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Unit 2 Management Accounting Regent College R/508/0486


Management accounting is the most crucial technique which can be used by the organisation in order gain the sustainability. Nowadays, various management accounting systems are used in order to gain the competitive advantages in an effective manner. Here are certain tools which can be used by the management accounting while adopting these certain management accounting systems. Here, some of the management tools are to be discussed in this. Here are certain tools which can be used in order to gain the sustainability in an effective manner. In this report, various management accounting systems are used hereunder so that the objectives could be attained in an effective manner (Amoako, 2013). Various management accounting reports are made so that the sustainability can be attained. Net profits are calculated by using marginal costing and absorption costing approach in an effectively. This report is totally based on the various planning tools which can be used for budgetary control. Various management accounting tools are used in order to respond the financial problems in an effective manner. The management accounting is a service function in which the desired information is provided to the management of the company for formulating policies and making decisions in time. This information relates to the cost, price, income, profit etc. to be utilized by the managers in achieving the goals of the company (Management, 2017). This report includes the various management accounting systems and their useful and essential components which are merged with the various reporting of management accounting. This report is also including the planning techniques which are used to prepare the effective budget statements to monitor the overall performance of the company. Overall tools and techniques of management accounting helps the TECH (UK) LTD. to sought out the problems of departments and improve their decision making process.



Management accounting plays a vital part for identification, analysing and assessing the management related issues which could be overcome by an organisation in state to gain the sustainability in an impressive ways (Amoako, 2013). Accounting systems aid to make the accounting report which would further help out to gain the sustainability. However, there is a strong need to make certain tools is being utilised in respect to gain the sustainable development in an effective manner. on the other hand, it is an essential aspect for getting professional knowledge and skill in preparation of final account in the manner to assists and organisation to attain the aims and objectives in more quick time.

1. Financial accounting and management accounting:

Basis of difference

Financial Accounting

Management Accounting


The scope of the financial accounting is not immense as compared with the management accounting because it does not involve the tools and techniques.

Management accounting scope is wide because cost accounting, financial accounting, and other methods are used in it.



Financial accounting provides information regarding the financial soundness and earning capacity of the company to the outsiders. Hence, it relates to external reporting.

Management accounting provides information to the management for efficient operation of business. Hence, it relates to internal reporting.



It is an effective aspects for paying maximum emphasis on precision and considers only on actual amount during the preparation of final accounts.

There is less emphasis on precision in case of management accounting because the objective is find out the trend which does not reflect the accurate financial position.

2 Significance of using appropriate accounting information in an organisation:

Its enhances the skilfulness of an organisation: Management accounting enhances the business of the concern. The aims of various divisions of the company are determined in advance and the attainment of these objectives is taken as a tool for calculating their productivity.

Increase decision making: It refers as one of the most effective systems which is needed to make use of accounting data in order to increase overall profitability of the company’s by getting the standard and assessing actual performance regularly enable the management to have management by exception (Vinayagamoorthi and et. al., 2012).

Measuring of action: The budgetary control techniques modify the management to measures the performance of each department. The management also uses the standard costing techniques of the costing which enables it to find out the abnormal in between the actual and standard cost. The execution will be great, if actual cost does not more than the regular cost.

3 Cost accounting systems: (ACTUAL, NORMAL, & STANDARD)

The cost accounting system provides the information for financial and management accounting. This system measures and reports information which is related to the cost of utilizing and acquiring resources. The cost management identifies the approaches and activities of managers in short and long run planning and control decisions. It is the internal part of a company’s strategy.

4. Inventory management systems: Inventory management system is a system for tracking inventory levels, orders, sales, and deliveries. This system is basically used in the manufacturing industries to make a work order, materials bill and other production related documents. Company uses this system to eliminate the overstock of the product and outages.

Following are the purposes why the company uses inventory management system:

  • To maintain the balance in between too little or too much inventory.
  • Tracking the inventory level in the business.
  • Receiving the units into a warehouse
  • Keep tracking of sales of product.
  • Cutting down on product obsolescence and spoilage.

5 Job costing systems: A job costing system includes the information which is gathers from various jobs conducted by the company. The information is related to the costs which are connected with a peculiar production of the job (Macinati and Anessi-Pessina, 2014). This useful information is required by the company in order to render the information regarding the cost to the customer who wants to manufacture their product. This information can also have utilized to allot inventor able costs to the manufactured product. TECH (UK) LTD. utilized this information to keep track on the specific order and associated expenses.


  1. There are different types of reports which helps the management accountant and managers by providing the accurate and essential financial information which are given below:

Job cost report: The job cost report is the report which contained the lists of each job the business of the company is working on and also shows the lists of total costs occurred on the job in the previous year (Lim, 2011). The job costs are broken down into the following categories: Labor cost, Material cost, Manufacturing overheads, Liquidated damages. The cost which is shown on this report are those that can be directly assigned to a job and also remember that this report only shows the costs accrued not cash paid.

Inventory report: It is a brief statement of items belonging to a business. It produces a comprehensive account of the inventory of various items. A good inventory should be simple and clear. By accessing the inventory reports, the management improves the inventory in accurate manner. They also track the cost of goods sold, eliminate over stock and under stock in the warehouse of the company.

Budget report: It is used within the organization by the management to compare the budgeted projections with the actual. In other words, a budget report is framed to compare how close the budgeted performance was to the actual during the financial year (van Helden and Uddin, 2016). A company budget report will have various sections, depending upon the financial needs for the business.

  1. Importance of using management accounting reporting systems:

The management accounting reporting smooth the functioning of the business because all the information related to the failure and success are stored in these reports. These reports help the management of the company to keep tracking the business activities. Some reports like Budget, Job, and Inventory reports help the managers to analyze the performance of the departments, eliminate the wastages and helps in sustainable development of the company.


Cost accounting system assists the company in order to calculate the performance level of the production processes. It is use to improves the costing system in the company and also helps the cost accountant to reduce the unnecessary costs, fix the price and maintain the cost of the product. TECH (UK) LTD. can improve the efficiency by using the inventory system within the company by maintain the stock levels, EOQ and avoids the danger level of stocks. Job costing system helps TECH (UK) LTD. to estimating the cost of the specific job and also gives the important information to the customer who under the contract with the company. It keeps track on the quality and fair work done by the labour.


  • The integration in between the management accounting systems with the reporting helps TECH (UK) LTD. in order to prepare the reports for smooth functioning of the business operations. With the help of the reporting, the company achieved their targets and goals at the predetermined time (Gates, Nicolas and Walker, 2012). Hence, the integration in between both helps the company to achieves their pre- decided objectives and targets.



  • Marginal costing vs. Absorption costing:

Fixed manufacturing overhead under the absorption costing is considered as product cost whereas in the marginal costing, fixed manufacturing overhead is considered as period cost.

Absorption costing is mainly prepared for external reporting whereas the marginal coting is mainly prepared for internal reporting.

  • In the absorption costing, there may be over or under absorption of fixed manufacturing whereas in the marginal costing there won’t be over or under absorption of fixed overhead.


  • In this case, the company is required to apply the management accounting methods like cost accounting tools and techniques to increases the profits margin. This will helpful to the TECH (UK) LTD. to focus on their business operations in accurate manner (Hiebl and et. al., 2015). The above methods are utilized by the cost accountant for improving the productivity of the product. This tools and techniques are useful for each and every departments of the company for preparing the strategies for the company’s development.


  • By applying the method of costing, the net profits or losses are different. As per the absorption costing and the marginal costing, the company faces the loss. In the marginal costing the company loss of (£) 2,875 whereas in the case of absorption costing the company also in loss of (£) 375. So it is benefit to the company to use the method of absorption costing because in tis costing the company faces little bit loss as compared to the marginal costing.



a). Budgets and its advantages and disadvantages

A budget is forecast the financial position and results of the company for more than one future period. It is used for performance measurement purposes, planning. It also contains an estimated income statement for future periods. A more rigid budget involves a sales forecast, the cost of goods sold, and expenses required to make support to the projected sales. A budget assists in planning the actual operations of the business by forcing the managers to consider how the conditions might be change and what steps should be taken now. It also assists to coordinate the business activities of the company by compelling mangers to survey the relationship between their own operations and those of other divisions (Jalaludin, Sulaiman and Nazli Nik Ahmad, 2011). Budget includes essentials elements which are:

  • To communicate plans to various responsibilities center managers
  • To control resources of the company.
  • To motivate the managers and others to achieve the budgeted goals.
  • To evaluate the performance

Types of budget:

Production Budget: The Production budget measures the number of units of products that to be manufactured, and is derived from a combination of the sales forecast and estimated amount of finished goods of stock. The production budget is basically prepared for a manufacturing system and is also used in material requirements planning.


  • Plant and machinery can be utilized to a maximum extent and labor hours can be utilized to greater extent.
  • It also helps to reduce the production expenses as there is uniform production.


  • Sales and inventory are unbalanced when the production process cannot achieve the targets.
  • If the manager does not consider the relevant factors of the production the costs will increases and profits are declined.

Sales budget: Sales Budget is the main component of the budget and it reflects the expected number of sales units of period and the expected price per unit. Sales budget influences many of the other components of the budget because it directly or indirectly related to it. This budget is important to the business for future forecasting the sales and accordingly makes the strategies and decisions for the sales growth in the competitive market (Zang, 2011).


  • It is helpful in making sales programming so as to achieve the sales targets of the company.
  • It is also helpful in keeping expenses under control so that the objectives of net profits are attained.


  • It does not forecast the future trends of events.
  • Preparing a sales budget takes up too much managerial time.

b). The different types of costing systems which can be used for preparation of budgets:

  • Standard costing system: The standard costs are assigning to the manufacturing units which helps in manage the costs associated processes and business operations while making the budgets.
  • Normal costing system: The assessment of the overhead of the production units helps the business in calculating the cost associated for a long duration. This will also help the management to prepare the budgets for the upcoming years (Vakalfotis, Ballantine and Wall, 2013).
  • Actual costing system: The cost of the units are measured on the basis of the actual costing which assists the company to prepare the budgets and set the estimated or budgeted targets to achieve the predetermine goals and objectives of the company.

c). The importance of budget as tool for planning and control purposes which are summarized below:

PROPHIX: No matter the size of the company, the PROPHIX has enabled to the company to automate and integrate their planning, budgeting, forecasting, and reporting activities. It is software which reduces the work load on the management. PROPHIX is a powerful and feature- rich corporate performance management system which helps the company to make their financial information more value.

Following are the features of this software:

  • Project planning
  • Strategic planning
  • Reporting
  • Budgeting and analysis
  • Forecasting, etc.

SCORO: It is cloud- based management software. It is user- friendly interface is complemented by its elimination of the need to switch between solutions and email clients. The software’s key feature is it control hub, from which tasks, account information, key performance data, among other aspects of businesses are displayed (Bodie, 2013).

Following are the features of the SCORO:

  • Business dashboard
  • Task management
  • Project management
  • File management & sharing
  • Budgets & forecasts


SCORO: It helps the management of company for future forecasting of budgets by using this software and also helps in customer management, resource planning, etc. It also integrated the budgets with the CRM. It is very useful in preventing problems associated with the use of different software.

PROPHIX: This software helps the company to provide users with products, professional services, education, and technical supports. With PROPHIX financial and data analysis tools, accountability becomes normal to your business process. It also provides information to the internal and external stakeholder. The software can be configured to automatically deliver income statement, balance sheet, etc. to your desktop.


The different financial tools are used to assess the financial problems of the business operation. By using the effective tools and methods, the company would able to reduce the burden of the risk and mismanagement in the business (Lukka, and Vinnari, 2014). These efficient and effective tools will assist the company to manage the investment decisions so that wrong investment does not made by the company in their business operations. The investigations of the financial information help the company to do external reporting to their stakeholders which will in turn investigate their money in the business operations so, that the company expand their own business operations with the help of this money.



It is a strategy performance management tool and a semi- standard organize report, that can be used by the manager of the company to keep check of the execution of activities by the departments within their monitor and control (Wickramasinghe and Alawattage, 2012).

Different factors that needs to be identified can be done using scorecard as it shows that what is the long term economic value of an enterprise. For instance:

Consumer attention: This is used to fulfill, maintain and take on bespoke in intended section.

Enterprise Activity: Gives the cost proposition of value to aimed customers

  • Modern elements and offerings.
  • Flexibility, good standard products and management operation
  • Effective after sale services.

Structure training and development:

  • Promote effective and efficient employees
  • Give reach to different data
  • Placement of groups and individuals according to goals and objectives

Key benefits of using Balanced Scorecard include:

  • Improved strategy communication: It allows the company to communicate strategy with the other departments. Having a one- page picture strategy allows the company to fulfill their goals and objectives.
  • Improved important provisions: The concept of balance score card gives assistance to the management to build and communicate plan of action. The enterprise model is conceptualized into a scheme mapping that assist the manager to believe about the cause-and-effect relationship within the goals which are crucial. (Hilton and Platt, 2013).
  • Improved performance reporting: The balance record book can be utilized to improve the action written document and dashboards. This will ensure that the governance reporting give attention on the main crucial plan of action problems and assists the organization to supervise on the implementation of


  • The managers will be need to maintain the strategic and goals of the company by doing regular monitoring on the strategies which are adopted by the departments for the sustainable development of the company.
  • The management accounting useful methods are used by the company, for instances like standard costing, marginal and absorption costing, etc. will help the business to take various important decisions and also helps in the production processes.
  • The management accounting assists the company to make the effective and efficient reporting system for the business which provides the useful and helpful information to the managers for preparing the strategic planning for sustainable development of the company.


After going through the above report, it is summarised that administration need to make use of appropriate accounting tools and techniques to record financial transaction in more effective manner. For this purpose, they need to make use of systems and reporting to analyse overall financial position of Tech UK. By the help of various costing method company will be able to analyse their net profit during the time. Advantage and disadvantage of using budgets are valuable part for an organisation for longer period of time. Use of financial tools can be more effectively essential for removing all necessary impacts those are affecting the overall performances of an organization in coming time.

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