Management Accounting and Financial Problem Solving

This document discusses the concept of management accounting and its application in solving financial problems. It covers topics like marginal costing, absorption costing, advantages and disadvantages of planning tools, and the use of management accounting systems in different organizations. It also provides solutions to financial problems faced by Prime Furniture.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Covered in PPT......................................................................................................................1
P2: Covered in PPT......................................................................................................................1
M1: Covered in PPT....................................................................................................................1
D1: Covered in PPT.....................................................................................................................1
TASK 2............................................................................................................................................2
P3: Calculation of costs...............................................................................................................2
M2: Application of various types of techniques..........................................................................7
D2: Producing of financial reports for accurate application and analysis of data.......................7
TASK 3............................................................................................................................................7
P4: Advantages and Disadvantages of planning tools.................................................................7
M3: Analysis of the use of planning tools...................................................................................9
TASK 4............................................................................................................................................9
P5 Compare the organisation and the uses of management accounting system to solve the
problems.......................................................................................................................................1
M4: Analysis of response to financial problems..........................................................................3
D3: Evaluation of planning tools for accounting ........................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Management Accounting is a process through which the managers prepare various types
of reports through performing relevant analysis and interpretation so that they are able to take
short-term and long-term decisions in the future time period. It is a technique which ensures that
there is a higher-level of efficiency as well as effectiveness in the overall processes of the
organization. The managers are required to ensure that they use it properly by identifying the
right way of using its different types of techniques in a proper manner. They need to identify the
scope of applying it in the various processes and functions of the organization. This report will
focus on Prime Furniture. It deals in providing of various types of furniture products to its
various customers in the market. In this assignment, a detailed discussion will be made on
demonstration of understanding of management accounting systems, application of a range of its
techniques, explanation of planning tools. Additionally, focus will be made on comparison of
ways in which organizations can use management accounting to resolve financial problems.
TASK 1
P1: Covered in PPT
P2: Covered in PPT
M1: Covered in PPT
D1: Covered in PPT
1

TASK 2
P3: Calculation of costs
2

3

4

There are various types of techniques which are used for the purpose of calculation of
costs. These are explained as follows-
Marginal costing-
It is a technique through which the companies are able to charge the variable cost to the
units of production and write off the fixed cost against the level of contribution (Askarany,
2016). Thus the use of this method has to be made so that they can calculate the Break-even
point which is a point at which an organization neither earns profit and does not incurs a loss. Its
use has to be made by Prime Furniture so that it is able to calculate the overall level of profits
effectively and efficiently.
Advantages-
5

 This method is very simple for the organizations to apply (Rizza and Ruggeri, 2018).
Thus in this manner the management of Prime Furniture can ensure that it can easily
apply it its system.
 The use of this technique can help in the computation of Break-even point. Thus in this
way the management will be able to ensure that it takes the appropriate decisions in the
future time period.
Disadvantages-
 When this technique is used by the organizations it makes it quite difficult for them to
analyse the different types of overheads. Therefore in this way a disadvantage is created
for Prime Furniture.
 This technique is based on the use of certain assumptions. It creates a disadvantage for
the organizations when they are wrong. Thus, for Prime Furniture a disadvantage is
created.
Absorption costing-
This is a method which is used in order to estimate the overall level of costs in an
organization (Bento, Mertins and White, 2018). Using it, the firms can estimate their level of
overheads and ensure their proper apportionment. This method can be used by Prime Furniture
so that it is able to identify and manage its costs effectively and efficiently.
Advantages-
 The use of this method can help the organizations so that they are able to estimate their
costs in a proper manner (Saeidi, S. P. and et.al., 2018). Thus this can create an advantage
for Prime Furniture.
 Using this technique, the firms can make sure that they can ensure a more proper
treatment of their overheads. Thus, for Prime Furniture an advantage can be created due
to it.
Disadvantages-
 When this technique is used by the organizations it makes it difficult for them to compare
and control their costs. Thus in this way Prime Furniture faces a disadvantage.
 This technique is not helpful for the managers to make decisions. Thus for the
management of Prime Furniture this creates a disadvantage.
6

M2: Application of various types of techniques
Both the techniques of Marginal costing and Absorption costing can be used by the
management of Prime Furniture so that they are able to make sure that they can calculate their
costs in the right way. In this way, the managers of the company will be able to derive the right
conclusions and recommendations through proper analysis and interpretation.
D2: Producing of financial reports for accurate application and analysis of data
Use of these techniques can be done by the companies so that financial reports are
prepared. These reports are quite useful for the managers which thus enables them to be able to
analyse their findings in a much better manner. Therefore for the management of Prime Furniture
these reports are quite useful for ensuring that they are able to use the given financial data in a
correct way.
TASK 3
P4: Advantages and Disadvantages of planning tools
There are different types of planning tools which are used by the organizations (Bisogno
and Vaia, 2017). These are explained as follows-
Cash budget-
This budget is used by the organizations so that they are able to ensure that they keep a
proper track record of their cash receipts and expenses for a particular period of time
(Kalkhouran, Nedaei and Rasid, 2017). It is used by the management of Prime Furniture to
ensure that their cash expenses and revenues are managed in a better manner.
Advantages-
 This budget creates a benefit for the firms because it ensures that the level of liquidity is
maintained in a proper manner. Therefore the managers of Prime Furniture will be able to
maintain their liquidity effectively and efficiently.
 For the organizations, the use of this budget creates an advantage because in this manner
they will be able to make sure that they are able to bring more efficiency and
effectiveness in their cash management. Thus in this way the management of Prime
Furniture will be able to ensure that their cash is managed properly.
Disadvantages-
7

 The use of this budget can result in a lack of flexibility for the organizations in using their
cash. Thus this can create a disadvantage for the management of Prime Furniture.
 It is a costly affair to prepare a cash budget. Therefore, for the managers of Prime
Furniture a disadvantage can be created due to it.
Sales budget-
This budget is quite useful for the organizations because they require it to estimate their sales for
a particular time period (Kashora, van der Poll and van der Poll, 2016). Thus the managers of
Prime Furniture will be required to make sure that they can use this budget in a highly effective
manner so that they can manage their sales.
Advantages-
 Using this budget, the organizations will be able to make sure that they can estimate their
sales in a proper manner. This will create an advantage for Prime Furniture.
 By making the right use of this budget, the organizations can facilitate comparison with
the other organizations. In this way an advantage is created for Prime Furniture.
Disadvantages-
 Preparation of this budget is a time-consuming affair. Thus this creates a disadvantage for
the managers of Prime Furniture.
 This budget does not consider the impact of change of market conditions on the revenues
and expenses. This creates a disadvantage for the management of Prime Furniture.
Master Budget-
It is a budget in which there is a coverage of comprehensive information related to the
business organization's financial position (Murthy and Rooney, 2018). In Prime Furniture, it can
be used so that the company is able to make sure that an overall estimate of its financial position
can be made effectively and efficiently.
Advantages-
 This budget is very useful for the organizations because it can result in estimation of the
financial information in a proper manner. Therefore, for Prime Furniture this creates an
advantage.
 Using this budget, the firms will be able to make sure that they can identify the various
types of deviations and variances so that appropriate actions can be taken to rectify them.
In Prime Furniture, this can lead towards an advantage.
8

Disadvantages-
 Preparing this budget can be quite costly for the organizations. Thus for Prime Furniture
this can create a disadvantage.
 Preparation of this budget can be quite time-consuming for the firms. Therefore, for
Prime Furniture a disadvantage can be created due to it.
M3: Analysis of the use of planning tools
The planning tools are quite useful so that the organizations are able to prepare their
various types of plans in a proper manner. Thus the management of Prime Furniture is required
to make their correct use which will enable them to be able to raise their overall efficiency and
effectiveness level. In this way the company will achieve its goals and objectives in the future
time period.
TASK 4
9

P5 Compare the organisation and the uses of management accounting system to solve the
problems.
Financial Problem: According to this term it refers about the situation which arises at
the time of company faces the crises or some kind of difficulties and not able to control the funds
(Tucker and Lawson, 2016). It can destruct the particular company growth when it wants to
target at the high level of profits at the time of future time period. As per the perspective of
Prime Furniture company there are two major financial problem arises in their premises which
elaborated below:
 Insufficient Working capital: In any business, the most important aspect is required is
working capital which it prior to establish the business venture first process. The crises
arise in working capital when expenses are exceeds rather than income and there is no
scope to expand the business. Similarly, Prime Furniture can face this same situation as
the working capital which company would invest in the company should enough to
reduces the uncertainty.
 Sales are good but profits are not matchable: Through this uncertainty arise when over
speeding of cost eating at the bottom line when sales are optimising but it could not break
or cross over the expenses which owner has invested. This type of situation can happen
where manager of Prime Furniture company when they have not push their sales team for
beyond the limits and it would creates huge losses rather than expected profits.
Some Techniques to solve financial problem
 Recovered the loss facing in Working Capital: There is easiest process to improvised
the financial situation or crises by reducing the further unwanted expenses which could
be control and in spite of that put that money on other working capital as extra saving.
This practise would secure the working capital of Prime Furniture company if the
manager implements the strategy of cutting the expenses cost.
 Improvise the profit: By purchasing the optimum material at the competitive prices
through vendors and by implies the negotiation price. As there is advantage in online
platform which is known as E-business where Prime Furniture company put their product
in their websites. It would be easier where not other cost would be applied and it will
increase the sales as well as profit by helps to connecting with the customer directly.

Financial Governance: The concept of financial governance refers in such as way
through which financial information is been collected overall necessity information which would
managed within the company (Uyar, 2019). It is assorted by the managers of Prime Furniture,
through which they would easily investigate about the financial related data, facts and
information as per proper manner.
Comparison between organisation
Basis Tesco company Asda Stores Plc
Financial Problem The company Tesco is currently
faces a financial crises in their
low profit income from past few
years. The tracking of this issue is
commence through various
inventory items.
Asda Stores plc face the crises as
financial where employees are
resigning from their job and there
is uncertainty raises of
manpower. It happened because
Asda managers are not provided
the proper wages to their
employees.
Management
Accounting System
Used
Tesco can implement the
utilisation of Cost Accounting
System to solve their financial
crises and improve their lacking
areas.
Asda can approach for utilise the
Job Costing system which would
help to retain the employees by
deciding their actual wages.
Application of the
system
By applying this system through
Tesco managers to controlled the
unnecessary expenses.
Asda assort this system with
ensure to their manpower wages
to increase as per the
performance basis.
As per above differentiation, it can be evaluated that the analysis of two big retailer
companies Tesco and Asda Stores plc where the management of Prime Furniture could also
measured their issues and implement the Cost Accounting system to effectively handle the cost
2

which incurred in company's annual performance. Prime Furniture has been suffering with
issues of insufficient working capital and not matching the profit margin that creates to
diminishing the unwanted expenses which incurred to the company.
M4: Analysis of response to financial problems
Prime Furniture can use the different types of techniques so that the financial problems
are resolved effectively. By making the right use of them it will be able to ensure that it is able to
target profit maximization in an effective manner. Resolving these problems will be also quite
helpful for it to remove deviations and variances which have been witnessed in the performance
so that it can be improved to achieve the goals and objectives.
D3: Evaluation of planning tools for accounting
The planning tools can be useful for the managers of an organization to resolve the
financial problems because proper plans can be created by them in an effective manner. With the
use of proper planning approach, the management of Prime Furniture will be able to ensure that
they are quick in identifying something which is going wrong in the company and its processes
so that the desired actions can be taken for correcting it. Thus the managers of the organizations
are required to concentrate on making the best use of these tools.
3

CONCLUSION
From the above report, it can be concluded that management accounting is a technique
through which the management is able to analyse and interpret its financial statements to draw
the relevant conclusions and recommendations. It helps the managers to be able to take short-
term and long-term decisions for the future time period and ensuring that they can make the right
use of the financial data which is available with them and facilitate improvements if required.
Management accounting systems are quite useful for the organizations. Its reports can be used
for ensuring that analysis and interpretation can be performed in a correct manner. Different
types of costs can be calculated by the firms through the analysis of varied techniques. Planning
tools for budgetary control are useful in framing of the plans in a proper manner. Organizations
are using management accounting systems so that they can resolve their financial problems.
4

REFERENCES
Books and Journals:
Askarany, D., 2016. Attributes of innovation and management accounting changes.
Contemporary Management Research. pp.455-466.
Bento, R. F., Mertins, L. and White, L. F., 2018. Risk management and internal control: A study
of management accounting practice. In Advances in Management Accounting. Emerald
Publishing Limited.
Bisogno, M. and Vaia, G., 2017. The role of management accounting in family business
succession. African Journal of Business Management. 11(21). pp.619-629.
Kalkhouran, A. A. N., Nedaei, B. H. N. and Rasid, S. Z. A., 2017. The indirect effect of strategic
management accounting in the relationship between CEO characteristics and their
networking activities, and company performance. Journal of Accounting &
Organizational Change.
Kashora, T., van der Poll, H. M. and van der Poll, J. A., 2016. E-learning and technologies for
open distance learning in Management Accounting. Africa Education Review. 13(1).
pp.1-19.
Murthy, V. and Rooney, J., 2018. The Role of management accounting in Ancient India:
evidence from the Arthasastra. Journal of Business Ethics. 152(2). pp.323-341.
Rizza, C. and Ruggeri, D., 2018. The institutionalization of management accounting tools in
family firms: the relevance of multiple logics. Journal of Management Control. 28(4).
pp.503-528.
Saeidi, S. P. and et.al., 2018. The moderating role of environmental management accounting
between environmental innovation and firm financial performance. International
Journal of Business Performance Management. 19(3). pp.326-348.
Tucker, B. P. and Lawson, R., 2016. Moving academic management accounting research closer
to practice: A view from US and Australian professional accounting bodies. In
Advances in Management Accounting. Emerald Group Publishing Limited.
Uyar, M., 2019. The management accounting and the business strategy development at SMEs.
Problems and perspectives in management. (17, Iss. 1), pp.1-10.
Online
Management Accounting. 2020. [Online]. Available through:
<https://efinancemanagement.com/financial-accounting/management-accounting>
5