Role of Management Accounting in Enhancing Strategic Decision-Making

Management accounting is essential for effective decision-making within organizations, offering detailed reports and performance measurements that guide business strategies. It helps managers make informed decisions about operations, cost management, and resource allocation by analyzing both historical data and future forecasts. The essay discusses various techniques in management accounting, such as budgeting, variance analysis, and financial ratio analysis, which aid in strategic planning and control. Additionally, it highlights how integrating management accounting practices with broader business strategies can lead to improved organizational performance and competitive advantage. The discussion includes real-world examples of companies leveraging these tools for strategic success.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................1
SECTION 1......................................................................................................................................1
LO 1.................................................................................................................................................1
1. Explain why management accounting is important in the decision making process for
improving the performance of the company. .............................................................................1
2. Explain three different types of management accounting systems used for management
accounting reporting....................................................................................................................3
3. Critically evaluate the benefits of these types of management accounting systems, and their
applications within the organisational context............................................................................4
LO 2.................................................................................................................................................5
4...................................................................................................................................................5
A) Preparing P&L Statement utilising absorption and Variable costing....................................5
B) Profit from both the system is different.................................................................................9
C Produce a reconciled Statement of profits or loss...................................................................9
SECTION 2 ...................................................................................................................................10
LO3 ...............................................................................................................................................10
PART A.........................................................................................................................................10
Compare and contrast three planning tools used in management accounting...........................10
LO 4...............................................................................................................................................13
PART B..........................................................................................................................................13
Compare the ways in which management accounting is applied and their effectiveness of
management accounting in order to dealing with financial activities.......................................13
CONCLUSION..............................................................................................................................14
REFERENCES .............................................................................................................................15
Books and Journals:..................................................................................................................15

INTRODUCTION
Management accounting is the management tool which holds the financial decision
making process and guide businesses to take best dealing techniques and strategies in order to
ensure the best productive task. It is the process to identifying, analysing, interpreting, measuring
and communicating the organizational goals. Along with that, management accounting is also
known as cost accounting approach. Moreover, the main part of the organisation is to make
effective planing of accounting in order to achievement the annual budget. Besides, present
report based on management accounting which divides into two sections, in Section one it will
cover the importance of management accounting in decision making process. It will also explain
the types of management accounting systems which helps in accounting reports. It will also
calculate absorption and variable cost in section one. Apart from that, further, report will discuss
on three planning tools which is used in management accounting system. Moreover, Agmet and
Nero limited has been taken into consider in section one and two respectively.
SECTION 1
LO 1
1. Explain why management accounting is important in the decision making process for
improving the performance of the company.
Management accounting is the essential part of the business, incorporate management
accounting and techniques into the businesses operations to improve the data based and also
helps to utilizing the also company resources. Agmet is the manufacturing company which
served industries, global connections, fostering sustainability. Management accounting helps
Agmet to measure the effective areas of development also guide for better investment techniques
(Otley, 2016). Small businesses based regular challenges and issues with countless activities.
Besides, management accounting systems helps organisation to collect information from the
processes to make accounting report to provide ongoing insight into the business performance.
For example, management accounting report helps Agmet to provide profit margin and labour
utilization in during the whole activity. With the help this information or data manager can easily
make every decision making process. Along with that, this is the important source to make better
decision making approach for the company betterment. There are some importance of
management accounting giving below:
Relevant Cost analysis
1

Management accounting information helps to determine the actual cost of the company
which they occurred during the task or for completing the project. This helps to measure that
what company should sold and how to sell it. For example Small businesses are unsure about
their investments or where they need to focus (Fullerton, Kennedy and Widener, 2014). To
evaluate this decision making process company measuring the costs that differ between
advertising alternatives for each products. Moreover, this is the process company measure the
relevant cost analysis which helps to take the investment decision making approach. Besides this
approach also helps company at the time of adding new product line or discontinue the
operations' activity.
Buy or Make analysis
This is the another important aspect of the management accounting system which helps
businesses to make or buy decision analysis. With the help of management accounting company
can easily decide on which area they need to be invest in what manner. Along with that,
management accounting helps to enhance the opportunity level of profitable choices. This could
be the another financial metrics which is important to be consider to make better decision
making process.
Utilization the Data
Managerial accounting information or data is very significant to see the actual scenario of
the company which helps to make the future opportunities or growth. This helps to look at how
to improve the operational activities. This is the source or management guide for the small
businesses which helps to make future decisions (Cooper, Ezzamel and Qu, 2017). Management
accounting data assist to focus on the specific activities which is necessary for the task. On the
basis of the accounting data manager of Agmet can easily decide their aims and objectives in
order to accomplish the company objectives. This helps company to focus on the regularly
activities. This also helps to identify the employees' performance towards the organisation goals.
Activity based costing techniques
At the time when company decided what products to sell, then after next process is to
decide to whom they want to sell the products and services. Moreover, this is the significant
factor to analysing the target group of customers. For that, company used activity based costing,
with the help of this tool of management accounting businesses can determine activity required
to produce and services a product line. Moreover, the main objective of the company is to higher
2

sales (Taleb, Gibson and Hovey, 2015). Activity based accounting helps to measure which
customer is more or less profitable. Allowing manager to focus on the advertising toward the
consumers. This helps to improve the business functions.
2. Explain three different types of management accounting systems used for management
accounting reporting.
Management accounting system is the process which contains the information or data of
financial accounting which helps to focus on the productive areas. It is based on the accounting
principles. It also helps to prepare the information for external parties such as employees,
customers, stakeholders, public and lenders. This information is helpful to make financial report
which is most required for the company to compare the position with other competitors. There
are different systems which is helpful to making management accounting reporting.
Management accounting systems are used by the all department in the organisation such as IT,
Human Resource, marketing, operations and sales. This is the important tool to collect data and
form into the one report. Along with that, it also essential to measure the high cost effective
activity or which is not. For example with the help of report Agmet can easily check the sales
report, cash flow statements, number of sales calls per day, delivery deadlines dates etc. (Ax and
Greve, 2017). this makes the better opportunity to analysing the overall data and information.
There are some types of managing accounting which is helpful in making management reporting.
 Job costing system: Job order costing method is the effective process or system for
assigning manufacturing costs. This is the system which is used when production are
produce different from each other. This helps to maintain the record of each item. This
mention the information of Inventory management system. This system of management
accounting helps to make the job reporting examining the job order costing. The mainly
job cost consist three kinds of information on the Direct material, Direct Labour and
Overhead. The job costing system will also help to fulfilling the requirement of clients.
The various customer will permit for definite costs to be accusation to their jobs. This is
common use techniques where the cost-reimbursement condition where the consumer has
agreed to return an organisation for each and every cost collected for particular job. As a
result these techniques guarantee that revenue are connected with the expenditure in the
identical period.
3

 Financial Accounting: In this administration bookkeeping methods helps in influencing
records of the considerable number of exchanges, to quantify them and investigate the
productivity of the business amid such period. Along these lines, with the assistance of
this instrument the business will wind up ready to investigate the pay and uses while
recording in the pay articulations that will help in breaking down the expenses of
products sold, Gross Profit, Operating Profit and Net Profit to decide the execution of
Agmet progressing nicely (Wagenhofer, 2016). There will be investigation of the
accounting report and change in value that will be advantageous as far as estimating the
capacity to meet the capital use and in addition it will be instructive as far as procuring
the sufficient income. In this way, with such devices the firm will get all the pertinent
data that will helpful in making adequate business organization and execution of modern
activities.
 Budget Report: Spending plans are the most critical piece of association which will tell
how much sum would be put resources into all tasks and shape where assets ought to be
gathered. So reports ought to be made which is containing spending plans and sum put
resources into each sort of division or items. Report will advise about what could be
designated to office that are working with in organization. At that point these financial
plans which are for the most part delivered at the beginning stage of year should be
assessed or contrasted with that the real spending on every item or division toward the
finish of that money related year.
3. Critically evaluate the benefits of these types of management accounting systems, and their
applications within the organisational context.
As per Kihn and Ihantola, (2015) all these kinds of bookkeeping report which are there
are having their own particular advantages and restrictions in regard to firm in which they are
been readied. Like the record receivable report would let organization to think about what is that
sum which is as yet pending to all borrowers of firm and that too for what amount long. With the
assistance of this data that is said organization could without much of a stretch come to realize
that to whom in future organization must not give item using a loan.
As per the Wanderley, Frezatti and Carmona, (2017) it was mentioned that job costing
techniques or method is been widely used in companies which are been concerned with
manufacturing of products. So Agmet would be employing this technique which will be helping
4

them in effectively allocating of cost as according to various job or level of activity which is
been involved into. It would be easy for firm to deliver monitoring of cost throughout
manufacturing process of that product so that they could be tracking availability of budget into
certain department. Horton and de Araujo Wanderley, (2016) also included that if company is
been involved in job costing method of management accounting system then this would be
beneficial for company within cutting down its cost.
Additionally, said that activity costing system would take so much time and endeavours
of bookkeeper who might be occupied with planning report. It ends up troublesome for them to
decide what amount correct sum ought to be put resources into every division or item. As there
are numerous others more critical work of bookkeeper on which more fixation would be required
other than distributing of cost to every office or work.
Then again Nuhu, Baird and Bala Appuhamilage, (2017) incorporated that getting ready
spending plan for all branches of business and as entire is the best arrangement under which all
cost, name and measure of borrowers could be said. Spending reports which is made will tell
how much sum should b contributed on every single division with the goal that assessed benefits
are accomplished.
Budget report would also be helping firm so that they are able to make the financial
planning as how much each department or work would be requiring in doing their job. This will
be important for firm to develop budgets so that there are no chance of mismatch of the actual
and budgeted figures of company as said by Hiebl, (2017).
LO 2
4.
A) Preparing P&L Statement utilising absorption and Variable costing.
Absorption costing: It refers as the techniques used for compile the costs connected with
the process of production and proper for utilised to individual goods. The various direct cost are
connected with the production of the goods which consists wages of worker for tangible good,
raw material to make finish goods. It also included the direct cost which is used in manufacturing
a product as the base cost.
Quarter 1
5

6

Quarter 2
7

Variable costing: It is cost techniques which can be used for manufacturing overhead is
incurred in the process of manufacturing overhead incurred in the period of goods products. It
will solve the issues of the absorption costing which permits income increased as production
increase (Christ, 2014). Under these methods used direct labour, direct material cost and variable
process of used in the production cost.
Quarter 2
8

B) Profit from both the system is different.
The profits which would be coming from both these methods would be different as the
reason been that one of them which is absorption would be taking into account both direct and
indirect expense of firm into account. While on the other hand variable technique is only
employing variable cost of firm. So this will be causing main difference between the profits
which are been generated by both these systems.
C Produce a reconciled Statement of profits or loss.
P&L statement as per Variable costing:
Profit and Loss statement under the Absorption costing
9

SECTION 2
LO3
PART A
Compare and contrast three planning tools used in management accounting.
To bring the effective increment in the production and profitability of the organisation
which required to set up appropriate business management. Hence, in respect of critical analysis
of the company previous performance of business, the professionals or the administrator will
become able to make proper decision and planing for future operational action. The three planing
tool used in management accounting which will assist to the professional of Nero Ltd implement
such as follows:
Budgetary-control: This framework consider controlling on the few kinds of cost to set
up the spending program. What's more, it likewise supportive viewpoint that incorporated into
the diverse division (Ngwakwe, 2015). In this thought, real execution could be measure in
spending plan of the Nero Ltd. Productivity likewise assuming imperative part to make victories.
Along these lines, objectives and goals will finish through control and screen on the exhibitions.
For instance, in the picked business this system used to contrast standard and real exhibitions.
Budget: This is another instrument which help to make efficient outcomes at work
environment with estimation of the cost. It is additionally imperative parameter in the task that
utilized by supervisor of the business. Inflow and outpouring of the business will be considered
to work a few exercises. Spending help to expanding productivity and execution in deliberate
way.
Sales Budget: Sales spending sets and set up the announcement that gauge cost and
deliver methodical outcomes at working environment. It additionally assumes imperative part to
expand deals and income of the organization. It serves to administrator of Nero Ltd. to discover
powerful financial conditions at working environment.
Cash Budget: Cash spending plan is the likewise valuable process which help to
distinguish costs that are happens in arranging. With the assistance of powerful administration
exercises productivity will create in Nero Ltd. Ideal assets are additionally useful thought that
10

expanding money related results at working environment of the business. Money spending helps
to sufficient choices, apportioning cost, admin (Otley, 2016.).
Zero base budgeting: Further, administration of the chose business need to get ready spending
programs based on zero base planning. With this respect, planning additionally create based
on zero. As results, genuine figure increment administration exercises for the future
arranging and take out additional cost as well. Arranging additionally make legitimate
judgement of the undertaking in orderly way.
Fixed budgeting: In the precise money related arrangement, changes are decides as the real and
standard premise. Subsequently, procedures additionally connected based on real execution
as well. It likewise accommodating thought to focus on the clients of picked business. It
looks at the business execution with various assets and techniques as well.
Calculation of sales budget
Interpretation:
In order make the interpretation of the sales budget of company it was seen that sales for
both the quarters are coming different form each other. In the 1st quarter of year sales of company
was around $28 million with having the sales unit of around 56000 and selling prices was $50
for each quarter. While the sales of 2nd quarter was around $30 million which was the result of
60000 units.
Production Budget:Production spending plan is likewise helpful that create by more units that
are made in the organization. It creates inventive outcomes, maker perform more capacities
and tasks to expanding imaginative outcomes at working environment. Generation spending
plan likewise thinks about methodical exercises in the business condition. The chose
business can utilize it to make inventive items and administrations in the business.
11

Calculation of Production Budget:
Interpretation: Generation spending plan is contrast from the deals. In this way, it reflects to
deliver items and administrations in methodical way. In this thought, comes about are
performed and build up that effect on the undertaking exercises (Taleb, Gibson and Hovey,
2015). Henceforth, it additionally discovers that business expanding to focus on the new
exercises.
Capital Budgeting:It is the efficient procedure in which process well thought out to find
figuring the costs. Venture additionally configuration to consider high add up to create
methodical outcomes. These sorts of costs help to find out innovative outcomes. In the
particular time of period, creation framework will actualize new plant, hardware, and so
forth.
Payback Period:
= 3+40000/100000
= 3+.04
= 3.4 years
12

Interpretation
In such manner, count consider after effects of interest in various undertaking. It includes
a few viewpoints that are composed and covers in three years and four months of period. Thus, it
could be decipher that it isn't reasonable for our organization.
LO 4
PART B
Compare the ways in which management accounting is applied and their effectiveness of
management accounting in order to dealing with financial activities.
In addition to this, it can be said that Nero has is managing its work practice by having
consideration of diverse practice (Management accounting is important in Decision Making,
2018). In order to have effective workplace development and management accounting standards
the number of operational values are being promoted in desired manner. By having an
appropriate reference of accounting system the overall practice and results can be improved. It
helps in effective management of cost and financial values so that business can have better
opportunities. However, there are diverse ways that can be employed by Nero for sustainable
development of accounting system. Classification can be as cost accounting system, ratio
analysis, benchmarking and key performance indicators.
Cost accounting system: In regard to Nero, cost accounting system is essential to have
development for effective access to the price so that productive results can be presented. Proper
balancing among expenses is also necessary so that positive valuation can be promoted so that
long term sustainability can be taken into account. Along with this, systematic functioning of
business management is essential so that goals and objectives can be accomplished. Systematic
activities also assists to identify product effectiveness at workplace (Wanderley, Frezatti and
Carmona, 2017). Hence, it creates benefit to set pricing according to it.
Benchmarking: It is referred as most essential section for every business firm which
allows to have improvement in standards. It means proper benchmarking can be set out regarding
financial values such as expense so that standards can be advanced. Benchmarking is a creative
tool that assist in effective comparison of results. It means Nero can have benchmarking and set
some standards. On the yearly basis the company can compare the actual expenses with set out
expense standards. It will allow to have proper analysis of situation so that key outcome can be
13

attained. With an assistance of proper benchmarking and evaluation the strategies can be framed
in desired manner. It also provides a support to systematic monitoring system regarding
accounting system.
Ratio analysis: It is considered most significant tool which assist in measuring the
effectiveness of overall business. By having an improved focus on ratio analysis the business
firm can have better analysis of financial factors and their allocation to activities. With an
effective consideration of ratio analysis the business can advance the actual position in terms of
financial terms. Different ideas and activities assists to produce systematic targets and goals at
workplace. It helps in measuring the profitability and revenue in desired manner. It means
company like Nero can have appropriate decisions through results of ratio analysis.
Key performance indicators: It is considered as most commonly used tool which allows
to have creative results at the workplace. In this consideration, proper management activities are
designed that create high growth and profitability to produce more profits and revenue at
workplace. In addition to this, it can be said that by having an effective focus on key
performance indicators the recording about activities can be done properly to measure the same.
In addition to this, it can be said that loopholes can easily be identified by the manager so that
goals and objectives can be accomplished (Horton and de Araujo Wanderley, 2016). Financial
problems can also be resolved in desired manner for long term opportunities.
Variance analysis: It is a quantitative technique which allows to have better investigation
of factors so that goals and objectives can be accomplished. In addition to this, it is the most
fruitful ways of determining the adequate increment and analysis of the business operations.
Adequate results can be identified so that long term opportunities can be promoted. Growth
factors and differences can be identified on the basis of which proper decisions can be taken into
account.
CONCLUSION
From the above part it was reasoned that there are numerous kinds of administration
bookkeeping reports which is been set up by bookkeeper with the goal that they could
undoubtedly share vital data to the best administration.
14

REFERENCES
Books and Journals:
Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational
culture compatibility and perceived outcomes. Management Accounting Research, 34, pp.59-
74.
Christ, K.L., 2014. Water management accounting and the wine supply chain: Empirical
evidence from Australia. The British Accounting Review. 46(4). pp.379-396.
Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea: The
case of the balanced scorecard. Contemporary Accounting Research. 34(2). pp.991-1025.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting
practices. Journal of Operations Management. 32(7-8). pp.414-428.
Hiebl, M.R., 2017. Management accounting as a political resource for enabling embedded
agency. Management Accounting Research.
Horton, K.E. and de Araujo Wanderley, C., 2016. Identity conflict and the paradox of embedded
agency in the management accounting profession: adding a new piece to the theoretical
jigsaw. Management Accounting Research.
Kihn, L.A. and Ihantola, E.M., 2015. Approaches to validation and evaluation in qualitative
studies of management accounting. Qualitative Research in Accounting &
Management. 12(3). pp.230-255.
Ngwakwe, C.C., 2015. Industry real-life management accounting practice: a differential effect
on accounting students' performance: part 1. South African Journal of Higher
Education. 29(3). pp.69-86.
Nuhu, N.A., Baird, K. and Bala Appuhamilage, A., 2017. The adoption and success of
contemporary management accounting practices in the public sector. Asian Review of
Accounting. 25(1). pp.106-126.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
15

Taleb, M.A., Gibson, B. and Hovey, M., 2015. Fifty years of Sustainability Accounting: does
accounting for income in business sustainability really exist?. International Journal of
Accounting and Financial Reporting. 5(1). pp.36-47.
Wagenhofer, A., 2016. Exploiting regulatory changes for research in management
accounting. Management Accounting Research. 31. pp.112-117.
Wanderley, C., Frezatti, F., and Carmona, S., 2017. MAPPING VARIETY IN MANAGEMENT
ACCOUNTING RESEARCH: AN INTRODUCTION. Advances in Scientific and Applied
Accounting. 10(2). pp.133-136.
Online:
Management accounting is important in Decision Making, 2018. [Online]. Available through:
<http://smallbusiness.chron.com/management-accounting-important-decisionmaking-
53947.html>.
16