Management Accounting Fundamentals and Techniques

Management
Accounting

INTRODUCTION...............................................................................................................3
TASK 2...............................................................................................................................4
P3 INCOME STATEMENT THROUGH MARGINAL COSTING AND ABSORPTION
COSTING TECHNIQUE:...................................................................................................4
M2 Range of management accounting techniques:..........................................................8
P4 Advantages and disadvantages of different types of planning tools used for
budgetary control:............................................................................................................10
M3. Different planning tools and their application for forecasting budgets.....................12
P5. Adaption of management accounting systems to respond to financial problems and
sustainable success:........................................................................................................13
M4. Sustainable success through solving financial problems by Management
Accounting:......................................................................................................................18
CONCLUSION:................................................................................................................19
REFERENCES................................................................................................................20

INTRODUCTION
The objective of this report is introducing the management accounting fundamentals
which can be practice in the wider business environment (Agrawal and Cooper, 2017).
This project report will investigate about uses of management accounting financial data
to get planning decisions and the monitoring and control of finance within organizations.
This project report consists of two types of Income statement; Income statement
through marginal costing and Income statement through absorption costing methods.
How to solve financial problems of the business is discussed in this report. To
understand how marginal and absorption costing methods work, calculations has been
done which shows treatment of direct and indirect costs. There are many financial
problems and issues like low credibility, less revenue, poor cost estimation,
mismatching of data’s in financial statement and high debts taken from the market.
These threats can weak Company’s wealth. To handle such threat there are some tools
and techniques of management accounting systems which help business to overcome
from these financial issues. How these tools solve firms problems are shown in the
project. Additional to solving threats, the concept of sustainable success also discussed
in respect with management accounting systems.
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TASK 2
P3 INCOME STATEMENT THROUGH MARGINAL COSTING AND
ABSORPTION COSTING TECHNIQUE:
Quarter 1 & 2
First we need to calculate product cost per unit:
Quarter 1 Quarter 2
Variable Cost
(78000 × 0.65) 50700 42900
+ Fixed Cost 16000 16000
= Total Product
Cost 66700 58900
÷ Total Units
Produced 78000 66000
= Product Cost
Per Unit 0.85 0.89
After that the product cost per unit used to create the absorption income statement
(Alam, 2017). The Units sold on the income statement (and not units produced) taken to
determine sales, cost of goods sold and any other variable period costs.
Quarter 1
Sales (66000 × £1/ unit)
6600
0 Sales (74000 × £1/ unit) 74000
- COGS (66000 × 0.85)
5610
0 - COGS (74000 × 0.89) 65860
Gross Profit 9900 Gross Profit 8
1
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4
0
Less: Operating Expenses: Less: Operating Expenses:
Selling & administ.
Expenses 5200 Selling & administ. Expenses 5200
Net Operating Income 4700
2
9
4
0
Note: 1. Selling cost / unit is assumed to be £1/unit.
2. Variable cost/ Unit = Total variable cost/ No. of units produced
= 52000/80000 = £0.65/ unit
3. COGS = Cost of goods sold
Income statement through Variable costing technique:
Quarter 1
Sales (66000 × £1/unit)
6600
0 Sales (74000 × £1/unit) 74000
Less: Variable Cost Less: Variable Cost
Cost of Goods Manufacturing
(78000 × 0.65)
50700
Cost of Goods
Manufacturing (66000 ×
0.65) 42900
Less: Closing Stock (12000 ×
0.65) 7800
Add: Opening stock (12000
× 0.65) 7800
Less; Closing Stock (4000
× 0.65) 2600
Contribution Margin
2310
0 Contribution Margin 25900
Less Period Expenses Less Period Expenses
Fixed Manufacturing cost 16000 Fixed Manufacturing cost 16000
Fixed Selling and Admin.
Expenses 5200
Fixed Selling and Admin.
Expenses 5200
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Net Operating income 1900 Net Operating income 4700
Explanation:
Cost of goods manufacturing is calculated by multiplying total production with variable
cost per unit (£0.65/Unit). Cost of Goods manufacturing is expense so it is subjected to
be subtract from Sales revenue. On the other hand Closing stock is subtracted from
total variable cost because this stock has not been sold and should not be subtracted
from Revenue.
Difference in Profit & Loss or Income statement calculating by Absorption and Variable
techniques:
Absorption costing Variable Costing
Quarter 1
Sales (66000 × £1/ unit)
6600
0 Sales (66000 × £1/unit)
6
6
0
0
0
- COGS (66000 × 0.85)
5610
0 Less: Variable Cost
Cost of Goods
Manufacturing (78000 ×
0.65) 50700
Less: Closing Stock (12000
× 0.65) 7800
Gross Profit 9900 Contribution Margin 2
3
1
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