Type Of Management Accounting


Role of managerial accounting has been emerged in today’s organisational context. All the organisational streams as small, medium and large entities are benefited with the dynamics of management accounting (Bennett and James, 2017). the report brings an opportunity to acknowledge the importance of management accounting and its scope at organisational level. Airdri Ltd a manufacturer of electrical equipment is considered to understand the concept of management accounting in practical manner. Range of management accounting systems discussed complied by to make the operations smooth. Type of reporting methods are illustrated in order to extract the output form different management accounting system. Suitability of various type of planning tools also analysed in organisational context with their positive and negative impacts upon budgetary control process. Furthermore, the use of type of management accounting system in different companies in order to resolve financial problems are examined properly.

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P1 Understanding of management accounting systems

The amplitude of accounting is enhancing by volatile business requirements. Flexible structure of managerial accounting is one of the key element that is assisting the management of company to attain strategic aims (Epure and Lafuente, 2015). The International Federation of Accountants 1998 precribed the management accounting as a technical operational activity essential for the pursit Organisations are rapidly using and adapting different type of management accounting systems in order to fulfilling the operational and professional requirements of business. According to great literatures as Johnson and Kaplan stated that the use of management accounting has been recognising since 20th century and had vanished its existence form information managers for better decisions to contributing in strategic planning and organisational control.

Institute of Management Accountants presented the definition of management accounting as “Management accounting is a profession consist of professional activities as affiliating in management decision making, devising plans, enactment management system and contributing expertise subject to reporting of financial information to management of company.” Mainly the use of management accounting remains in trend for formalizing organisational strategies and plans at the beginning of the year.

Type of management accounting systems have been evolved subject to meet the technological and functional requirements of manufacturing organisations. Some of management accounting systems are disused and their impact upon the selected organisation is analysed that if the company imply these systems with in operations. these systems are defined as follows;

Cost accounting systems: During the early twentieth or early nineteenth century, actual cost analysis methods were established to assess efficiency and link income to goods. It was innovated as a performance measure in order to measure the performance of sub-entities and departments of organisation (Sultana, 2015). Cost accounting has become essential subject to analyse internal transition operations. In addition, internal management structures were established during nineteenth century to evaluate costs, production and cash flow. The system can assist the managers of Airdri in order to allocate the financial resources at required sub sections and enhance the efficiency of production centres.

Price optimisation systems: The price optimisation system was evolved to determine the price of products and services. This system aggregates the customer segmentation process and aligned the product cost by varying customer requirements. It is also recognised as product specified cost system because the price of products basically determined considering customer’s preferences and demand. At present manufacturing companies are using advanced price optimisation software like eReprice, Price2Spy, Prisync and so on. Airdri Ltd can also introduce one of the price optimisation system in its production line and can set a competitive price to get competitive advantages.

Job costing systems: In large manufacturing groups and organisations management had to face a vital challenge of bifurcating the departmental cost at different cost centres. Job costing system become a beneficial accounting system for constructing companies, multiple product manufacturing entities, contract based working companies. Bifurcating cost at different sections or a particular job section is one of the major element that assisted the management to allocate and centralise the cost. It categorises the cost in major two areas as direct cost and indirect cost. Direct cost is recognised as prime cost that implemented during the production process and indirect cost covers after production cost as selling and distribution, administration, depreciation, insurances and taxes. Airdri Ltd is an electric manufacturer and deals in multiple electronic products and the job costing system can provide a separate cost sheet subject to a particular product.

Inventory management systems: Management of stock is a regular process in a manufacturing organisation. Stores managers and assistants supervise the inventories levels at stores. They keep tracking daily usage and scrap during the production process (Newberry, 2015). Inventory management systems has reduced the manual handling frequencies and reduced the precious time for management. The Airdri Ltd can comply the inventory management system within operations in order to manage the raw material, inventories in production process or WIP stock and finished goods products. Weighted average, LIFO and FIFO inventory management methods are commonly used by entities to manage the flow of inventory in ascending and descending order.

P2 Practise of type of management accounting reporting methods

Collection of information and evaluated results from this information remain worthless until incorporating the evaluated results in a particular report. the use of management operations and the accounting reports contribute precious efforts to lead the organisation towards sustainable growth direction. Accurate and interpretative management reports help managers to assess further resources requirements. Strategic decisions and corporate goals are decided with the help of these accounting reports and management actions. Type of management accounting reporting methods for managerial reporting are interpreted below:

Inventories reports: The method helps in ascertaining the needs of further inventories in operation for better management and control. This reporting technique is continuously used in an organizational sense from both larger and smaller businesses pertaining to daily tracking of inventory fluctuations. Stock reports play an important role in a manufacturing sector without a specific estimate for both the forthcoming stock need, problems can be generated to meet the needs of distributors. Type of software was revolutionized as well as extensively utilized organizations in the existing business environment. The stock statements provide accurate information for a specific distribution centre on the use of raw resources, scrap number and faulty finished products over a specific time period. The diligent assessment of supply data divides the conveyor belt from high efficiency to low efficiency and produces a reorder strategy taking into account the intensity of the organization.

Job cost reports: This reporting method primary execute the costing information of a particular job centre. The cost auditors produce a cost document that contains the costs added to a specific job portion (Serenko and Dumay, 2015). This accounting approach measures costs for dispersed employment in small and medium-sized organizations. This study mainly introduces executives with the summarized total cost plan to calculate the total cost of the specific job areas. It helps to determine the productivity of separate parts of work. Airdri Ltd could profit from implementing this investigating process to define price centres in different manufacturing parts and allocating resources according to different price inside criteria.

Budget reports: Financial professionals apply this method of analysis to construct a comprehensive document of expected financial outlook of profitable business activities. Primary aim of preparing budgetary statements in order to evaluate a discrepancy between the material expenditures of previous year and the current year's expenditure forecast. This monitoring approach assists administrators in determining the requirements of subsequent events and organizations ' operations. Both forms of accounting will enable Airdri Ltd's managers determine the discrepancies among real to expected costs as well as control its funds appropriately.

Performance reports: The dataset of the current year's activities is analyzed with both the appearances of both the past year quarterly announcements. These reports pose a serious element of the organization's success over the year (Ntim, 2016). If the findings stay greater than main performance indices are emphasised in the documents and if the findings stay unacquainted to idea to achieve the necessary productivity for the following week than justifications for low performance are emphasised. A positive performance statement is used only for long term planning as well as tracking, but also helps supervisors inspire the members of the team through highlighting business success. If administrators commence analysing and reporting the efficiency on a daily basis, the study can describe favourable results with regard to Airdri limited. This will boost either the capacity as well as the willingness to withstand risk and contribute to long term success for organizations.


P3 Use of appropriate costing techniques as marginal and absorption costing

Cost refers an expenditure utilised or to be incurred in production or administration function. This mainly divided in various forms as variable cost, fixed cost and mixed cost. A variable cost varies with the change in each production. Material cost, labour expenses, wages and variable overheads are recognised as variable cost. Whereas the fixed cost consist a cost not get affected by variations among production units. Building rent, taxation rate, interest expenses are the examples of fixed cost.

Cost accounting techniques are introduced in order to ascertain the profitability of organisation. there is type of cost accounting techniques are defined as follows:

Cost Volume profit: Assessment of price-volume-profit or (CVP) is being used to assess how price or volume changes will affect the operating revenue and net earnings of a corporation. The expenditure differential and the contribution profitability percentage were key measurements while using CVP analysis. The profit margin was the amount of revenue or benefit which the company made before expenses were deducted. This method basically used to analyse the specific level of profitability and cost structure.

Marginal costing: This is one of the costing technique that helps in assessing the resources requirements to carry out the production and other subordinate functions. It is costing technique is different from contract costing, process and standard costing. It is also recognised as a variable costing technique because it helps in assessing the variation among profitability by increasing and decreasing production units (Ntim, 2016).

Absorption costing: This is one of the effective microeconomic costing technique that helps the managers in preparing pricing strategies. It provides a clear idea to users in order to control the fixed and variable expense while producing different products. In absorption costing method the fixed production cost is absorbed at periodic basis.

Calculation of profit and loss by applying costing techniques

Marginal costing

i) Calculation of production cost per unit



Direct Material cost


Direct labor cost


Variable Production Overhead cost


Production cost per unit


ii) Total production cost


Amount (£)

Direct Material cost (19000*15)


Direct labor cost (19000*25)


Variable Production Overhead cost (19000*10)


Total production cost


iii) Total cost of sales for June


Amount (£)

Total production cost


less: cost of closing inventory (50*1000)


Cost of sales for June


iv) Calculation of budgeted profit and loss for June



Amount (£)

Sales revenue (18000*70)



Less: Variable cost



Direct material (19000*15)



Direct labour (19000*25)



Variable cost (19000*10)



Less : Closing stock (1000*50)






Fixed production overhead






v) Calculation of profit after actual production unit of 22000 units with closing inventories 2000 units



Amount (£)

Sales revenue (18000*70)



Less: Variable cost



Direct material (22000 * 15)



Direct labour (22000 * 25)



Variable cost (22000 * 10)



Less : Closing stock (2000 * 50)






Fixed production overhead






The above discussed techniques it is analyse that marginal and absorption costing mainly assist in determining the pricing strategy (Johnson and Schaltegger, 2016). By applying the costing technique, it is analysed that in marginal costing profit evaluation remain more accurate rather than applying absorption costing system. The actual profit calculation form absorption costing presents a loss of -(£)143684 however, the profit form marginal costing presents the net profit of (£)130000 for the month of June.


P4 Advantages and disadvantages of various type of planning tools used in budgetary control process

Budgetary control is a formation of supervising and operating the operational, production cost incurred to manufacture goods. It is counted as a decision making and performance measurement tool that assist the managers to analyse business efficiency by financial adequacy. Budgetary control process plays essential role in ascertaining the profitability for a particular span of time.

Operational budget: The annual budget is a comprehensive report that outlines all the operating costs to also be borne and profits to be produced over a given period. Capital expenditures such as spending on acquisitions of raw materials, processing costs, debt on even a mortgage, employee compensation, office repairs, administrative costs are known for operating budget purposes (Fayol, 2016).

Pros: It improves the efficiency of organisation by utilising the all the expenditures and income in a single format. It also helps in staffing the sources in assessable manner so that objective can be attained with appropriate operational structure.

Cons: Availability of expenses and income remains vast in financial reporting. It is prepared like profit and loss account considering the required amendments.

Alternative budgeting methods

Zero based budget: Budgets must start from scratch of each time so each expenditure element must be explained. It can be used in different divisions or programs (Ahmad, 2015). The theory is that if it can explain these, the director will get almost none.

Advantages: the expenditures remain assembled and organised that helps the process of completing budget in given time period. it is essential in terms of rationing circumstances.

Disadvantages: Time consuming and expensive nature make the process of making zero based budgets more complex.

Activity based budget: the budget formation process carried out considering past production activities are considered as an activity based budgeting (Walter and Estey, 2015). This budgeting tool is emerging in present organisational context and also fulfilling the organisational needs in current business scenarios.

Advantages: A repetitive budgeting process reduce the budget formation timing and leads organisation towards desirable objectives and aims.

Disadvantages: the scope of activity based budgeting is limited to certain manufacturers and production companies.

Rolling Budget: A rolling financial planning method is a financial planning method that supports adjusting expenditures on the basis of the economic situation (Lassou and Hopper, 2016). It's trying to manage goals. The concept around rolling budget is to provide a realistic twelve-month plan at all times as it will help keep management focused. In a rapidly evolving climate, this is healthy.

Advantages: Its flexible formation procedure attracts managers to adapt the required changes in budget whenever it is required. the changes in rolling budgets can be adopted effectively on the basis of actual variations.

Disadvantages: It is also a time consuming budgeting approach that requires advanced skills and acknowledgement subject to change the budgeting figures more effectively.


P5 Illustration of implementing management accounting to resolve financial problems in companies with comparison

Financial challenges create complex business situations for organisations for better success and execution of operational process (Mohamed, Kerosi and Tirimba, 2016). The use of accounting procedures and financial standards creates a financial governance structure in organisational context. Financial governance is basically a group of rules and regulation that work like a compliance standard within an organisation. Good financial governance is preparing the company to forecast threats, execute contingency strategies, and properly address unexpected hazards and disasters. Stewardship collects the relevant documents related to the organisation's finances and using this as the repository for forecasts and financial transactions preparation. That all companies ' funds are flexibly used invested to ensure that perhaps the company is competitive, successful and long-term stable. Type of financial governing tools are being used by entities defined below:

KPI: A company that specializes in smart business success, ' KPIs provide a means of measuring how well organizations, lines of business, initiatives or entities are doing in comparison to their organizational aims and goals. ' The company continues to identify KPIs as ' vital navigational tools ' offering a ' clear understanding of actual performance rates or whether the organization is where they are based. There is type of KPI’s remain essential in terms of organising the financial resources in more strategic and compiled manner.

Benchmarking: It is one of the helpful measure for entity to manage the resources and make the flows of financial resources in specified manner. Benchmarking can be seen as part of programs for quality assurance, not just as a substitute. Four types of benchmarking are available: external, productive, usable as well as bland (Mio, Marco and Pauluzzo, 2016). To inner benchmarking, there is a comparison of tasks within an organisation. Profitable benchmarking relationships do company in same market and provide a direct brand and service contrast.



London clothing works ltd

Financial Issue

The company faces the legal issue of greater investment in its programs or activities. Overall spending, in many other words, is more in line with the market. And because of that entity has to pay surplus money to cover the criteria of their manufacturing. Organization used strategic


The reordering degree of sales volumes by the corporation is not beong attempted by store strikers as a result to which the delay in the production goods era has boosted. Business fails to meet purchasers as well as distributors with the desired level of output and demand variable. This led to a massive financial loss for both the financial year for company.

Financial controlling tool

KPI's to describe the organizational void.

Benchmarking tool is used to identify past beneficial reports of sustaining stock rearrange standard.

Application of management accounting system

Cost accounting information system is the correct accounting system used by administrators to aggregate the value of various parts and properly distribute resources.

Managers of entities use inventory control system to maintain the stream of production inventory in the manufacturing process. By implementing the LIFO technique in the manufacturing process, the organization can achieve the necessary level of m certainly-order stocks throughout the company.


The above given explanation illustrated the understating of management accounting system and effectively defined the essentialness to manage day to day operations of business. Contribution of using different costing techniques effectively stated that marginal costing technique is an effective costing technique for chosen organisation to take strategic decisions.  There will be methods of cost such as marginal and absorption that are used to calculate for the year net profit. Corporate governance should incorporate multiple preparation tools to help make valuable plans for future development. Different leadership bookkeeping tools as well as systems can be used efficiently to define company measurement issues. It also helps to make effective policies and plans to address the financial issue happened over a specific time period.


  • Bennett, M. and James, P., 2017. The Green bottom line: environmental accounting for management: current practice and future trends. Routledge.
  • Epure, M. and Lafuente, E., 2015. Monitoring bank performance in the presence of risk. Journal of Productivity Analysis. 44(3). pp.265-281.
  • Sultana, N., 2015. Audit committee characteristics and accounting conservatism. International Journal of Auditing. 19(2). pp.88-102.
  • Newberry, S., 2015. Public sector reforms and sovereign debt management: Capital market development as strategy?. Critical Perspectives on Accounting. 27. pp.101-117.
  • Serenko, A. and Dumay, J., 2015. Citation classics published in knowledge management journals. Part I: articles and their characteristics. Journal of Knowledge Management.19(2). pp.401-431.
  • Ntim, C. G., 2016. Corporate governance, corporate health accounting, and firm value: The case of HIV/AIDS disclosures in Sub-Saharan Africa. The International Journal of Accounting. 51(2). pp.155-216.
  • Ntim, C.G., 2016. Corporate governance, corporate health accounting, and firm value: The case of HIV/AIDS disclosures in Sub-Saharan Africa. The International Journal of Accounting. 51(2). pp.155-216.
  • Johnson, M.P. and Schaltegger, S., 2016. Two decades of sustainability management tools for SMEs: how far have we come?. Journal of Small Business Management, 54(2), pp.481-505.

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