Management Accounting (Part 1)

12/10/2021 Management
Accounting (Part
1)
Radha Rana

BTEC HND in Business/Second Semester

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Management Accounting (Part 1)

Each time you submit an assignment you must attach this statement as the cover page for
both the hard copy and the electronic version. If the statement is missing, your work will
not be marked.

STUDENT DECLARATION

I have read and understood Pearson Edexcel Policy on Academic dishonesty and Plagiarism.

I can confirm the following details:

Programme / Qualification Name: BTEC HND in Business

Student ID / Registration Number: 202001BBAA12

Name: Radha Rana

Centre Name: ISMT

Module Name: Management Accounting

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Management Accounting (Part 1)

Module Leader: Suman Tiwari

I confirm that this is my own work and that I have not plagiarized any part of it. I have also
noted the assessment criteria and pass mark for assignments.

Student Signature: Radha Rana

Submitted date: 10th Dec, 2021

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Management Accounting (Part 1)

Table of Content
Acknowledgement
Part 1
1. S&S Associates, Chartered Accountants
1.1 Vision
1.2 Mission
Section 1
2. Management Accounting
2.1 Roles of Management Accounting
2.2 Principles of Management Accounting
3. Management Accounting System
3.1 Types of management accounting system
4. Management Accounting Report
Section 2
5. Management Accounting Techniques
References

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Acknowledgement
The assignment has been done for the partial fulfilment of BTEC HND in Business under
International School of Management and Technology (ISMT). I would like to express my
sincere gratitude towards my module teacher Mr. Suman Tiwari who provided me not only
motivation but also a valuable guidance to complete this assignment on detail.
Radha Rana
BTEC HND in Business

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Management Accounting (Part 1)

Part 1
1. S&S Associates, Chartered Accountants

S&S Associates, Chartered Accountants is an assurance and advisory firm based in

Kathmandu. For more than a decades, the association is providing professional services to
the public, private, and development sector. In 2004 AD, it was registered as a sole
practitioner in the name of S. Sharma & Associates with the Institute of Chartered
Accountant of Nepal (ICAN) and later with the conversation into partnership firm, the firm
name changed to S & S Associates in the year 2014 AD. It is one of the fast growing
accounting firm in Nepal and occupy a special place in the respective profession.
(Associates, n.d.).
1.1 Vision
To be a highly respected professional accounting firm of the country.
1.2 Mission
To deliver service on time in an efficient manner, exceeding the client’s expectations, in a
professionally competent way, recognizing and meeting the customers need (Associates,
n.d.).
As a junior assistant in S & S Associates, Chartered Accountants I have assigned to prepare a
power point presentation to demonstrate the required knowledge and skills for the
promotion. Also, to present the financial statement in a workplace context and be able to
assist senior colleagues with financial business planning.

Section 1
2. Management Accounting
Management accounting refers to the process of providing an information of financial and
resources to the managers for decision making. Finance department shared financial
information and reports with the management team of the company in the process of
management accounting. Management team encompasses a wide range of accounting
disciplines aimed at improving the quality of information provided to management about
the business operations metrics. Managerial accountants use information about the cost
and sales revenue of the company’s goods and services (toppr, n.d.).

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2.1 Roles of Management Accounting

 Planning and Accounting
Management accounting is essential in developing an effective plan and providing the
necessary data. Capital budgets, sales budgets, and cost-volume-profit analyses are
some of the tools used by management accountants to help them make plans.
 Controlling
Through the use of standard costing, accounting ratio, budget control, revenue, and
fund flow statement, cost-cutting initiatives, return on investment, assessing capital
expenditures proposals, management accounting assist in the control of an
organization’s performance.
 Reporting
To find out the root cause of an unfavourable operations or event, management
accounting assists the top management by identifying the real reasons for the
unfortunate events and as well as the responsible parties completely reporting them.
 Coordinating
Management accounting contributes significantly to organizational management
efficiency by providing various coordination tools such as budgeting, ratio analysis,
financial report, financial analysis, and interpretation and so on. By comparing cost and
financial records, preparing financial budgets these tools help management accounting.
 Communication
In order to carry out the responsibilities effectively and efficiently, management
accounting create a wide range of reports which help management to make smart
decisions.
 Asset Protection
To protect the company assets, management accounting separates fixed assets registers
for each type and provide internal checks and control.
(Institute, n.d.).
2.2 Principles of Management Accounting
 Designing and compiling
To meet the needs of a particular business and/or specific problems, accounting
information, records, reports, statements, and other evidence of past, present, or future
results should be designed and compiled. It means that management accounting system
is designed in such a way that the relevant data is presented. To meet the requirements
of management, accounting information can be modified and adopted.
 Management by Exception
When presenting information to management, the principle of management by
exception is followed. It means that the management accounting system employs
budgetary control system and standard costing techniques. In order to determine the
deviations, the actual performance is compared with the pre-determined one. Only the
unfavourable deviations are communicated to the management as to what is going
wrong. If it is the case, the management takes more time to take action than to analyse
the information.
 Control at source accounting
Costs are best controlled at the points at which they are incurred – control at source
accounting. Individual workers performance, details of materials issue, utilization, and
usage of services such as machine, power, repairs, and maintenance, vehicles etc. are

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prepared in the form of quantitative and qualitative information. Control can be

exercised over employees, materials, and services providing devices in this technique.
 Accounting for inflation
Unless capital is maintained intact in real times, it is said profit cannot be earned. It
means that money value is not stable. Through revaluation accounting, it is necessary to
estimate the value of capital contributed by the owners of the business concern in terms
of real value of money. In this manner, the rate of inflation is considered in determining
the true success of business concern.
 Use of return on investment
Return on investment is also known as Return on capital employed. The efficiency of the
business concern is defined by the rate of return. The capital employed is calculated in
terms of real money value for this purpose.
 Utility
Management accounting system and related form should only be used for as long as
they are useful.
 Absorption of overhead costs
Overhead costs are absorbed on any of a number of predetermined bases. Indirect
materials, indirect labour, indirect expenses are all part of the overhead costs. As a
result, the method or methods chosen for overhead absorption should achieve the
desired results in the most equitable way possible.
 Integration
It means that all the management’s required information is integrated so that it can be
used as effectively as possible while also providing the accounting services at the lowest
possible costs.
 Utilization of resources
The resources should be used effectively, since some resources are available in plenty in
reason and some other resources are available in scarcity throughout the year because
of which the management accounting system should be ensure proper utilization of
available resources.
 Controllable and Uncontrollable costs
Costs are classified into two types based on their controllability: controllable and
uncontrollable. Taking steps to control uncontrollable costs serves no response. As a
result, the management accounting system can offer techniques for controlling
controllable costs.
(Accountlearning.com, n.d.).

3. Management Accounting System

Management accounting system track the costs associated with a company’s production of
goods and services. Traditional cost accounting, lean accounting, throughput accounting,
and transfer pricing are some of the most common systems. In order to produce goods and
services at the lowest possible costs, each of these management accounting system offers a
unique method for tracking costs. It can lead to overpriced goods and lower gross margins if
it fails to adhere to any system. (Woodruff, 2018)
3.1 Types of management accounting system
Management accounting system include costs accounting system, inventory management,
price optimization, and job costing system, all of which have different accounting objectives,

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elements, and functions. However, all the basic elements of accounting system create a
standardized context for the data that is analysed, identified, and communicate.
 Cost Accounting System
The cost accounting system, also known as the costing system, is the framework used by
a company to approximate the costs of its product for inventory valuation, profitability
analysis, and cost control. The cost accounting system allocates costs using either an
activity-based costing system or a traditional costing system. To be able to approximate
the actual costs of the product it is critical for effective functions. It is a type of
accounting system that aims to capture a company’s production costs by weighing the
input costs of each production step as well as fixed costs such as capital equipment
depreciation. Before comparing the outcomes of the inputs to the actual results or
output to assist the company’s management in measuring financial performance, the
cost system will individually measure and record the costs. Accounting data, in general,
and cost data are relied on by business manager because any task of the company can
be explained through it costs. Cost accounting provides analytical tools such as
budgetary control, marginal costing, standard costing, operating costing, and inventory
control that are used by management to efficiently discharge their reproducibility.
 Inventory Management system
The process of controlling and supervising the ordering, use, and storage of components
used in the manufacture of the goods sold by the corporation refers to inventory
management system. To streamline inventory management of consumables goods,
stocks, and supplement, inventory management combine the use of barcode scanners,
desktop software, mobile devices, and barcode printers. It is also the practise of
controlling and supervising the quantities of finished goods for sale. While minimizing
the overstock and understock situations, inventory management seeks to accurately
understand current inventory levels. Managers will gain insight and be able to make
adequate inventory decisions if quantities are tracked efficiently across the stocking
location. A company’s inventory is one of its most important assets and accounts of
investment that is linked to the products it sells. Creating purchase orders, receiving,
relocating, adjusting, and disposing of inventory are the functions performed by the
inventory management system. It also handles sales order, product picking, packaging,
and shipping. It can perform cycle count and physical inventory counts, as well as create,
manage, schedule, and share report and prints barcode labels. By improving the
company’s bottom line, improving inventory accuracy, and improving company
workflow, inventory management system benefits the organizations (Chakraborty, n.d.).
 Job Costing Systems
Method of allocating manufacturing costs to individual items or batches of products
refers to job costing systems. It is the practise of collecting data on the costs associated
with a specific service or production job. This method is used when the goods being
processed differ from one another. Under a contract in which costs are refunded, the
data is required to submit cost data to a consumer. For determining the accuracy of the
company’s estimating system, the information may be critical which must be capable of
quoting prices that allow for a reasonable income. The job costing system make
necessary for the collection of three types of direct information: labor, direct materials,
overhead. The data can be used to assign the inventory costs to processed the products
(AccountingTools, n.d.)
 Price Optimizing system

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To determine how consumers will react to different prices for their goods and services
delivered through various channels, price optimizing application of mathematical
analysis to a corporation is used. The company believes that using price optimizing
system to determine the prices will best meet their objectives such as maximizing
operating profit. Identifying an alternative based on the highest achievable performance
or costs effectiveness within the constraints provided by maximizing desired aspects and
maximizing the undesired ones.

4. Management Accounting Report

Managerial accounting focuses on inside information that are obtained through financial
accounting, it is also known as management or cost accounting. Managerial accounting is
used to plan, regulate, make decisions and measure performance. Throughout the
accounting and book keeping period, these reports are generated on continuous basis in
accordance with the requirements. They should be carefully crafted by book keeping
experts, since many critical decisions rely on the accuracy of these reports. Managers then
analyse these reports to identify patterns and turn them into useful information for the
company (Controller, 2019). The explanations for some of these reports are provided below:
 Budget Report
For measuring company performance, budget managerial accounting reports are very
important and are generated for small businesses as well as departmentally for large
organizations. In order to comprehend the big picture of their business, each company
develops an overall budget. The budget of a company lists all sources of income and
expenditures. A budget estimate is based on previous experiences; however, a great
budget always accounts for unforeseen circumstances. While staying within its budgeted
limits, a company strives to meet its objectives and mission. Budgeting-related
managerial accounting reports can help managers offer better employee incentives, cut
costs, and renegotiate terms with vendors and suppliers. As a result, a budget report is
essential for any business.
 Account Receivable Aging Report
Account receivable aging reports are critical if your company relies heavily on credit. It
enables managers to identify defaulters and identify problems in the company’s
collection process by breaking down the client’s outstanding balances into specific time
periods. The company may need to make a complete shift to tighter credit policies if
there are a large number of defaulters, as cashflow is critical to the operation of any
business. There is always some bad debt to be written off, however you cannot make it a
habit.
 Cost Managerial Accounting Report
Managerial accounting computes the costs of articles of manufactured goods. The costs
of raw material, overhead, labor, and added costs are taken into deliberation, the totals
are divided by the amounts of products produced. Summary of all this information is
offered by cost report. This report offers managers the capacity to realize the cost pieces
of items as compare to their selling price. Through cost managerial accounting report,
profit margins are estimated and monitored as the company have a clear picture of all of
the costs that went into the production or procurement of the articles. Inventory waste,
hourly labor costs, and overhead costs are also the tools of cost managerial accounting

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reports as it provides an understanding of all expenses, which is essential for better

optimizing resources among all departments.
 Performance Reports
To check and review the performance of a company and employee as a whole at the end
of a term, the performance report is created, in large organization, departmental
performance reports are also generated. To make the key strategic decisions about the
future of the organization, these performance reports are used by managers. Individuals
are often awarded or praise for their dedications towards the organization, and
underperformers are discharge temporarily or dealt with as required. Performance-
related managerial accounting reports also offer deep insight into the working of a
company. The role of performance reports is vital for any company to keep an accurate
measure of its strategy towards its mission.
 Other Managerial Accounting Reports
Other information reports, project reports, competitor analysis, and many other similar
reports are essential for every business, through professionals, they are either
generated internally or outsourced. The best course of actions depends upon your
capabilities to handle the reporting requirements of your firm. The ideal choice can
differ for everyone, to better carry out this task, professional services do have the
experience and skills. Managers must have access to credible and authentic managerial
accounting reports to attain the most out of their decisions.
(Controller, 2019).

Section 2
5. Management Accounting Techniques
 Financial Planning
Financial planning is the act of deciding in advance on financial activities required for a
company to achieve its primary goals. It entails determining the enterprise’s long-term
and short-term objectives, developing financial policies, and developing the financial
procedures to achieve the objectives. The importance of financial policies in achieving
the highest possible return on capital employed cannot be overstated. Financial policies
can govern the amount of capital required, the sources of fund, the determination and
distribution of income, act as a guide in the use of debt and equity capital, and the
optimal level of investment in various assets.
 Analysis of financial statements
The analysis attempt to determine the significance and meaning of financial statement
data so that a forecast of future earnings, ability to pay interest and debt maturities, and
profitability of a sound dividend policy can be made. Such techniques include
comparative financial statements, trend analysis, cash flow statements, ratio analysis.
This analysis yields information that will benefit business executives, investors, and
creditors.
 Historical Cost Accounting
To compared the standard costs on the costs of each job, process, and department,
historical cost accounting provides management with past data. Comparing those costs
may benefit management in terms of cost control and future planning.
 Standard Costing

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The process of taking corrective action so that bad things do not happen again,
establishing standard costs under the most efficient operating conditions, comparing
actual costs to the standard, calculating, and analysing variances refers to standard
costing.
 Budgetary Control
To plan and control the various business activities, the management accountant used
the tool budgetary control. Budgetary control is an important technique for steering
business, operation in the right direction, achieving a satisfactory return on investment.
 Marginal Costing
For cost control, decision-making, and profit maximization, the management accountant
employs the technique of marginal costing, differential costing, and break even analysis.
 Fund Flow Statement
To examine the changes in a company’s financial position between two dates, the
management accountant employs the technique of fund flow statement. It explains
where the funds are coming from and how they are being used in the business. It is
extremely beneficial in financial analysis and control, future forecasting, and
comparative studies.
 Flow Statement
In long-term financial planning, a funds flow statement based on an increase or decrease
in working capital is extremely useful. Even if there is sufficient working capital as
revealed by the fund flow statement, the company may be unable to meet its current
liabilities as and when they become due. It could be due to an increase in trade debtors
and an increase in inventories. In this situation, cash flow statement is more useful
because it provides detailed information on cash inflows and outflows. A cash flow
statement is an important cash control tool because it summarizes a firm’s sources of
cash inflows and uses of cash outflows over a specific time period, such as a month or a
year. It is a very useful tool for analysing the enterprise’s liquidity.
 Revaluation Accounting
The management accountant ensures the upkeep and preservation of the enterprise’s
capital through this technique. It considers the impact of price changes on the
preparation of financial statements.
 Decision Making
It is necessary to choose the best option from among all available options when there
are multiple ways to complete a task. These necessities the management decision-
making. To maximize business profits by using techniques such as marginal costing,
capital budgeting, and differential costing, management accounting assists management
in selecting the best alternative.
 Statistical and Graphical Techniques
To make information more meaningful and to present it in such a way that it can assist
management in decision-making, the management accountant employs various
statistical and graphical techniques.
 Communicating
Management’s success or failure is determined by whether the necessary information is
provided to management in appropriate form and at the appropriate time to enable
them to carry out the functions of planning, controlling, and decision- making effectively.
To provide information to the various levels of management by properly selecting the

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data to be presented, organizing the data, and selecting the appropriate reporting
method, the management accountant will prepare the necessary report.
(Singh, 2021).

References
AccountingTools, n.d. Job Costing System defination. [Online]
Available at: https://www.accountingtools.com/articles/what-is-a-job-costing-system.htm
Accountlearning.com, n.d. Principles of Management Accounting. [Online]
Available at: https://accountlearning.com/principles-management-accounting/
Associates, S., n.d. About us. [Online]
Available at: https://snsassociates.com.np/our-core-principles/
[Accessed 2021].
Associates, S., n.d. Who We Are. [Online]
Available at: https://snsassociates.com.np/who-we-are/
[Accessed 2021].
Chakraborty, A., n.d. What Is an Inventory Management System? Types You Should Know
About. [Online]
Available at: https://www.selecthub.com/inventory-management/types-of-inventory-
management-systems/
Controller, C., 2019. Types Of Managerial Accounting Reports. [Online]
Available at: https://www.completecontroller.com/types-of-managerial-accounting-reports/
Institute, C., n.d. Management Accountant: Roles, Functions, Qualifications, & Careers.
[Online]
Available at: https://www.cima.institute/blog/management-accountant-roles-functions-
qualifications-and-careers
[Accessed 2021].
Singh, S., 2021. Top 11 Techniques used in Management Accounting. [Online]
Available at: https://www.accountingnotes.net/management-accounting/techniques/top-
11-techniques-used-in-management-accounting/5862
toppr, n.d. Meaning and Definition of Management Accounting. [Online]
Available at: https://www.toppr.com/guides/fundamentals-of-accounting/fundamentals-of-
cost-accounting/meaning-of-management-accounting/
[Accessed 2021].
Woodruff, J., 2018. What Is a Management Accounting System?. [Online]
Available at: https://bizfluent.com/facts-5460765-management-accounting-system.html

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