Impact of Management Accounting on Organizational Performance

Management accounting plays a crucial role in enhancing organizational performance by providing essential data for informed decision-making and strategic planning. This comprehensive analysis investigates how effective management accounting practices contribute to operational efficiency and improved resource allocation within organizations. By examining case studies and theoretical frameworks, the assignment highlights key aspects such as cost control, budgeting, and financial forecasting that empower managers to optimize operations and achieve business objectives. Additionally, it discusses the evolving nature of management accounting in adapting to technological advancements and global market dynamics. The synthesis of these elements underscores the indispensable value of management accounting in fostering a responsive and competitive organizational environment.

UNIT 5
MANAGEMENT
ACCOUNTING
Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explanation of management accounting and different types of management accounting
systems with examples................................................................................................................1
P2 Different methods of management reporting (800)...............................................................4
TASK 2............................................................................................................................................4
P3 Calculation of income statement through marginal and absorption costing and difference
between the two...........................................................................................................................4
TASK 3............................................................................................................................................6
P4 Different types of planning tools which are used in budgetary control.................................6
P5 Use of management accounting systems to cope up with financial problems.......................8

CONCLUSION................................................................................................................................9

Index of Tables
Table 1: Income statement through marginal costing method.........................................................4
Table 2: Income statement through Absorption costing..................................................................4

To
The General Manager
INTRODUCTION
Management accounting helps in analysing the financial statements so that effective
decisions can be made by the management for company's growth. The main financial statements
analysed, or management accounting decisions are, statement of profit and loss, statement of
financial position and statement of cash flow. Ades group is a small sized retail company
functioning in United Kingdom which is involved in providing groceries and other consumer
goods to its customers. The report makes a comprehensive analysis on different management
accounting systems that can be used by the company for effective function which can further
lead to developing financial problem-solving technique. It further focusses on different planning
tools that can be used by Ades. The report will make effective discussion on adaptation of
management accounting system in response to varied financial problems that can arise in the
business. In the end, a brief discussion on different methods of management accounting reporting
will be discussed in the report in context to Ades group.
TASK 1
P1 Explanation of management accounting and different types of management accounting
systems with examples
Management accounting is a process allocating financial information and data
appropriately in order to advice company about its performance and growth and development is
management accounting. It helps in analysing short term accurate statically and financial
information required by business to make effective short-term decisions. It is used by the
managers as it helps in establishing control over performance decisions which can influence
organisational performance (Management Accounting, 2017). Ades foods can use this approach
as it will help in better decision-making process. There are three basic reports that are used by
the management which are also known as financial statements of the company. They are
statement for profit and loss, statement of financial position and statement for cash flow.
Management accounting system is an effective technique that is used to provide financial
information to the top-level management so that it can help in better decision making. It acts as a
resource to prepare budget and plan further implementing it and finding out discrepancies in it.
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There are different types of management accounting systems that can be used in order to enhance
the performance of the organization. Some of them are mentioned below: Cost Accounting systems: It is the method which is used by the organizations to assess
the cost of the products in which the entity deals. For instance, Ades group is involved in
providing food products to retailer. Hence, the approach can be used to calculate the cost
of groceries. Further, it also plays vital role in addressing the profit that will be earned by
the company (Nixon and Burns, 2012). Closing stock is used to forecast the assets in the
financial statements in the upcoming accounting period. The cost can be divided in three
categories:
◦ Actual costing: It this type of costing, actual cost is considered to do the estimation.
The cost is derived based on actual cost of availability, such as, actual cost of labour,
material and overhead (Otley and Emmanuel, 2013). Hence, Ades group can use
material, labour and pre-determined overheads in order to calculate its actual cost.
◦ Normal costing: It is another type of costing activity where the actual cost of material
and labour is taken into consideration. However, the estimated cost of overhead is
used to calculate the cost and estimated profits. It helps in ascertaining the cost based
on the approximation made for material and labour.
◦ Standard costing: According to this technique of cost accounting system, budgets can
be prepared to ton manage and control the cost which leads to higher profits as well.
It estimates the cost based upon the costing policies followed in the preceding years.
For instance, if the budget is required to be made on sales, then the sales of past five
years can be considered to assess the ongoing trend and make the budget
appropriately.
 Inventory management systems: It is a type of software which is used to track the
inventory level available in the organization. It helps in accessing current inventory level,
order, sales and deliveries being made by the company. This management accounting
system will prove to be useful to Ades group as well as the management of the entity will
get aware about the stock running out and can order it in bulk from the supplier in
advance only. It will reduce the loss of customers and hence lead to earning maximum
profits (Parker, 2012). The software is particular made for the organizations who deal
with multiple type of products so that tracking becomes easy. Hence, it will useful for
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Ades to manage its inventory. Some of the common functions of inventory management
system is mentioned as follows:
◦ Creating purchase orders
◦ Receiving, adjusting, allocating and disposing the stocks
◦ Creating order of sales
◦ Packaging and shipping of order to delivery to the destination.
◦ Ascertaining the count of the order cycle and intimating the management in advance
for stock refill at the respective place (Renz, 2016).
◦ Printing bar codes for the products which is to be pasted on the respective products. It
is the useful practice at the time of billing of the product. Job costing system: It is the accumulation of the cost which is specific to a particular job
or service. The information is important in the case when the cost is going to be
reimbursed by the customer. The cost is helpful in order to determine the accuracy in the
estimation system of the company which helps in quoting the prices to the customers with
the aim to generate reasonable profits out of it (Tran-Thanh, Chapman and et. al, 2012).
There are three types of information that can be accumulated by job costing system. They
are listed below:
◦ Direct material: It is important to track the cost of material that is being used to
perform that job from scratch. It is helpful in calculating the cost where custom made
products are required by the customer. For the first-time manual tracking can be used
and then after feeding the data into the software, automatic calculation of the cost of
the product can be derived.
◦ Direct labour: It helps in tracking the cost of labour in order to develop the finished
goods for the particular customer. The cost of labour can be derived using the number
of hours a person has worked to finish that particular job (Bodie, 2013). For that
matter, time can be observed through punch clock and time sheet. It is helpful in
ascertaining the final cost of the product.
◦ Overheads: Overhead cost is assigned to the products which can be in the form of
depreciation on equipment’s used in production and rent of the factory of the
building.
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 Price optimizing system: It is the software which helps in assessing the reactions of the
customers to different prices for different products and services departed through
different channels. It is important software to analyse and determine the price that will be
best suited for the customer and can help in generating maximum profits as well (Caglio
and Ditillo, 2012). For instance, Ades group can use this software assess the prices of
consumers products offered by the enterprise. It will help in ascertaining that to what
prices, customer gets attracted the most to the products offered by the entity. It will help
Ades to maximize its profits.
P2 Different methods of management reporting
Management Accounting is the process of recording, classifying and analysing the
financial information’s which are used by the managers for making plans, taking decisions and
for controlling the operations of business. Management accounting focuses on the information
generated from the Financial Accounting of Ades foods which is the online grocery store and
these information’s are used by the managers of Ades foods for planning, controlling and
decision-making process of their store. Management Accounting is based on Income statements,
Balance sheets and cash flows statements but it also uses other types of accounting reports which
are used in analysing the organisation information’s (Dhaliwal, 1982). Management accounting
reporting methods are used by managers for planning and budgeting, for decision making, for
measuring performances and for increasing profitability. Different types of methods used for
Management Accounting reporting in the Ades foods are cost reporting, budgets reporting, and
performance reporting and other types of reporting.
 Cost reporting methods: In this methods management Accounting calculate the costs of
products available in Ades foods. The cost reporting is done by calculating the raw
materials cost, overhead cost, labour cost and other costs. The total cost of products is
divided by total products produced (Ahrens, 2006). All the above information is included
in the cost reports of the company and this reporting of costs help the managers to
compare costs with the sales price. This comparison helps managers to make plans
related to cost reduction if the cost of products is more than its sales and if the sales price
is more than the cost price than the plans are made to maintain the cost at the low level.
This plan is made to controls the profits of future. The main aim of Ades foods is to
reduce their cost, so the profits can be increases.
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 Budgets reporting methods: The most important decisions of management are to
prepare the budgets for the operations (Petty, 2000). Budgets are prepared on the basis of
the previous year for the operations of future. The budgets list includes all the sources of
incomes and revenues. This budget help ads foods to achieve the goals and objectives of
the companies. The policies are changed related to suppliers of Ades foods, so they can
save money. This report help in making policies to increase the sales and policies to
reduce the expenses. The budgets reporting is done to compare the actual revenues and
expenses with the budgeted revenues and expenses. The budgets are very helpful in
efficient working of each operations in Ades foods.
 Performance reporting methods: the budgeted figures are compared with actual figures
and the difference in both evaluated to make new budgets. All this information is
reported in performance reporting. The reports are prepared for every month and every
year in Ades foods (Schaltegger, 2006). These reports are used by managers to make
plans for future demand in productions and increase in costs. The monthly reports help in
managers in to evaluate the performances monthly and then the performance of previous
month become the base of planning for next month. Yearly actual performances are
measuring to compare it with expected performances.
 Job costing reporting methods: This method of reporting is used to evaluate the total
cost of each jobs in Ades foods. This reporting method help the management to analyse
the actual performance of specific jobs in Ades foods and compare it with the expected
performances (Horngren, 2009). In Ades foods different jobs are performed like the
managers at different levels, workers at stores to maintain the inventories etc. all these
jobs include its cost which is measured.
 Accounts receivable reporting methods: this is important report for Ades foods
because they provide groceries to their customers on credits. These reports provide all the
information’s related to credit balances of each customers on the basis of time periods
such as 30, 60 and 90 days. This help the managers in preparing the credit policies for
repayments from cuss timers.
 Other reporting methods: These methods include the preparation of other reports by
managers of Ades foods. These reports include order information reports which provide
comparative information of order received and order placed (Modell, 2005). This report
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is prepared to make the plan that how more order to be placed when there are less
products available and when excess order is made than first finish the unused products
and then order the new products. Business situations and opportunity report is also
prepared which help managers in making decisions related to different situations and
opportunities of Ades foods.
This concluded that Ades foods can use different methods of management Accounting
reporting like cost reporting methods, budget reporting, performance reporting, job costing
reporting, Accounts receivable reporting and other methods to make efficient plans and for
taking effective decisions which help in increasing the profitability of the business.
TASK 2
P3 Calculation of income statement through marginal and absorption costing and difference
between the two
Computing the Net profit through marginal costing method.
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Marginal costing method is used in management accounting in order to calculate net
profit for the firm. It considers to variable cost which is charged to unit cost and number of units
produce. Further, it also considers total fixed cost that is to be written off from the contribution
in order to reach to net profits of the firm. Fixed cost remains unchanged regardless of the
volume of units being produced by the firm,
In case of absorption costing method of income statement all the cost is considered to
calculate the net profit regardless to the fact that if it is variable or fixed. Hence, it consists of
direct labour, direct material and both variable and fixed overhead.
The two types of costing methods are significantly different from each other. Some of the
differences between absorption costing and marginal costing can be stated below:
 Under the concept of marginal costing which is used to costing of the product and
valuation of the inventory, only variable cost is considered whereas the case is quite
different while making calculation through absorption costing. While calculating the net
profit through this method both fixed and variable costs are considered (Christ and
Burritt, 2013).
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