MANAGEMENT ACCOUNTING

Contents
Introduction......................................................................................................................................3
LO1: Demonstration of understanding of management accounting systems..................................4
P1 Description of management accounting and different types of management accounting
systems and their essential requirements.....................................................................................4
P2: Explanation of different methods used for management accounting reporting....................6
M1 Evaluation of the benefits of management accounting systems and their application
within an organizational context..............................................................................................6
LO2: Apply a range of management accounting techniques...........................................................8
P3: Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................8
D2 Producing of financial reports that accurately apply and interpret data for complex
business activities..................................................................................................................11
LO3 Explain the use of planning tools used in management accounting......................................12
P4 Explaining the advantages and disadvantages of different planning tools used for budgetary
control........................................................................................................................................12
M3 Analysis of the use of different planning tools and their application for preparing and
forecasting budgets................................................................................................................12
LO4 Compare ways in which organizations could use management accounting to respond to
financial problems.........................................................................................................................14
P5: Compare how organizations are adapting managerial accounting systems to responding to
financial problems.....................................................................................................................14
Conclusion.....................................................................................................................................15
 Introduction
In every organization management accounting is too much needed for taking a proper business
decision to achieve organizational goals. With the help of financial accounting and cost
accounting management accountants prepare accounting report and provide it to the manager that
helps in the formulation of policies, business decisions and day to day activities. Management
accounting makes a comparison between the actual result and budgeted result and show the
organizations condition, that helps to take corrective actions if needed. Without proper and
accurate completion of this report, an organization may fail to achieve its goals and objective.
So, management accountants should provide an unbiased, informative and proper report to the
manager. As a Trainee Management Accountant of an SME food and drink manufacturing
industry named The Ginger Pig, in this report I shall discuss the pros and cons of management
accounting.
 LO1: Demonstration of understanding of management accounting systems
P1 Description of management accounting and different types of management
accounting systems and their essential requirements
Management accounting is a presentation of management reports and accounts analyzing
business costs and operations, that help to take the necessary business decision to achieve
organizational goals and objectives effectively and efficiently. Management accounting, also
known as managerial accounting or cost accounting. It is an accounting process of measuring,
analyzing, producing, interpreting and reporting information to the manager for the formulation
of policies and taking business decisions.
Now, different types of management accounting systems and their essential requirements is
being discussed here-
Cost accounting system: Cost accounting system or costing system indicate the estimation of
the cost of products. It is a systematic way to measure the cost of products that help in inventory
valuation, profitability analysis, and cost control. It is an essential tool for an organization that
provides detailed cost information and helps management to control current operation as well as
plan for the future. In this system, the cost is being allocated either on a traditional costing
system or activity-based costing system. Cost accounting systems are mainly two types-
- Job Order Costing
- Process Costing
Inventory Management Systems: Inventory management system is a systematic way in which
the business’s stocked goods or materials is being managed. It indicates the controlling and
overseeing of quantities of the finished goods for sale. Inventory management helps to reduce
wastage and increase profitability. It helps managers to manage inventory properly with the
minimization of overstock and understock. Following are some major functions of inventory
management systems-
- Create Purchase Orders
- Receive, relocate, adjust and dispose of inventory
- Create sales orders
- Pick, Pak and ship
- Physical inventory counts and cycle counts
- Create, run, schedule and share reports
- Print barcode labels
Job Costing System: In a job costing system, the manufacturing cost of individual units of
products is being measured. There need the following three types of information in job costing
system-
- Direct Materials
- Direct Labor
- Overhead costs
Price Optimizing System: The fluctuation of demand in the market of products at a different
price level is being indicated in this system. Based on this company determine its product price
and profit. This system can help the manager to determine initial pricing, promotional pricing,
and discount pricing of products. Following three pricing elements is needed for price optimizing
system-
- Pricing strategy,
- The value of the product to both buyer and seller, and
- Tactics that manage all elements impacting profitability
P2: Explanation of different methods used for management accounting reporting.
Management accounting report helps an organization to take proper decision for achieving
business goals. There are several methods used for management accounting reporting.
Cost report: Management accounting provides a cost report, to which the manufacturing cost of
products is being measured. This report helps the manager to evaluate and monitor the difference
between selling price and cost of products. That also helps to monitor and control the cost and
profit of products in the market. Cost report calculates the production cost of products by making
sum the raw product overhead, costs, labor and any extra cost in consideration. After that, the
sum amount is being divided by the total amount of goods produced.
Budget: Budget is financial planning for a specific time period to spend money properly.
Management accounting provides necessary information to the managers, based on these
information managers make a budget for the organization. Without management accounting
report, it is not possible to prepare a budget properly. So, management accounting provides a
budget for the organization.
Performance reports: The performance report of an organization shows the difference between
expected performance and acquired performance within a specific time period. Based on this,
management can take corrective action if necessary and can forecast future planning. This report
can provide information by comparing actual cost and profit based on budget.

M1 Evaluation of the benefits of management accounting systems and their application

within an organizational context
Management accounting helps managers in the decision making process and formulation of
policies by providing various essential reports. The benefits of management accounting systems
and their application within our industry The Ginger Pig context in being evaluated bellow-
Evaluation of Performance: Management accounting can help in the evaluation of the
performance of various organizational parts and working forces of the industry. It helps to make
a comparison between the actual performance and standardized performance. Based on this
comparison if any corrective action needed in the performance, an organization can make it
happened. By this, the performance of the organization can be maximized.
Assessment of the Risk Factor: Management accounting helps to identify and asses the risk
factor within the organization. This help to minimize the risk by using various tools and
techniques.
Allocation of Resources: Without proper allocation of resources an organization cannot be able
to produce desired output and achieve its organizational goals. For allocating resources first of it
is needed to know the requirements of resources and then collect resources based on the
requirements. Management accounting can help in this process for the allocation of resources
effectively and efficiently.
Presentation of Financial Reports: Management accounting collects information from the various
organizational part and make various types of a financial report based on this information. The
presentation of various report helps to make plans, policies, and decisions.
D1 Critically evaluation of how management accounting systems and management
accounting reporting is integrated within organizational processes
The integration of management accounting systems and management accounting reporting
system in The Ginger Pig is being critically evaluated bellow-
Budgeting Report: The integration of the organizational process of The Ginger Pig and the
budgeting report can help the organization to generate better output, that can also help to achieve
organizational goal effectively and efficiently.
Account Receivable Aging Report: The integration of organizational process of The Ginger Pig
and the account receivable aging report can help to create a proper policy to collect an account
receivable in time.
Job Cost Report: The combination of organizational activity and job cost report can make the
organization able to reduce the overall production cost of the product and also help in the product
pricing.
Inventory and Manufacturing Report: The integration of the working process of The Ginger Pig
and the inventory and manufacturing report make The Ginger Pig able in better inventory
management and reducing manufacturing cost. The required level of inventory and the better
management of manufacturing cost can be achieved by this.
Performance Report: The performance report shows the comparison between the actual
performance and the standardized performance of the organizational working force. The
combination of these reports and the working process of The Ginger Pig make the organization
able to achieve its required output to achieve its target.
Order Information Report: With the combination of organizational process and the order
information report make can help in better management of tracking order and fulfillment of order
in time.
Business situation report: This type of report with the integration of organizational activity of
The Ginger Pig helps to analysis the organization’s situation and make the management able to
take proper steps to face these situations.
 LO2: Apply a range of management accounting techniques
P3: Calculate costs using appropriate techniques of cost analysis to prepare an
income statement using marginal and absorption costs.
All kinds of costs related to manufacturing of a product are known as abortion costing. When the
production of a more unit of products increase the change in cost for this unit is called marginal
costing. Following is the calculation of costs using appropriate techniques of cost analysis to
prepare an income statement using marginal and absorption costs-
Contribution margin = Sales – Variable costs
Profit = Contribution – Fixed costs
M2 Accurately application of a range of management accounting techniques and creation of
appropriate financial reporting documents
Accurately application of a range of management accounting techniques and creation of
appropriate financial reporting documents is being discussed below-
Financial Planning: Financial planning is an important tool for an organization to operate the
organization effectively and efficiently and maximize its profit.
Financial Statement Analysis: By analyzing financial statements the condition of the
organization and the growth rate can be known, that helps to take necessary steps if needed.
Cost Accounting: Cost accounting shows various types of cost in different aspects. Making a
comparison among the actual cost and the budgeted cost required steps can be taken if needed
and effective can management can be achieved.
Management Information System: The flow of information among the various organizational
part make the organizational workflow more effective and efficient.
Ratio Analysis: Management accounting provides various types of a report containing various
data. Based on these reports, the organization makes ratio analysis that makes the organization
able to know the condition of the organization in various perspective and helps to take necessary
steps if needed.
D2 Producing financial reports that accurately apply and interpret data for complex
business activities
Management accounting produces various types of financial reports based on the collected data
from the organization’s operational activity and expenditure. These financial reports help the
organization to know about the financial condition by making a comparison between the actual
result and the pre-determined result. It also helps in making a financial plan based on these
reports and taking corrective actions if needed. So, the production of financial reports and the
application of these in business activities can make the organization able to achieve its goals and
objectives more effectively and efficiently.
 LO3 Explain the use of planning tools used in management accounting
P4 Explaining the advantages and disadvantages of different planning tools used for
budgetary control
Actual income and spending are compared with budgeted income and spending in budgetary
control. Based on this comparison management take necessary action if needed and capture a
financial forecast for future planning by using different planning tool. There are some advantages
and disadvantages of these tools that are showed in bellow-
Adaptation: It is a very focusing advantage of budgetary control. In budgetary control, actual
income and cost are being compared with budgetary income and cost. If any project cannot meet
up expected return then the manager can take alternative steps and can change the business
decision. Budgetary control helps to adapt organization with changing context to make it a
success.
Tracking Progress: From budgetary control, management can track organizational progress
easily. As budgetary control shows a comparison between budgetary and actual income and
costs, based on this management can take necessary steps if needed for increasing the profit.
Dependency on Numerical Data: Budgetary control cannot work without numerical data. It
analyzes various numerical data and delivers output. It is one of the biggest problems of
budgetary control. Sometimes collecting numerical data for budgetary control is expensive and
sometimes it may not able to collect accurate data.
Cost: Collecting necessary data and analyzing budget is a cause of the increasing cost of an
organization. It is another disadvantage of budgetary control. Sometimes the cost exceeds the
output of the budgetary control.
Different kinds of planning tools used for budgetary control:
Planning and controlling: Different kinds of planning tools helps in planning by providing
various information by reports. These reports and information also help to manage and control
the organizational process and financial conditions.
Pricing: Pricing is an important tool for budgetary control. Pricing strategy is being taken based
on the demand and supply of the product in the market and the condition of competitors.
Costing systems: Costing system is another strategy in budgetary control. Minimizing over
costing by taking various strategy an organization can maximize its profit.
Strategic planning: Applying SWOT, PEST, Porter’s Five Forces of balance scorecard analysis
an organization makes strategic planning to achieve its goals effectively and efficiently.

M3 Analysis of the use of different planning tools and their application for preparing and
forecasting budgets
Budgeting tools help in manage, plan, prepare and forecasting an organization’s budget more
effectively and efficiently. Online budgeting tools also provide support for managing the budget
in an organized way. The use of different planning tools and their application for preparing and
forecasting budgets is being discussed below-
SCORE: Score combines all budgeting features with other tools and brings the entire company
under one system to manage it more effectively. It also helps in managing expenses and
resources by using a financial dashboard.
CENTAGE: Centage is a comprehensive enterprise budgeting software provider. It is a highly
comprehensive solution for organizations that provide different tools for budgeting, forecasting,
financial reporting, etc.
PROPHIX: This tool provides support for managing corporate performance management by
including many smaller tools for managing a company’s resources and planning its budgets.
FLOAT: Float helps in cash flow forecasting and budget management.
PLANGURU: This software is very easy and simple to use. It helps to manage the budget for a
small company.
COUPA: This tool help in budget management by providing real-time information and budget to
every team member.
TIDEMARK: It is a single platform analytical tool that offers extensive budget planning and
result tracking facilities.
GIDE: GIDE makes organization able to combine budgeting, strategic planning and rolling
forecasts for managing budgets.

D3 Evaluation of how planning tools for accounting respond appropriately to solving

financial problems to lead organizations to sustainable success
Planning tools for accounting respond appropriately to solving financial problems to lead
organizations to sustainable success in the following way-
Panning and controlling: Planning tools help to make a plan by providing various types of report
and information. After planning the working process is being set up and the organizational
workforce can work based on the work. Planning tools make control of the organizational
workforce too.
Implementation of the plan: Managers can get various data, information and work plan. Based on
that the plan can be implemented more effectively and efficiently.
Competitive edge: Management accounting makes an organization able to make a comparison
between the actual output and the predetermined output. By this, the management can know the
organizational condition and can take necessary actions if needed.
LO4 Compare ways in which organizations could use management accounting
to respond to financial problems

P5: Compare how organizations are adapting managerial accounting systems to

responding to financial problems
A proper framework of Management accounting gathers budgetary information from business
operations, for example, deals information, moves in stock and changes in crude materials
expenses, and after that changes over the data to examination reports.
Decision making: In financial problem managerial accounting helps in decision making to
overcome this problem. Analyzing the difference between budgeted and actual result
management can take a proper decision about what to do next.
Planning: Various data and report of management accounting help management to take plan for
upcoming activity. Without proper planning, an organization may fail to achieve its targets, so
planning is very important. In the financial problem of the company management accounting will
help to make proper planning based on its report and other evaluated criteria.
Directing: Management accounting also helps to drive organizational working force and another
related body in a proper direction to achieve its goals and objectives.
Controlling: It also helps to make controlling the process. Monitoring and evaluating the
activities and performance corrective actions are being taken here if needed.

M4 Analysis of how, in responding to financial problems, management accounting can lead

organizations to sustainable success
In responding to financial problems, management accounting can lead organizations to
sustainable success by following way-
Strategic plans and policies: Management accounting helps management to take strategic plans
and policies based on different situations. That can lead an organization to sustainable success.
Tools and techniques: Management tools and techniques can face and handle the financial
problem and other related trouble more effectively. By using management tools and technique an
organization can gain its goals and target that can lead the organization to sustainable success.
Reports: Management accounting provides various types of reports based on various criteria and
situations. From this report, management can make a plan, take decisions and achieve its desired
output. The presentation of the various financial and non-financial report also help in budgeting.
That also makes the organization able to gain sustainable success.
 Conclusion
The business environment and competitions are changing and developing day by day. In this
context, the expectations of customers are changing. Always they expect something new.
Besides to gain competitive advantages and make a strong position in the market the operational
strategy and working process should be changed based on market demand. For that organization
should take necessary actions when needed. The organizational working force should always be
ready to face any situation smartly. For that, the employees should be educated and trained
properly so that they can use their full potentiality. There must have discipline in the working
environment of an organization. Besides the financial planning, uses of fund, expenditure,
income all should be done properly so that organizational goals and objectives are being
achieved properly. Management accounting helps in this context to make the plan properly. It
helps to get indicate organizational clear picture by making a comparison between actual income
and expenditure with budgeted income and expenditure. It also shows the uses of various
business tools uses to face a different situation.