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Advantages and Disadvantages of Management Accounting

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Added on  2020-10-22

Advantages and Disadvantages of Management Accounting

   Added on 2020-10-22

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Management accounting
Advantages and Disadvantages of Management Accounting_1
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK...............................................................................................................................................1P3. Advantages and disadvantages of budgeting control techniques.....................................1P4. income statement for 3 years using marginal and absorption cost approach...................3CONCLUSION..............................................................................................................................10REFERENCES..............................................................................................................................11
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INTRODUCTIONManagement accounting is the process of assessing the business activities of the internalmanagement so that better decision making can be done.Management and accounting reports areprepared so that company could analyse its profits and can compare it with past year's data.Present study is based on XYZ ltd., a chair manufacturing company and will explain theadvantage and disadvantage of budgeting control tools. Furthermore, it will calculate net profitby using marginal and absorption costing approach for 3 years’ business of XYZ ltd.TASKP3. income statement for 3 years using marginal and absorption cost approachUSING MARGINAL COST APPROACH-Income statement for the year ended 1( using marginal approach)ITEMSNO. OF UNITSPER UNITAMT.(in pounds)TOTAL AMT.(in pounds)sales36000702520000Marginal cost of sales (MCOS)Stock at beginning(opening stock)add: variable production cost:-direct material(DMC)4000012480000direct labour(DLC)4000016640000variable expenses(VC)4000020800000Total variable cost A40000481920000less:closing stock at the end of the year B(opening stock units+units produced-units sold)400048192000Marginal cost of sales(MCOS) A-B1728000Fixed indirect production cost64000Gross profit: (sales- marginal cost of sales- Fixed production cost)728000selling and distribution overheads(S&D)10000admin overheads(Admin O/H)1500025000profit before interest and tax(PBIT)703000Interest expenses10001000profit before tax(PBIT-interest)702000Tax @ 19%133380net profit5686201
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Interpretation- From the above table it is interpreted that the no. of units sold in the firstyear are 36000 @ pound 70 per unit so the total amount got is pound 2520000. After the salescalculation, marginal cost of sales is calculated by deducting closing stock from total variablecost where total variable cost is defined as A and closing stock is defined as B. Thus marginalcost of sales after subtracting is pound 1728000 then for calculating gross profit, marginal costand fixed production cost is deducted from sales so the amount got pound 728000. Thereafter, allthe indirect overheads are reduced that are selling and distribution and administration overheadfrom gross profit for getting profit before interest and tax and amount of PBIT is pound 703000then the interest expenses are deducted and profit before tax of pound 702000 is evaluated andlastly after deducting tax rate from PBT, net profit is aroused of pound 568620 (Raka, 2017).Income statement for the year ended 2 (using marginal approach)ITEMSNO. OF UNITSPER UNITAMT.(inpounds)TOTAL AMT.(in pounds)sales40000702800000Marginal cost of sales (MCOS)Stock at beginning(opening stock)400048192000add: variable production costdirect material(DMC)48000125760002
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