Contents

LO1: Demonstrate an understanding of management accounting system: ................................................. 6

1.1: Explain management accounting and different types of managerial accounting sytems: ................ 6
Features ................................................................................................................................................ 6
Types ..................................................................................................................................................... 6
Function ................................................................................................................................................ 6
Considerations ...................................................................................................................................... 7
Benefits ..................................................................................................................................................... 7
Components of Managerial Accounting ................................................................................................... 7
1.2: Methods of Management Accounting Report: .................................................................................. 7
1.3: Benefits .............................................................................................................................................. 9
Planning .................................................................................................................................................. 10
Controlling............................................................................................................................................... 10
Decision-making ...................................................................................................................................... 10
Problem-solving ...................................................................................................................................... 10
Goal Setting ............................................................................................................................................. 10
1.4: .......................................................................................................................................................... 11
Managerial Accounting Defined ......................................................................................................... 11
Continuous Improvement ................................................................................................................... 11
Cost Management ............................................................................................................................... 11
Example ............................................................................................................................................... 11
Quality Management .............................................................................................................................. 12
Learning Outcome 2: Apply range of management accounting techniques: ............................................. 12
2.1: Marginal and absorption costing: .................................................................................................... 12
2.2: Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents : .............................................................................................................. 15
LEARNING OUTCOME 3: Explain the use of planning tools used in management accounting: ................. 17
3.1: Explain the advantages and disadvantages of different types of planning tools for budgetary
control: .................................................................................................................................................... 17
Advantages:............................................................................................................................................. 18
Disadvantages: ........................................................................................................................................ 20
Advantages always bring along certain disadvantages too. Although the management accounting
system has various advantages but no one can ignore the disadvantages. Let us peep into the
drawbacks of management accounting. ................................................................................................. 20
1. Based on manually maintained records: ............................................................................................ 20
Management accounting system requires information related to financial and cost accounting. The
records prepared by the management accounting officers are based on the maintained records. Thus,
the efficiency of the records presented relies upon the accuracy of the records that are maintained. 20
2. Biased interpretation: ......................................................................................................................... 20
Personal interpretation matters a lot when it comes to decision taking. The preparation of these
reports by the management officer is based on the capability of interpretation and understanding.
Prejudices and biased knowledge of the subject makes it impossible for the company to come to an
accurate decision. Thus, it becomes impossible to get effective results at the end of the day. ............ 20
3. Deficiency of various vital skills of management accountant: ............................................................ 20
Job description of a management accountant includes subjects like financial accounting, cost
accounting, economics, and statistics. Further, he or she should have an insight on a bit of psychology
and sociology. Lack of knowledge regarding these subjects may affect the outcome of the
management accounting. Thus, for a better working of management accounting, it is essential for the
accountant to have a clear knowledge of the required subjects. .......................................................... 20
4. Cannot recommend a particular action: ............................................................................................. 20
Various alternatives for problem-solving are presented before the management. These alternatives
can be effective or non-effective. Management accountant’s function is to select any one of the
alternatives or toss out all of the given measures. Thus, management can only suggest a certain
action; however, it cannot guarantee its effectiveness.......................................................................... 20
5. Preferences depends upon intuition and experience:........................................................................ 20
The management accounting works upon a set scientific concept. However, following scientific
guidelines becomes too much of a hassle. Moreover, scientific decision-making is a complex
technique of management accounting. Thus, the preference is given to intuition and experience at all
times. It comparatively becomes easier to make decisions. .................................................................. 20
6. Management Accounting has its own limitations: ............................................................................. 20
A management accounting system is merely a tool that facilitates the management accountant in
giving advice for decision-making. However, the implementation of the actions that are advised
depends upon the follow-up action of the management. Thus, management accounting is limited to
giving suggestions. .................................................................................................................................. 21
7. Participation and efforts matter: ........................................................................................................ 21
Management accounting system is a Tool that provides solution. However, the way of applying that
solution also matters. Thus, for better results giving full efforts and participation in the task is
required. To attain overall success it is important for all the employees from different levels to give
their full inputs. ....................................................................................................................................... 21
8. Broad scope v/s limited knowledge: ................................................................................................... 21
Management accounting is a wide concept that is to be taken into consideration before appointing an
accountant. It requires skills and knowledge to look into the matters of monetary and non-monetary
 transactions of the company. Lack of these skills can hamper the overall report and data. Moreover,
this data can be unreliable due to the inefficiencies of the accountant. ............................................... 21
9. Not an ideal choice for small-scale organizations: ............................................................................. 21
Management accounting system is a very costly tool. As a result, it is not at all ideal for small-scale
industries or organization. Due to the high cost, it is not suitable for low budget businesses. In
addition, the utility of this system is restricted to large-scale and complex organizations. .................. 21
10. Rate of adopting changes: ................................................................................................................ 21
People say that old habits die-hard. Similarly, changes are hard to adapt. Thus, when a management
accounting system is newly installed in an old setting organization, it depends on the capabilities of
the employee to adapt the sudden change. So installing a management accounting system cannot
promise instant success. ......................................................................................................................... 21
11. Scope for improvement: ................................................................................................................... 21
New inventions have a lot of scope for improvement. Similarly, management accounting system is a
recent invention. Along with the advantages, it also has limitations. Due to its complex nature, it
requires a lot of intelligent interpretation. Therefore, it is safe to say that the system still needs to
evolve. ..................................................................................................................................................... 21
12. Impracticable in nature: .................................................................................................................... 21
Management accounting system is a recent innovation. It works on the availability of old records,
present records, and the previously acquired results. Thus, it does not work while facing problems
apart from financial help. Therefore, it is impracticable in nature for the overall performance of
business organizations. ........................................................................................................................... 21
3.2: Analyse the use of different planning tools and their application for prepairing and forecasting
budget: .................................................................................................................................................... 21
Learning outcome 4: Compare ways in which organization could use management accounting to
respond to financial problems: ................................................................................................................... 25
4.1: .......................................................................................................................................................... 25
An organization can use the following managerial accounting ways to respond to financial problems ... 25
4.2: An organization having a right managerial accounting system is important as choosing the right
administrator for any corporation. As the managerial accounting system is hoped to offer
management with reliable and accurate information, administrators have to certify that the right
structure for their model of business is chosen for implementation. The management accounting
study assists students lucidly illustrate; professors cannot uphold any blooper. The main reason is that
accountancy is regarded as the cornerstone of each business and therefore needs accuracy. Providing
understandable chart and tables of financial accounting is the common issue which accounting
student encounter in writing an assignment. The reason why persons require management
accounting study help. Accounting is an understandable but practical discipline which details the
transactions of finance relating to organizations or business. The students have to examine thousands
of transactions which a company can perform throughout a specific time span. It becomes difficult for
them to accumulate that data and integrate them. ............................................................................... 26
REFRENCES: ................................................................................................................................................. 27

LO1: Demonstrate an understanding of management accounting

system:

1.1: Explain management accounting and different types of managerial

accounting sytems:
Management accounting is an important internal business function. Many companies use some form of
management accounting to record and report their internal financial information. While financial accounting is
concerned with preparing financial reports and releasing information to the general public, management
accounting focuses on preparing financial information for internal review and decision making by business
owners, directors and managers. Management accounting offers several important tools for measuring the
company’s operational performance.

Features
Management accounting focuses on three main business issues: allocating costs to goods or services, cash
management or budgeting and financial forecasts. Management accountants use cost allocation methods to
allocate various business costs for each item produced by the company. Cash management and budgeting
outlines all future expenditures to ensure business operations generate enough capital to pay for business
expenses. Financial forecasts provide business owners and managers with expected operational output or
consumer sales under certain business conditions.

Types
Common types of cost allocation methods and management accounting include job costing, process costing
and activity-based costing. Job costing allows business owners to allocate costs to specific jobs. This process is
most common in construction companies. Process costing attributes costs to products as they go through each
production process in the business. Activity-based costing applies business costs on the number of activities
needed to produce a product.

Function
Management accounting allows business owners to keep their finger on the pulse of business operations.
Although many small business owners fear accounting, management accounting focuses less on properly
preparing financial statements and more on consistently analyzing internal information. Business owners can
use internal financial information to focus on improving business operations or correcting processes operating
outside of budget limitations. Business owners can also use management accounting to find wasted resources
through ineffective production operations.

Considerations
Business owners should consider implementing an automated management accounting information system into
their business operations. This information system can be as simple as creating financial spreadsheets for
inputting information and calculating basic profitability. As small businesses continue to grow and expand
their operations, more official management accounting systems may be needed to accurately track financial
information. These systems often include several modules used for allocating production costs, budgeting,
forecasting and other management accounting needs.

Benefits

Management accounting can help small businesses create a competitive advantage in the business
environment. Many business owners focus on creating consumer goods that are the lowest-priced and highest-
quality product in the economic market. The ability to review and assess financial information through
management accounting is an important step in creating a financial competitive advantage. Small business
owners may be able to produce better quality by carefully monitoring business production processes on a
consistent basis.

Components of Managerial Accounting

The most recognized components of managerial accounting are budgets, internal management performance
reports that compare actual results to budgets or projections, reports of income and expenses, reports of the
return on investment, and sales analyses. Less widely known components are comparisons of costs of goods
sold to standard costs, a companywide "balanced scorecard" and activity-based cost analyses.

1.2: Methods of Management Accounting Report:

Managerial, also known as cost or management accounting, it internally concentrates on the received data
through financial accounting. It particularly used for making decisions, planning and controlling.
Management accountants depend on standard financial statements containing the earnings statement, cash
flow statement and balance sheet, in addition, it also makes use of additional kinds of reports in analyzing
the information of the company or organization including the budgets, performance and cost reports of
product.
Cost Reports:

Managerial accounting determines the price of items. This is complete by taking the whole fresh product
prices, overhead, labor, and any other prices into consideration. The entire costs are divided by totals of
items created. In a cost report, the whole data is brief and this final cost report enables managers the
ability to see the prices of goods vs selling costs. It also helps manager plan and manages income limits.

Budgets:

One principal component of Management Accounting is the planning of spending plans. Budgets are
normally made by utilizing earlier years' financial plans and acclimating to future projections. An
organization's spending lists all sources of expenses and incomes. An organization tries to finish its
objectives and goals while remaining in budgeted amounts. Managers regularly search new sellers to use
as providers of raw resources to spare cash. They likewise discover approaches to expand deals while
diminishing costs.

Execution Reports..

Management accountants utilize spending plans to contrast genuine uses and incomes with planned sums.
After determining new budgets the changes intended are analyzed and the entire data about these amounts
are listed on a report of performance. Each year Performance reports are calculated; in any case, a few
organizations make them month to month or quarterly. These reports enable directors to get ready for
upcoming future demand in production and also cost additions.

Different reports are likewise utilized and arranged by managerial accountants. Order information reports
are used to associate orders placed to receive orders. These reports excess data and if the orders placed
were enough required. If a lot of orders of any particular items were ordered then these reports also
summaries, for that reason forcing the company to sit on vacant items not required at the time. A business
circumstance or opportunity reports are likewise made, which enable managers to settle on choices with
respect to present and future business circumstances.
1.3: Benefits
Management accounting can help small businesses create a competitive advantage in the business
environment. Many business owners focus on creating consumer goods that are the lowest-priced and highest-
quality product in the economic market. The ability to review and assess financial information through
management accounting is an important step in creating a financial competitive advantage. Small business
owners may be able to produce better quality by carefully monitoring business production processes on a
consistent basis.

The key purpose of accounting information is to assist decision-makers such as investors, managers and
government agencies. Financial accounting involves compiling a business's annual transactions in the form of
financial statements that are viewable by the public. However, managerial accounting is specifically used to
produce information for managers within an organization. While financial accounting is most advantageous to
external parties, managerial accounting helps fulfill internal organizational objectives.
Planning

A key focus of managerial accounting is planning for the future. Managerial accountants develop reports that
are more detailed than financial accountants. They can include information about specific products, market
reach and regional information. Based on the information obtained from reports such as surveys, budgets or
competitor analysis, managers can set objectives and outline how they will be achieved.

Controlling

The information obtained from managerial accounting gives managers a greater sense of control over an
organization's success. Since the information provided in managerial accounting reports are only used
internally, they do not have to adhere to generally accepted accounting principles, or GAAP. Therefore,
managers can choose what areas of the company require additional investigation and which areas can be
examined later. During the controlling phase, managers examine quantitative and qualitative feedback from
managerial accounting and make additional decisions.

Decision-making

Management accounting also considers how certain decisions may affect a manager's behavior. A manager
makes long-term decisions that have a lasting impact, so managerial accounting is used to develop plans and
convey information with the goal of improving management decisions. Budgets are an important aspect of
managerial accounting, but they are not included in financial accounting because of its focus on historical data.
Therefore, managerial accounting has the advantage of providing a more detailed analysis.

Problem-solving

Contrary to financial accounting, which focuses on historical reports, managerial accounting considers actual
performance and compares it to goals and future outlooks. This information is used to identify issues that may
arise in budgets or production changes and develop alternatives. Sometimes, the accounting information that a
company currently has may not be sufficient in solving a problem, so managerial accounting gives managers
the option of requesting additional information with limited time constraints.

Goal Setting
Managerial accounting helps with goal setting by making the numbers transparent. Managers can measure and
note performance while setting goals and making adjustments to motivate employees with the ultimate goal of
driving revenue.

1.4: Managerial accounting provides companies with quantitative and qualitative information on operational
and financial performance. While financial accounting focuses on the external use of this information by
creditors and others to assess performance and make decisions, managerial accounting is used internally by
owners, managers and employees. A company’s managerial accounting system encompasses the processes
companies install to control and plan operations and support effective decision-making.

Managerial Accounting Defined

Managerial accounting, often called management accounting, is a subcategory of accounting in which the use
of money is planned and controlled. It helps owners, managers and employees make decisions through
budgeting, then controls the budget through comparing the budget to actual revenues and expenses, monitoring
any budget variances. As a resource planning tool, managerial accounting focuses on the future; as an
instrument for controlling resources it focuses on the present.

Continuous Improvement
Continuous improvement is the constant measurement and effort to improve the effectiveness of processes and
systems and the quality of goods and services. Companies do this through continuous tweaking or through
major improvements. Continuous improvement involves simplifying where possible, eliminating waste --
wasted time, wasted effort, wasted materials -- and increasing productivity.

Cost Management
A key way that managerial accounting systems contribute to continuous improvement in an organization is
through the development and integration of cost management systems. Instead of budgeting and controlling
solely at the department or functional level, companies do so at the activity level, such as inventory purchasing
or the billing and payment receipt process. Companies measure the costs of inputs and reduce or eliminate
those costs that add little to no value. They also measure and evaluate the effectiveness of all of their major
activities, introducing new activities that enhance performance where possible.

Example
A company’s accounting manager maps out its inventory purchasing process flow and matches that with its
costs. In doing so she realizes that it takes more time and effort to purchase from certain suppliers than others,
although the material costs are similar. The manager decides to reduce the order size and frequency from these
suppliers. The manager revisits this process flow and cost comparison and notices that some purchase orders
wait days for a written approval if the owner is traveling. She recommends purchasing software that would
automate the process and allow the owner to approve a purchase order by email.

Quality Management

Managerial accounting systems that measure and monitor quality-related costs also contribute to continuous
improvement. By measuring quality-related costs and tying them to product or service quality, a good system
constantly identifies where small changes can be made to positively impact quality. This focus on improving
quality at the smallest level by those not directly involved in production or delivery helps companies
continually focus on building great products and delivering high-quality service.

Learning Outcome 2: Apply range of management accounting

techniques:
2.1: Marginal and absorption costing:
Marginal costing:

Situation: The Wyvern Bike Company makes 100 bikes each week and its costs are as follows: Direct
materials £4,000 Direct labor £5,000 Production overheads £5,000 Investigations into the behavior of
costs has revealed the following information:

• Direct materials are variable costs

• Direct labor is a variable cost

• of the production overheads, £2,000 is a fixed cost, and the remainder is a variable cost The selling price
of each bike is £200.

As an accounts assistant at the Wyvern Bike Company, you are asked to:

• calculate the marginal cost of producing each bike

• show the expected contribution per bike

• prepare a marginal costing statement to show clearly the total contribution and the total profit each week

Marginal cost per bike

Variable costs per unit: £

Direct materials (£4,000 ÷ 100) 40

Direct labour (£5,000 ÷ 100) 50

Production overheads (£3,000* ÷ 100) 30.

Marginal cost per bike 120

* £5,000 – £2,000 fixed costs

Contribution per bike

Selling price per bike 200

Less: Variable cost per bike 120

Equals: Contribution per bike 80

Marginal costing statement

£ £

Sales £200 x 100 bikes 20,000

less Variable costs:

Direct materials 4,000

Direct labour 5,000

Production overheads 3,000

12,000

Equals: Total contribution 8,000

Less: Fixed costs (production overheads) 2,000

equals Profit for the week 6,000

Absorption costing:
The Wyvern Bike Company makes 100 bikes each week and its costs are as follows:

 Direct materials £4,000

 Direct labour £5,000
 Production overheads £5,000
 The selling price of each bike is £200.

As an accounts assistant at the Wyvern Bike Company, you are asked to:

• calculate the absorption cost of producing each bike

• calculate the total profit each week

Solution:

Absorption cost per bike

Total costs per week:

Direct materials 4,000

Direct labour 5,000

Production overheads 5,000

Total cost 14,000

The absorption cost of producing one bike is:

Total cost/units of output = £14,000/100 bikes = £140 per bike

Profit each week

Selling price (100 bikes x £200) 20,000
less Total cost 14,000

equals Profit for the week 6,000

CONCLUTION:

Profit for the week of £6,000 is the same as with the marginal costing method, so we could say ‘Does it
matter whether we use marginal or absorption costing?’ The answer to this is that it does:

 marginal costing, with its focus on variable costs and contribution, is useful for short-term
decision making
 absorption costing is a simple method of calculating the cost of output and is used in financial
statements for inventory valuation

2.2: Accurately apply a range of management accounting techniques and

produce appropriate financial reporting documents :
LEARNING OUTCOME 3: Explain the use of planning tools used
in management accounting:
3.1: Explain the advantages and disadvantages of different types of planning
tools for budgetary control:
Main Tools and Techniques Used in Management Accounting:

Some of the major tools and techniques are explained below,

1. Financial Planning

2. Cost Accounting

3. Marginal Costing
4. Fund Flow Analysis

5. Revaluation Accounting

6. Cash Flow Analysis

7. Standard Costing

8. Budgetary Control

9. Decision-making Accounting

10. Statistical Techniques

11. Management Information System

12. Financial Statement Analysis

13. Ratio Analysis

14. Management Reporting

15. Historical Cost Accounting

Advantages:

Management accounting has various advantages. Through an effective management accounting system,
it is possible to enhance the overall performance of the company. Let us have a look at the advantages
of management accounting.

1. Increases Efficiency of the company:

Companies opt for Management accounting as it increases the efficiency of company in performing
operations. It contributes in striving for better performance by evaluating and comparing. Management
accounting makes it easier to achieve various results. This indirectly motivates the employees to strive
for better performance. As a result, they receive rewards in the form of promotions. Thus, management
accounting indirectly increases the efficiency of the company at a whole.

2. Increases the bar of Profitability:

Management accounting includes budgetary control and capital budgeting. The use of this method
makes it easier for the company to cut short the extra expenditure for performing vital operations. This
indirectly increases the bars of profits for the company, as the company is able to reduce its pricing on
the products.

3. Simplifies the decision making in Financial Statements:

Managerial decisions and other activities of management require a simplified report of the financial
statement of the company. For this action, management accountant creates a detailed technical report
with simpler interpretations. Here, he represents the key facts of the financial statements. This enables
the managing officers to take up appropriate decisions for the betterment of the company.

4. Enables the fluctuation of business monetary fund:

One of the essential factors in business is the monetary fund. Management accounting enables a control
over the fluctuation of this monetary fund. Management accounting studies the flow of the funds in
detail. Moreover, it helps in maintaining the emergency fund in case of any urgency. Further, it also
helps in eliminating any source within the company that misuses the fund. After all, emergency
preparation should always be kept aside before setting up any business.

5. Cost transparency:

In the corporate world, majority of the costs come from the Information Technology (IT). The work of
management accounting in the firm is to work with the IT department closely. This action ensures a
within budget actions and provides cost transparency to the company.

6. Flexibility and freedom:

Management accounting system is of flexible nature. These reports do not require to be made yearly,
monthly, or weekly. Therefore, the accountant gets enough time to prepare a perfect report.

7. Assist in goal completion (Objectives):

The objective of the report presented by the management accountant is to assist in achieving a long-
term goal. It becomes possible to achieve the goal due to the detailed information of the management
accountant, which highlights the strong and weak points of the company. In addition, this information
helps to identify the weakness and takes measures to overcome them.

8. Future prediction from past result:

Every new system that evolves for the corporate world has a single motive. It is to attain success in the
competitive market. With similar intend, management accounting system also strives for betterment in
performance. Thus, with the help of given data of the past (of the company), it provides a chance to
prepare for better future results.

9. Advanced technique and features:

The reasons because of which the management system seems reliable are the special tools and
technique. To form an accurate and valid report special techniques like budget controlling, marginal
costing, control accounting, etc are used. Use of the technique may differ according to the issue at hand.
However, this technique makes it easier to make decisions in the favor of the company.

10. Marginal costing:

Marginal costing is possible with the aid of management accountant. It fixes the selling price of the
products created in the organization. Further, it also suggests several ways to use the scarce materials
and resources. It also recommends actions based on fixed cost, contribution and other extras.
Although management accounting does not promise perfect decisions, they do increase the chances of
taking effective and efficient decisions.

Disadvantages:

Advantages always bring along certain disadvantages too. Although the management accounting system
has various advantages but no one can ignore the disadvantages. Let us peep into the drawbacks of
management accounting.

1. Based on manually maintained records:

Management accounting system requires information related to financial and cost accounting. The
records prepared by the management accounting officers are based on the maintained records. Thus,
the efficiency of the records presented relies upon the accuracy of the records that are maintained.

2. Biased interpretation:

Personal interpretation matters a lot when it comes to decision taking. The preparation of these reports
by the management officer is based on the capability of interpretation and understanding. Prejudices
and biased knowledge of the subject makes it impossible for the company to come to an accurate
decision. Thus, it becomes impossible to get effective results at the end of the day.

3. Deficiency of various vital skills of management accountant:

Job description of a management accountant includes subjects like financial accounting, cost
accounting, economics, and statistics. Further, he or she should have an insight on a bit of psychology
and sociology. Lack of knowledge regarding these subjects may affect the outcome of the management
accounting. Thus, for a better working of management accounting, it is essential for the accountant to
have a clear knowledge of the required subjects.

4. Cannot recommend a particular action:

Various alternatives for problem-solving are presented before the management. These alternatives can
be effective or non-effective. Management accountant’s function is to select any one of the alternatives
or toss out all of the given measures. Thus, management can only suggest a certain action; however, it
cannot guarantee its effectiveness.

5. Preferences depends upon intuition and experience:

The management accounting works upon a set scientific concept. However, following scientific
guidelines becomes too much of a hassle. Moreover, scientific decision-making is a complex technique
of management accounting. Thus, the preference is given to intuition and experience at all times. It
comparatively becomes easier to make decisions.

6. Management Accounting has its own limitations:

A management accounting system is merely a tool that facilitates the management accountant in giving
advice for decision-making. However, the implementation of the actions that are advised depends upon
the follow-up action of the management. Thus, management accounting is limited to giving suggestions.

7. Participation and efforts matter:

Management accounting system is a Tool that provides solution. However, the way of applying that
solution also matters. Thus, for better results giving full efforts and participation in the task is required.
To attain overall success it is important for all the employees from different levels to give their full
inputs.

8. Broad scope v/s limited knowledge:

Management accounting is a wide concept that is to be taken into consideration before appointing an
accountant. It requires skills and knowledge to look into the matters of monetary and non-monetary
transactions of the company. Lack of these skills can hamper the overall report and data. Moreover, this
data can be unreliable due to the inefficiencies of the accountant.

9. Not an ideal choice for small-scale organizations:

Management accounting system is a very costly tool. As a result, it is not at all ideal for small-scale
industries or organization. Due to the high cost, it is not suitable for low budget businesses. In addition,
the utility of this system is restricted to large-scale and complex organizations.

10. Rate of adopting changes:

People say that old habits die-hard. Similarly, changes are hard to adapt. Thus, when a management
accounting system is newly installed in an old setting organization, it depends on the capabilities of the
employee to adapt the sudden change. So installing a management accounting system cannot promise
instant success.

11. Scope for improvement:

New inventions have a lot of scope for improvement. Similarly, management accounting system is a
recent invention. Along with the advantages, it also has limitations. Due to its complex nature, it
requires a lot of intelligent interpretation. Therefore, it is safe to say that the system still needs to
evolve.

12. Impracticable in nature:

Management accounting system is a recent innovation. It works on the availability of old records,
present records, and the previously acquired results. Thus, it does not work while facing problems apart
from financial help. Therefore, it is impracticable in nature for the overall performance of business
organizations.

3.2: Analyse the use of different planning tools and their application for
prepairing and forecasting budget:
1. Based on Financial Accounting Information
  Analysis of Financial Statements through Ratio Analysis.
 Analysis of Financial Statements through comparative statements, trend, graph and diagram.
 Fund flow and cash flow analysis.
 Return on capital employed techniques.

2. Based on Cost Accounting Information

 Marginal costing (including cost volume profit analysis).

 Direct or incremental Costing and differential costing.
 Standard Costing.
 Analysis of Cost Variances.

3. Based on Mathematics

 Operations Research.
 Linear Programming.
 Network analysis.
 Queing theory and Games Theory.
 Simulation Theory.

4. Based on Future Information

 Budget and Budgeting.

 Budgetary control: Analysis of Budget Variance / Revenue Variance.
 Business Forecasting.
 Project Appraisal or Evaluation.

5. Miscellaneous Tools

 Managerial Reporting.
 Integrated Auditing.
 Financial Planning.
 Revaluation Accounting.
 Decision making Accounting.
 Management Information System.
 Important tools and techniques used in management accounting
 Some of the important tools and techniques are briefly explained below.
1. Financial Planning

The main objective of any business organization is maximization of profits. This objective is achieved by
making proper or sound financial planning. Hence, financial planning is considered as best tool for
achieving business objectives.

2. Financial Statement Analysis

Profit and Loss account and Balance Sheet are important financial statements. These statements are
analyzed for different period. This type of analysis helps the management to know the rate of growth of
business concern. This analysis is done through comparative financial statements, common size
statements and ratio analysis.

3. Cost Accounting

Cost accounting presents cost data in product wise, process wise, department wise, branch wise and the
like. These cost data are compared with predetermined one. This comparison of two costs enables the
management to decide the reasons responsible for the difference between these costs.

4. Fund Flow Analysis

This analysis find out the movement of fund from one period to another. Moreover, this analysis is very
useful to know whether the fund is properly used or not in a year when compared to the previous year.
The working capital changes and funds from operation are also find out through this analysis.

5. Cash Flow Analysis

The movement of cash from one period to another can be find out through this analysis. Besides, the
reasons for cash balance and changes between two periods are also find out. It studies the cash from
operation and the movement of cash in a period.

6. Standard Costing

Standard costing is predetermined cost. It provides a yard stick for measuring actual performance. It is
used to find the reasons for the deviations if any.

7. Marginal Costing

Marginal costing technique is used to fix the selling price, selection of best sales mix, best use of scarce
raw materials or resources, to take make or buy decision, acceptance or rejection of bulk order and
foreign order and the like. This is based on the fixed cost, variable cost and contribution.
8. Budgetary Control

Under Budgetary control techniques, future financial needs are estimated and arranged according to an
orderly basis. It is used to control the financial performances of business concern. Business operations are
directed in a desired direction.

9. Revaluation Accounting

The fixed assets are revalued as per the revaluation accounting method so that the capital is properly
represented with the assets value. It helps to find out the fair return on capital employed.

10. Decision-making Accounting

A business problem can be solved by choosing any one of the best and most profitable alternative. To
select such alternative, the relevant costs are compared. Thus, accounting information are used to solve
the business problem which are arising out of increasing complexity of nature of business.

11. Management Information System

The free flow communication within the organization is essential for effective functioning of business.
Hence, the management can design the system through which every employee of an organization can
assess the information and used for discharging their duties and taking quality decisions.

12. Statistical Techniques

There are a lot of statistical techniques used in removing management problems. Methods of least square,
regression and quality control etc. are some examples of statistical techniques.

13. Management Reporting

The management accountant is preparing the report on the basis of the contents of profit and loss account
and balance sheet and submit the same before the top management. Thus prepared reports disclose the
strength and weakness indifferent areas of operating activities and financial activities. These identification
are highly useful to management for exercising control and decision-making.

14. Historical Cost Accounting

It means that costs are recorded after being incurred. This is used for comparing with predetermined costs
to evaluate performance.

15. Ratio Analysis

It is used to management in the discharge of its basic functions of forecasting, planning, coordination,
communication and control. It paves the way for effective control of business operations by undertaking
an appraisal of both the physical and monetary targets.

Learning outcome 4: Compare ways in which organization could use

management accounting to respond to financial problems:
4.1: Corporations today encounter the question on how to adapt their business models, strategies,
and procedures to respond to environmental and social challenges while establishing the value for
their shareholders and financial success (Nishimura, 2013). Few organizations are confident that
they have the required skills to address the challenges and competing in the sustainable economy.
It is argued that several corporations are missing out on the valuable analysis and insight through
failing to take advantage of the skill set of management accounting. It comprises of making the
business scenario for analyzing and sustainability and reporting on the effect of social and
environmental aspects on organization performance.

An organization can use the following managerial

accounting ways to respond to financial problems
Identifying financial issues: using budgetary targets, key performance indicators (non-financial
and financial and benchmarks to identify problems and variances so as to address them without
delays (Seal, et al 2014). Financial governance: the company should define financial governance
and understand how it can be applied to prevent or pre-empt financial issues. The business can use
financial governance in monitoring strategy. Managerial accounting skill sets: an organization
must know the features of an efficient and effective managerial accountant. Also, they understand
how the skills can be applied to deal with or prevent the problems such as misappropriation of
resources meant to grow the business (Vanderbeck and Mitchell, 2016). Effective strategies and
systems: the development of systems and strategies that need timely and effective reporting, full
disclosure financial statements and are responsibly governed and owned by the organization.

The report proposes many ways in which management accountants may guide their company’s
towards the sustainable success of the business (Seal, et al 2014):
 Identify the social and environmental trends which will impact on the organization’s capability to
build value over the time.
 Liking sustainable corporate challenges to the strategy of the company, performance outlook,
business model and license to function.
 Describe the impact of the sustainability issues in strong business terms comprising of how and
when they would affect the company.
 Establish KPIs which support sustainable and strategic goals.
 Apply tools and techniques of management accounting like natural resource availability scenario
planning, carbon foot-printing and lifecycle costing to assist incorporate sustainability issues into
the process of decision-making (Vanderbeck and Mitchell, 2016).
 Generate reports which include information on sustainability effects to inform pricing and
budgeting decisions, strategic planning and investment appraisals.
 Establish the reporting strategy which incorporates sustainability matters to ensuring that relevant
non-financial and financial information is revealed (Selto and Curry, 2014). The International
Incorporated Reporting Framework established by IIRC (International Integrated Reporting
Council) is an example.

4.2: An organization having a right managerial accounting system is important as choosing the
right administrator for any corporation. As the managerial accounting system is hoped to offer
management with reliable and accurate information, administrators have to certify that the right
structure for their model of business is chosen for implementation. The management accounting
study assists students lucidly illustrate; professors cannot uphold any blooper. The main reason is
that accountancy is regarded as the cornerstone of each business and therefore needs accuracy.
Providing understandable chart and tables of financial accounting is the common issue which
accounting student encounter in writing an assignment. The reason why persons require
management accounting study help. Accounting is an understandable but practical discipline
which details the transactions of finance relating to organizations or business. The students have
to examine thousands of transactions which a company can perform throughout a specific time
span. It becomes difficult for them to accumulate that data and integrate them.
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T. Surum, L. (2019). What Is the Meaning of Managerial Accounting System?. [online]

Smallbusiness.chron.com. Available at: https://smallbusiness.chron.com/meaning-managerial-accounting-
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qureshi, z. (2019). [online] Steemit.com. Available at:

https://steemit.com/management/@zainqureshi/methods-of-management-accounting-report

C. Wright, T. (2019). How Do Managerial Accounting Systems Contribute Toward a Company's Continual
Improvement?. [online] Smallbusiness.chron.com. Available at:
https://smallbusiness.chron.com/managerial-accounting-systems-contribute-toward-companys-continual-
improvement-71678.html

step, w. (2019). Management Accounting: Process, Advantages & Disadvantages - WiseStep. [online]
WiseStep. Available at: https://content.wisestep.com/management-accounting-process-advantages-
disadvantages/

Writing Services, P. (2017). Management accounting. [online] Slideshare.net. Available at:

https://www.slideshare.net/parkeressaysupport/management-accounting-79410974