Financial Performance and Management Accounting

This assignment examines the role of management accounting in enhancing the financial performance of businesses. It analyzes various operational aspects that contribute to financial improvement, emphasizing the use of planning tools such as ratio analysis, budgeting, project evaluation, standard costing, cost variance analysis, and budgetary control. The document highlights how these tools help organizations achieve their financial goals by analyzing past performance, setting future targets, and making informed decisions.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 A) Preparing cost card of absorption and marginal costing .................................................1
1.2 Range of management accounting techniques......................................................................3
1.3 Interpretation of both absorption and marginal costing and merits and demerits................4
TASK 2............................................................................................................................................5
2.1 Ascertaining the advantages and disadvantages of planning tools used in budgetary control
.....................................................................................................................................................5
2.2 Using High-low methods in estimating the expenses...........................................................7
2.3 Analysing the purpose of budget and preparing the cash budgets........................................7
TASK 3............................................................................................................................................8
3.1 Calculation of ratios .............................................................................................................8
3.2 Management accounting can improve financial performance of business...........................8
3.3 Discuss planning tools to reduce financial problems to achieve success..............................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
The managerial aspects of any business entity in the recent times is to bring the
appropriate execution and administration of the internal environment which in turn will be
helpful in making satisfactory improvements in the operational activities of the business. In the
present report there will be discussion based on various analysis made on operational practices of
UCK furniture on the basis of cash flows, income statement and ratio analysis.
TASK 1
1.1 A) Preparing cost card of absorption and marginal costing
Income statement under
marginal costing for January Amount
Sales revenue (9000*35) 315000
Less Cost of sales
Direct materials (11000*12) 132000
Direct labour (11000*8) 88000
Overheads (11000*5) 55000
275000
Contribution 40000
Less: Variable selling cost 11000
Fixed selling cost 2000
Fixed production overheads 20000
33000
Gross profit 7000
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Income statement under
marginal costing for February Amount
Sales revenue (11500*35) 402500
Less Cost of sales
Direct materials (11000*12) 114000
Direct labour (11000*8) 76000
Overheads (11000*5) 47500
237500
Contribution 165000
Less: Variable selling cost 11000
Fixed selling cost 2000
Fixed production overheads 20000
33000
Gross profit 132000
Absorption costing
Income statement under
absorption costing for January Amount
Sales revenue (9000*35) 315000
Less Cost of sales
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Direct materials (11000*12) 132000
Direct labour (11000*8) 88000
Overheads (11000*5) 55000
275000
Contribution 40000
Less: Variable selling cost 11000
Fixed selling cost 2000
Fixed production overheads 22000
35000
Gross profit 5000
Income statement under
absorption costing for February Amount
Sales revenue (11500*35) 402500
Less Cost of sales
Direct materials (11000*12) 114000
Direct labour (11000*8) 76000
Overheads (11000*5) 47500
237500
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Contribution 165000
Less: Variable selling cost 11000
Fixed selling cost 2000
Fixed production overheads 22000
35000
Gross profit 130000
1.2 Range of management accounting techniques
There are various techniques of management accounting which are helpful in carrying out
to enhance overall financial position. Cash flow statement is one of the main technique by which
business is able to analyse cash position in the best possible manner. Moreover, there are various
activties such as operating, investing and financing activities which outlines whether adequate
cash balance is available or not (Cooper, Ezzamel and Qu, 2017). Another technique is cost
variance which is used to analyse difference between budgeted and actual costs. Thus, it is an
essential technique in generating financial reporting documents. On the other hand, revaluation
accounting is helpful in order to adjust current market and book value of asset in effectual
manner. Hence, this management accounting techniques are helpful for UCK Furniture to
enhance financial health in effective way.
1.3 Interpretation of both absorption and marginal costing and merits and demerits
Marginal costing
Marginal costing is a technique of management accounting wherein data related to cost
such as variable and fixed costs are provided to personnels for effective decision-making. The
effect on profit can be judged when there is change in volume of output. In marginal costing,
firm may be able to analyse cost of production and as a result, higher production can be achieved
by reducing unnecessary costs.
Advantages
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1. It is advantageous as valuation of stock is correctly ascertained and no illogical carry
forward of the same is made in proportion of fixed overheads of current year.
2. This method is helpful in short-term planning by effectively taking break-even and
profitability aspect (Kolb and Kolb, 2011).
Disadvantages
1. It is not easier to bifurcate variable and fixed costs and as a result, conclusions drawn
from the same are misleading.
2. Another disadvantage of marginal costing is that long-term planning cannot be
possible as it is useful only in short-term planning.
Absorption costing
This costing is effective as it computes cost of particular product by considering indirect
expenses and direct costs. In simpler words, manufacturing expenses are effectively absorbed by
units produced.
Advantages
1. It is advantageous as fixed costs are taken into account and is helpful in determining
adequate pricing policy in effective way (Agarwal. 2018).
2. It is useful in preparation of external reports and correct valuation of stock can be
made.
Disadvantages
1. Absorption costing do not classify fixed costs whether it relates to manufacturing or
administration.
2. It is not useful in controlling costs as allocation of indirect expenses is difficult task.
TASK 2
2.1 Ascertaining the advantages and disadvantages of planning tools used in budgetary control
The advantages of planning tool in management accounting is that it brings the clear
understanding and analysis over the profitability of the prosed plans of business. However, there
will be various techniques winch will be effective and brings better budgetary control. Such as:
Net present value: This is the technique which helps in bringing the present value of the
future cash flows. Therefore, this estimation will be indicative and helpful as to bring the most
adequate and appropriate determination of the analysis that the projected plan will be helpful to
the firm in bringing the most appropriate and reliable information. This is the technique which in
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turn will be effective and helpful to the firm in terms of analysing the profitability over the
analysed data set. Additionally, it can be said that the implication of such techniques will be
beneficial for the business as to have suitable gains and income bring forth. Moreover, it will be
helpful to UCK Furniture in terms of implicating such techniques into operational practices on
the basis of its advantages and disadvantages:
Advantages:
 It incorporates with the techniques is that the future dollar is worth less than the dollar
value today.
 It brings the discounting factors which ascertains that every period the cash flow will be
discounted by the professionals.
 The main advantages is that it bring s the outcomes which evaluate the profitability of
firm in meeting the future requirements as well as profitability of plans in the coming
time.
Disadvantages:
 The main draw back of this technique is that it comprises with a lot of guesses work
which in turn brings the negative impacts over the profitability and in accuracy in the
outcomes.
 The results and output is not being accurate and reliable as well as will not bring the clear
estimation of the profitability over the estimated plans of business.
Payback period:
This is the method which evaluates the capital expenditure projects and bring the
outcomes that the time period on which the firm will go to receive the proposed money back
which were being invested by them in then operational activities of the firm. However, to
implicate such planning tool in UCK Furniture there will be various advantages and
disadvantages of these techniques that is necessary to be ascertained by the professionals such as:
Advantages:
 It is the easiest techniques which in turn will be measured by anyone in the firm.
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 It brings the information related with obtaining the investment amount of funds will be
recovered by a firm in the coming period.
Disadvantages:
 The main disadvantage of these techniques is that it ignores the time value of money also
neglects the cash flows generated by firm after the payback.
 It does not comprise with the profitability of the business
Internal rate of return:
This is the rate of return which insists that these is the discount rate which in turn will be
helpful and represents the future cash flow as zero. However, it will be a helpful tool which
brings the clear analysis to the managerial professionals that the rate or return firm will go to
have in the future over estimated operational activities or cash flows. Similarly, to implicate such
techniques into business operations of UCK Furniture there is need to ascertain several
advantages and disadvantages of this planning tool such as:
Advantages:
 It comprises with the time value of money which brings appropriate results that the firm
is able to gather the most satisfactory analysis over the business operations.
Disadvantages:
 The main disadvantage is that the formula used in to analyse the IRR does not bring the
clear algebraic proof. Moreover, it will not be reliable and trustworthy for the entity to
have appropriate analysis over the facts.
2.2 Using High-low methods in estimating the expenses
This is the technique which will be helpful as to analyse the fixed and variable elements
from the historical and past data such as:
Variable costs/ units High cost- Low cost 750- 650 0.0415
High unit- Low unit 9820- 7410
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Fixed costs Hight cost- (variable cost hight unit) 342.47
2.3 Analysing the purpose of budget and preparing the cash budgets
The preparation of budgets are incorporated with the past records over the transactional
activities made by firm in the period. There will be appropriate analysis over the costs incurred
in such tasks which bounds the managerial professionals in making effective forecasts. It will be
the most helpful and beneficial techniques that will be effective and helpful as to have
satisfactory control over the gains and losses.
Particulars Initial investment July August September
cash sales 19000 29000 39000
sales on account 5600 5520 8400
Sales on account collected 560 4480 392
Revenue collected 25160 39000 47792
Inventory purchased 4800 19200 24000
Accounts payable 0 0 15000
Selling and Administration 0 0 13000
Depreciation 0 0 4000
Equipment 0 0 18000
Dividends 3000 3000 3000
Total outflows 7800 22200 77000
Net cash flow 17360 16800 -29208
Opening balance 5000 5000 22360 39160
Closing balance 5000 22360 39160 9952
TASK 3
3.1 Calculation of ratios
UCK UCK
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Furniture Woodworks
Particulars Formula
Design
Division
Gear box
Division
Operating profit margin
Operating income /
sales * 100 45.31% 14.46% 44.64%
Return on Capital Employed
(ROCE)
EBIT (Earnings
Before Interest and
Taxes) / Capital
Employed 25.50% 11.27% 8.56%
Asset turnover ratio
Revenue / Average
total assets 56.28% 77.98% 19.18%
It can be analysed from the above calculation of ratios that UCK Furniture's divisions are
performing well. This is evident from operating profit margin that division one is 45.31 % and
other division is 14.46 %. UCK Woodworks has 44.64 % of ratio. Moreover, ROCE and asset
turnover ratio both are more. Thus, it can be said that performance of divisions are far better than
UCK Woodworks.
3.2 Management accounting can improve financial performance of business
Management accounting is useful to improve financial performance of UCK Woodworks.
The managerial personnels should take into account operating expenditures and should reduce
upon the same. It will increase operating profits (Collier, 2015). Moreover, organisation should
be made internally strong to carry on operations and earn profits. Thus, it can be said that
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management accounting is quite beneficial for the organisation in order to improve upon
financial condition in effective manner.
3.3 Discuss planning tools to reduce financial problems to achieve success
 Ratio analysis- It is important analysis as profitability and overall financial performance
is evaluated with the help of conducting ratio analysis. Historic data from financial
statements are utilised for carrying out ratios.
 Budgeting- It is termed as a financial goal for coming period which consists of income to
be earned and expenses to be incurred (Ax and Greve, 2017).
 Project evaluation- It is used to easily determine level of achievement of objectives of
project so that effective accomplishment of project can be done.
 Standard costing- It is used to show variances between actual and expected expenses in
effective way.
 Analysis of cost variances- Planned and actual expenditures are analysed and necessary
steps are taken to eradicate increased costs if any.
 Budgetary control- It is done to analyse whether actual performance is as per planned one
and deviations are exists, then corrective action are taken to improve upon the same.
CONCLUSION
On the basis of above study it can be said that there are various operations which in turn
will be helpful and beneficial to be analysed by the business professionals. There has been
various discussion based on planning tolls and budgetary system on which cash flow statement
and income statement has been presented by the business professionals.
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