Management Accounting Principles: Costing & Income Statement Analysis

This presentation provides an overview of management accounting principles, focusing on the role of management accounting in analyzing business operations and costs for internal reporting and decision-making. It covers key aspects such as revenue and expense analysis, budgeting, and different management accounting systems. The presentation elucidates various methods used for management accounting reports, including financial and sales reports, and differentiates between period and product costs. A detailed comparison of absorption costing and marginal costing is presented, along with illustrative examples of income statements prepared using both variable and absorption costing techniques. Finally, the integration of management accounting within an organization is discussed, highlighting the importance of management accounting in achieving organizational goals. The presentation concludes by emphasizing the significance of management accounting in internal decision-making processes.

Management accounting principle
Name of the student
Name of the university
Student ID

Presentation outline
This presentation will focus on management
accounting and will state about the principles of
management accounting. It will further, talk about
the role of management accounting and the
benefits those can be arrived from the same. The
presentation will also highlight different types of
management accounting systems . It will further
explain the difference of marginal costing and
absorption costing. Variable costing and absorption
costing will be demonstrated through an example.
Further, the presentation will also state about the
management accounting integration and will finally
provide the conclusion.

Management accounting
Management accounting that is also
called as the cost accounting is the procedure
of analysing the business operation and costs
for preparing internal records, financial reports,
and various other accounts for aiding the
managers in decision making procedures. It
further helps in achieving the business goals
(Kaplan and Atkinson 2015).

Analysing the revenues and expenses – revenue is the
money that is earned by the company. Expenses on the other
hand, are the amount paid by the company for business
operation. However, getting the appropriate figure for
expenses as well as revenues may be complex and time
consuming procedures. Hence, the management accounting
needs the accounting managers to closely work with the
financial team of the company to handle the day to day
operations of the company.
Creating budgets – once the managerial accountant has the
financial data regarding the expenses and revenue of the
company it creates the realistic budget for the specific
operations and projects. With the help of these budgets the
company can estimate the long term profitability and forecast
the growth (Fullerton, Kennedy and Widener 2014).
Role of management and accounting

It is the confidential internal reports that
help the managers in making the
decisions. It is based on the informational
needs of the management and includes
break-even charts, budgeting and analysis
of product cost, forecasting and trend
charts. Generally it identifies, analyses,
measures and communicates the
information that enables the organization
to achieve the goals (Yigitbasioglu 2016).
Management of accounting systems

Various methods used for the purpose of
management accounting reports
Management accounting reports provide various
information required for trimming costs, rewarding
high performance employees, investing in goods
that offer the best return and cutting languishing
products.
Financial reports – it is generally issued in
quarterly basis or annual basis and includes all the
financial data during the particular period of time.
Sales reports – it records all calls that have been
taken in the particular period and products that
have been sold during the particular time.

Types of costs
Period cost – it is the cost that
is not capitalized into the
prepaid expenses, fixed assets
or inventories. It is associated
more closely with the time
passage as compared to
transactional event.

Meaning – marginal costing is the technique
that considers only the variable cost as the
product cost. Conversely, absorption costing is
the technique that considers both fixed as well
variable costs as the product cost
Nature of the overhead – marginal costing
considers variable costs and fixed cost as
overheads whereas absorption costing
considers the distribution, production,
administration and selling costs as overheads
(Messner 2016).
Absorption costing Vs marginal costing

ABC Company manufactures and sells product P at $
250 per kg. Related information for the year 2017 are as
follows –
Sales: 75,000 kgs
Finished goods inventory at the beginning of the
period: 12,000 kgs
Finished goods inventory at the closing of the period:
17,000 kgs
Manufacturing costs –
Variable cost: $ 8 per Kg
Fixed manufacturing overhead cost: $ 320,000 per
year
Marketing and administrative expenses –
Variable expenses: $ 2 per Kg of sale
Fixed expenses: $300,000 per year
Example

Variable costing income statement –
Absorption costing income
statement –

Integration of management account
2 fundamental options required for
designing the management accounting
system (MAS) is –
(i) the user can use the financial records as
the database for the management
accounting or
(ii) MAS used by the controllers are based
upon the 3rd set of the books apart from
tax and financial accounting records
(Quattrone 2016).

Conclusion
From the above discussion it is
concluded that management accounting
plays an important role in analysing the
business activities. The accounting
information is reported is various ways for
assisting the analysis by different users of
information. It is used by management of
any organization and assist in making
internal decisions.

References
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.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
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.
Langfield-Smith, K., Smith, D., Andon, P., Hilton, R. and Thorne, H., 2017. Management accounting:
Information for creating and managing value. McGraw-Hill Education Australia.
Lopez-Valeiras, E., Gomez-Conde, J. and Naranjo-Gil, D., 2015. Sustainable innovation, management
accounting and control systems, and international performance. Sustainability, 7(3), pp.3479-3492.
Malmi, T., 2016. Managerialist studies in management accounting: 1990–2014. Management
Accounting Research, 31, pp.31-44.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research, 31, pp.103-111.
Nielsen, L.B., Mitchell, F. and Nørreklit, H., 2015, March. Management accounting and decision
making: Two case studies of outsourcing. In Accounting Forum (Vol. 39, No. 1, pp. 64-82). Elsevier.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research, 31, pp.118-122.
Taylor, L.C. and Scapens, R.W., 2016. The role of identity and image in shaping management
accounting change. Accounting, Auditing & Accountability Journal, 29(6), pp.1075-1099.
Van der Stede, W.A., 2016. Management accounting in context: Industry, regulation and
informatics. Management Accounting Research, 31, pp.100-102.
Yigitbasioglu, O., 2016. Firms’ information system characteristics and management accounting
adaptability. International Journal of Accounting and Information Management, 24(1), pp.20-37.