Management Accounting Techniques and Budgetary Control

B11190
MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
LO.2: Apply a range of management accounting techniques.........................................................3
P3. Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................3
M2. Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents.....................................................................................................8
LO.3: Explain the use of planning tools used in management accounting using budgets for
planning and control......................................................................................................................10
P4. Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.......................................................................................................................10
M3. Use of different planning tools and their application for preparing and forecasting budgets
...................................................................................................................................................12
LO.4: Compare ways in which organizations could use management accounting to respond to
financial problems.........................................................................................................................13
P5. Compare how organizations are adapting management accounting systems to respond to
financial problems.....................................................................................................................13
M4. Analyze how, in responding to financial problems, management accounting can lead
organizations to sustainable success..........................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management Accounting is the process of decision making after analyses of various data’s
and information’s like income statement, balance sheet, cash flow statement and working
capital statement. This is the advanced version of accounting in which manager’s uses
financial information and reports to take relevant decision for the development of
organization. This report consists of case study of Prime Furniture and importance and
application of management accounting in solving financial issues. This report also covers
the range of techniques used by management accountant like budgeting, price optimization,
value based accounting and cost based accounting techniques. Advantages and
disadvantages of different types of planning tools with the context of Prime Furniture will
reflect application of this technique in the company. Effectiveness of management
accounting tools facing and preventing financial problems in organization will expose
various techniques which can be applied according to given situation.
LO.2: Apply a range of management accounting techniques
P3. Calculate costs using appropriate techniques of cost analysis to
prepare an income statement using marginal and absorption costs
Cost: These are the reductions from sales revenue to get net earnings in the form of
gross profit and net profit. Costs are the part of every organization; as business can
run without spending cash into it.
Different costs and cost analysis:
Costs are of two types; variable and fixed costs, where variable expenses changes
with increase or decrease in sales revenue; while fixed costs are permanent
expenses which not affected by any change in sales revenue (Budgeting software,
2020). Costing can be through two methods to get net earnings:

Marginal costing: This technique also known as contribution margin costing; as all
types of variable costs whether direct or indirect deducted from sales revenue to get
contribution margin. This costing method helps company in identifying Break Even
Point at given sales price and variable cost per unit.
Absorption costing: In this method of cost analyses; all costs whether variable,
fixed or mixed associated with manufacturing activities are deducted to get gross
profit during the year.
Quarter 1 & 2
Calculation of product cost per unit:
Quarter
1
Quarter
2
Variable Cost (78000 ×
0.65) £50,700 £42,900
+ Fixed Cost £16,000 £16,000
Total Product cost £66,700 £58,900
÷ Total Units Produced £78,000 £66,000
product cost per unit £0.86 £0.89
Income Statement (Absorption)
Quarter 1 Quarter 2
Sales (66000 × £1/
unit) £66,000
Sales (74000 ×
£1/ unit) £74,000
COGS (66000 ×
0.85) -£56,100
COGS (74000 ×
0.89)
-
£65,860
Gross
Profit £9,900 Gross Profit £8,140
Less: Operating
Expenses:
Less: Operating
Expenses: