgetary control are also elaborated.
Ways to adapt management accounting system within organisation are also illustrated here.
TASK 1
P1. Principle of management accounting and importance of management accounting in
organisational context
Management accounting
Management accounting system is a tool used in organisation to assist managers and
accountants to deal with day to day business transactions and business problems. Various types
of definitions and descriptions are given in respect of management accounting system and
management accounting principles. Basically, the management accounting principles are formed
to support the structure of business subjected to decision making, strategic planning and internal
business process with utilisation of resources as well as capacity of organisation to improve the
decision support system to accomplish organisational goals.
Features of management accounting
 Management accounting remain Helpful in decision making
 Provides accurate information and details rather then decisions
 It has selective nature
 it assist managers and accountants to make effective plans to attain objectives
 this accounting system basically remain associated with future events and forecast
 it increase the efficiency level of organisation in respect of performance
Management accounting system (Chart)
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Management accounting principles
1. Designing and compiling: this principle helps to present relevant approach in respect of
retaining financial records, reports and on the basis of past evidence.
2. Management by exception: this principle helps to prepared budgets and forecasting
future events in respect of analysing expected revenues and expenditures.
3. Accounting for inflation: As per this principle situation and challenging equations are
analyse to control inflation. It helps to maintain value of capital contributed by the
owners are defined.
4. Utility: this principle indicates that organisation should remain consistent with its
accounting principles and aspects.
5. Integration: this principle helps to communicate accounting information with effective
use at maximum at the same time.
There are two basic accounting principles used in organisational context such as:
Causality Principle: This is the principle used to correlate management objectives. This
principle helps to evaluate the requirement of input and output resources within organisation.
This principle works on the cost based relations between the outputs and inputs consumed with
in the organisation (Kotas, 2014). This principle is used in large manufacturing and service
providing organisations. Casual relations are also found subject to fulfilling cost needs. This is
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often straight forward to deal with strong relations in between inputs and outputs of products and
services.
Analogy principle: This principle is used by the organisations to communicate past and
future outcomes. This principle is governed by the main user of management accounting system.
This helps the managers to find out difference between past and future outcomes and assist
managers to make future plans and strategic planning (Granlund, 2011).
Concept of management accounting
 There are some concepts used in applicability to causality and modelling principles such
as attributable, capacity, cost, homogeneity, managerial objective, integrated data
orientation, resources, responsiveness, traceability and work.
 Analogy principle contains the concept of avoid ability, interdependence and
interchangeability.
Essential requirement of management accounting
 To sort accounting equations and making growth and development plans.
 Making strategies and plans for better forecast and estimation
 Management decisions and plans depends upon information which are provided by
various type of management accoutring system.
 Making financial statements and reports for analyse financial performance of
organisation
 To assist managers and accountants in taking decisions for better growth and
development.
Importance of Management accounting subject to integrate management accounting
system within an organisation:
Management accounting system is helpful to resolve the complex and critical problems,
issues and conflicts of an organisation (Benson and et. al., 2015). This system supports the
internal divisions and departments of the organisation to control and evaluate the business
strategies and plans. It assists the senior management level for making and preparing competitive
decision making process and company’s strategy. Management accounting system provides a
path to management accountants subjected to business problems and issues. This provides an
overall overview and analysis to managers subject to financial accountants, tax accountants and
internal auditors.
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This not only improves the capability and strengths to think properly and effectively but
also supports professional and marketing managers to deal with uncertain market situations. In
multinational and global organisations, managerial accounting system is found in an integrated
form. Organisational divisions and departments remain bifurcated as per the nature and type but
remain integrated as per management’s point of view. Management accounting system is an
essential requirement to an organisation to build ethical managerial relations within departments
and divisions of an organisation.
P2. Different methods and techniques used for management accounting reporting
Management accounting reporting is one of the managerial works which is done by the
cost accountants and departmental managers (Sargent, Borthick and Lederberg, 2011.).
Accountants and managers prepare the accounting reports and submit these to the senior level
management. Senior managers are the experts and specialists who analyse and evaluate the
reports as well as make strategies and plans. Management accounting reports are used in decision
making process and in making competitive strategies as well. Below are some methods and
techniques are defined helps in decision making process:
Budgetary reports: This is one of the common techniques which is used by the
organisation to analyse and evaluate future opportunities. Budgets present the future planning
and strategic management subjected to organisational goals and objectives. Budgetary reports
contain the information related to projected income and expenditure subjected to management
and operations. Budgets provide the prior information to managers and accountants about future
events and projects.
Account receivable reporting: This reporting method helps to trace the records of
debtors and collection receivables from buyers and customers. Account receivable reports assist
the managers and accountants to decide the payback period of debtors (Parker, 2012). These
reports are prepared with the help of cash flow statements, sales records, debtor’s information
and records. With help of account receivable reports, managers become eligible to decide the pay
back policy to debtor. Basically, the payback policies are used by the organisation such as 30, 60
and 90 days policy. This reporting technique helps to sort out the issues that occur in collection
process.
Job cost report methods: These reports are produced by the production and
manufacturing departments of an organisation. This is the technique used to sort out the plans
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and strategies subjected to specific tasks and projects. There are various types of cost analysis
done in this technique. Job cost report provides the information and data related to cost incurred
on particular job centre and project.
Manufacturing and inventories reporting: These accounting information are useful to
those organisations which operated large inventory and stock stores. With this accounting report,
managers would be able to estimate the required amount of input to produce desired amount of
output. These reports help to communicate the information between production department and
inventory department of an organisation. This report gives the information related to inventories
in stocks and production process.
TASK 2
P3 Analysation of profit by using absorption and marginal costing technique
Marginal costing: this is one of the costing technique used by the production and
manufacturing organisations. Marginal costing techniques is commonly used by the organisation
to analyse the cost of the product by considering all the variable aspects and cost. This cost
techniques consider all the variable expenses such as direct labour, material and wages and
overheads while calculating the cost of per unit (Islam and Hu, 2012). Fixed expenses, cost and
overhears are not considered in marginal cotinga technique. This costing method is beneficial for
those organisations and industries which deals in variable products and services.
Absorption costing: this is also one of the cost evaluating technique which helps the
managers and accountants to calculate the cost of per unit and product. This cost techniques also
considered as overall cost evaluating technique. This technique helps to ascertain the cost of per
unit by including both variable and fixed costs. Organisations are adopting this technique with in
their operation and management. This not only helps the organisations to calculate the cost of
product but also helps to set the profit margin to earn optimum return on product and services.
Calculation of profit by using absorption costing technique
Particulars Calculation Amount
Sales 52500
Less: cost of goods sold (W/N 1)
Cost of opening inventory
Direct labour -7500
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Direct material -12000
Variable production overheads -3000
Fixed overheads -7500
Less: cost of closing inventory -10000 -40000
Profit before deduction fixed
overheads and selling and
distribution expenses 12500
Less: Fixed production overheads -15000
-2500
Less: selling and distribution
expense
fixed overheads -10000
variable overheads -7875
Net profit or loss -20375
Calculation of profit by using marginal costing technique
Particulars Amount
Sales 52500
Less: cost of goods sold
Cost of opening inventory
Direct labour -7500
Direct material -12000
Variable production overheads -3000
Less: cost of closing inventory -7500 -30000
Profit before selling and distribution expenses 22500
Less: selling and distribution expense
variable overheads -7875
Net profit or loss 14625
Working Notes:
1. Calculation of cost of goods sold under absorbtion costing technique
Particulars Details Amount
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Cost of opening inventory -
Direct labour (1500* 5) 7500
Direct material (1500*8) 12000
Variable production overheads (1500*2) 3000
Fixed overheads (1500*5) 7500
Less: cost of closing inventory (500*20) 10000
Cost of goods sold 40000
2. Calculation of selling and distribution expenses
Particulars Details Amount
fixed overheads 10000
variable overheads (52500*15%) 7875
Total selling and distribution expenses 17875
3. Calculation of cost of goods sold under marginal costing technique
Particulars Details Amount
Cost of opening inventory -
Direct labour (1500* 5) 7500
Direct material (1500*8) 12000
Variable production overheads (1500*2) 3000
Less: cost of closing inventory (500*15) 7500
Cost of goods sold 30000
TASK 3
P4 Advantages and disadvantages of various type of planning tools used in budgetary control
Budgetary control is one of the process of managerial accounting (van der Steen, 2011).
This controlling system helps to analyse the difference between the actual income and budgeted
income. Budgetary control is an assumption based accounting system which provides forecasted
information data in respect of future evenest and projects (Hilton and Platt, 2013). A budget
statement is the statement which provides the details about the allocation and appropriation of
financial and natural resources with in the organisations. There are various type of planing tools
used in budgetary control such as situational planning tools, forecasting tools, contingent
planning tools
Advantages of planing tools
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Planning tools helps the managers and accountants to make a flexible budget. This contains the
detailed analysis and critical evaluation process subject to budgets.
 Planning tools clear the vision and mission of framing the budgets and forecasting the
plan in respect of future plans and projects (Parker, 2012). Planning tools provides a path
to estimate the future outcomes and results by framing strategies and plans.
 Planning tools lead the organisational departments towards faster achievements and more
effective manner to accomplish the goals and objectives on an organisation.
 There is a team of experts and specialist remain centralised towards analysing the plans
and evaluate the informations in effective manner. Planning tools motivates the managers
and accountants subject to making the plans and strategies according to future
uncertainties.
 Planning tools remain focused around organisational objectives and aims subject to future
sustainability and growth of entity. This also support the managers in decision making
process.
Disadvantages of planning tools
 Planning tools are not the surety of sustainable success of organisation. Budgets do not
provide the clear information about the future uncertainty and plans.
 It become difficult for small and medium size enterprises to adopt the planning tools for
budget and forecasting the plans (Qian, Burritt and Monroe, 2011). It contain the
complex business issues and conflicts which become the barrier subject to sustainable
growth.
 Organisations have to pay high implementing and installation cost reading planning tools
for budgetary control.
 There is a lake of accuracy and uncertainty found in implementing planing tools for
budgetary control. It reduce the credibility subject to forecasting and planning for future
task and projects.
 It takes too much time to frame the process of planing and forecasting. Accurate
information data and resources are essential requirement to make effective planning and
forecasting budget and statements.
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P5 Ways in which organisations could apply the management accounting to respond financial
problems
Management accounting is becoming the essential and prior requirement of business and
organisations. This one of the management accounting system which helps the managers and
accountants to operate the functions and operations of business in effective manner
(Implementation of management accounting tool in organisation, 2017.). Now a days
management accounting system is playing a vital role in responding financial problems of an
organisation. Business and entities are adapting planning tools to control the financial risks and
analysing the risk factors associated with management and planning process. There are various
type of financial challenges are occurs with in the organisation. Arrangement of financial
resources and application them as per the financial needs are the main financial problems which
occurs in front of managers.
Organisations are adapting the management accounting system to achieve core
competence and attain competitive advantages. Management information system, cost
accounting system and financial risk analysis systems are the main management accounting
systems used subject to financial problems. Management accounting plays vital role in
responding the financial problems in effective manner. There are various type of financial
accounting tools and system used by the managers. This helps to make the financial statements
such as cash flow statements, income and expenditure statements and financial position
statement of the company. Managers and accountants become eligible to find out the conflicts
and issues which occurs while making finical plans and procedures subject to generate financial
resources. Management accounting aspects clear the conflicts and issues and provide clear
information to managers about best financial options.
CONCLUSION
Management accounting is one of the managerial tool which helps the managers and
accountants to make strategies and plans. This reports is prepared to define the management
accounting principle and its important to integrate management accounting system with in the
organisation. Various type of cost accounting techniques used in management accounting
reporting elaborate in this context. Profit calculation techniques in cost accounting system also
defined with practical scenario. Marginal and abortion costing techniques defined in this report
with practical scenario. Advantages and disadvantages of different type of planning tools used in
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budgetary control also illustrated in this report. Ways are compared that how management
accounting systems are helping subject to respond financial problems with in the organisation.
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