Management Accounting and Planning Tools for Financial Success

This document discusses the importance of management accounting and planning tools in achieving financial success. It covers topics such as cost analysis, financial reporting, budgetary control, and the use of various planning tools. The case study focuses on Prime Furniture Ltd.

Management
Accounting

Table of Contents
Table of Contents
INTRODUCTION...........................................................................................................................2
MAINBODY....................................................................................................................................3
TASK 2............................................................................................................................................3
P.3. Calculate costs using appropriate technique of cost analysis to prepare an income
statement using marginal and absorption cost?......................................................................3
M.2. Apply management accounting techniques also generate appropriate documents relating
to financial reporting?.............................................................................................................5
D.2.Produce reports of finance and interpret data for wide range of business activities?.....6
P.4.Explain different advantage as well as disadvantage of types of planning tools used e in
budgetary control?..................................................................................................................6
M.3. Different planning tool uses and their application to serve the purpose of budget prepare
and forecast?...........................................................................................................................7
D.3. Explain how planning tools used to solve financial issue to lead firm towards sustainable
success?..................................................................................................................................7
P5 Comparison of the way in which organisations are adapting management accounting
systems...................................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Cost accounting is the process of maintaining records of all important internal
information of enterprise so it becomes easy to take strategic decision for the purpose of
betterment of company. With the help of such technique it become easy to outsider like creditors,
merchant bankers, debenture holders, QIB's, shareholders to understand whether company is
performing in profitable manner or not. As it tends to reflect true and fair position of business in
context to financial position. As it reflects actual position of business so it helps investor to take
decisions whether to deploy their money in the relevant project tor not. The organisation that was
selected in this project are Prime Furniture Ltd, it has large variety of furniture with latest,
modular designs. The topics which are discussed in this assignment are cost and management
accounting and important requirement of these system, its reporting system, use of various
costing methods to ascertain cost, merits & demerits of different tools of planning used in
budgetary control techniques and which management system is use to solve financial issue that
exist in business (Alexander, 2019)
MAINBODY
TASK 2
P.3. Calculate costs using appropriate technique of cost analysis to prepare an income statement
using marginal and absorption cost?
Fixed and variable costs- variable cost are those cost which varies as per change in the
quantity whereas fixed cost remain constant even there is alteration in number of unit produced.
Direct and indirect costs- Direct cost are those which are directly tied with production
on the other hand indirect cost are those that are not directly accountable to cost. Prime furniture
incurs both of them.
Product and period costs- Product costs are type of costing totally linked with
manufacturing item. Period costs are associated with a particular period of accounting.
Cost analysis- On apportionment basis costing of product is to be analysed. It is
performing by to calculate actual cost price of product.

Cost-volume-profit analysis- Cost-volume-profit analysis is commonly associated with
analysis of break-even point in a company. It is a point where it does not earn profit nor does it
incurs a loss. Prime furniture can use it to find out break-even point.
Flexible budgeting- it is such type of budget which is adjusted as per the changes in the
production volume. As this budget is contrast to static budget.
Cost variances- It’s another name is budget variance. The formula of such variance is
difference amount of actual & budgeted cost.
Absorption costing- The direct as well as indirect cost like insurance, rent, labour. Fir
external report it is most suitable method of costing.
Marginal costing- It is a method in which not only variable and fixed cost are included
or charge but it also involves overhead costing.

M.2. Apply management accounting techniques also generate appropriate documents relating to
financial reporting?
Management accounting techniques provide more benefits to the organisation because it
supports company to prepare and maintain financial statements as well relevant financial
reporting documents like balance sheet, cash flow statement, P/L A/c etc. By using accounting
tool correctly, the organisation Prime furniture can easily identify the actual financial position of
the company by using various techniques like cost accounting system, financial statement
analysis etc. (Hoque, 2018)
D.2.Produce reports of finance and interpret data for wide range of business activities?
All companies need to prepare their financial statements on time because it is beneficial
to both insiders as well as for outsiders. As it reflects true and fair financial position of company
so it helps employer to take decisions regarding whether to invest or not. It also helps outsiders
like shareholders, creditors, merchant bankers, underwriters etc. with the help of these reports
only the decisions related to amalgamation, winding up, merger, demerger is taken by top
management of the company. So prime furniture maintains their financial documents like b/s, p&

L, cash flow statement correctly on time so that it becomes possible for them to take initiative
steps (Malina, 2017)
P.4.Explain different advantage as well as disadvantage of types of planning tools used e in
budgetary control?
Budget: It refers to book that framed to acquire or using resources over particular period
of time. It is a tool of forecasting that are used by company to estimate future expenses and
incomes for specified period of time. According to requirements different budgets are prepare. It
can also be used in budgetary control procedure where company set financial objectives for long
term in order to increase performance. By preparing different budgets prime furniture company
can easily compare their actual figures with their standards and if there is major deviation in
results than smart policies or strategies are formulate by managers to overcome with the
problems.
Types of Budget- There are various types of budget that are framed by smart manager so
that business operations can run easily few examples of budgets that are most commonly seen in
business are cash budget, master budget, sales budget, fixed budget, flexible budget etc. some of
these are explain in detail in below points along with their advantage or disadvantage-
 Capital budget: such budget is used to record information of those activities that
involves large capital investment. Prime furniture team prepare master budget to frame
financial plan for future (Pasch, 2019)
Advantages Disadvantages
 As it helps to maintain records of all
projects in which so many monitory
resources are tends to be invested.
 It is complex so it is difficult to observe
because large information is collected
from different types of budget.
 It supports to reflect true positions in
different areas to their shareholders ,
creditors, merchant bankers,
underwriters so that true and fair
financial position of company is shown.
 It involves lack of specificity as it
includes collective information from
various different units or departments.

 Operating Budget- It includes all the information related to revenue and expenditure
which are generated with daily functions of organisation. With the help of this budget
Prime furniture manager analyse that monetary resources are used properly or not.
Advantages Disadvantages
 This budget help employer to provide
surety that financial resources which
are used in appropriate and efficient
manner or not.
 Operating budget can overstate figures
and revenues in financial statements of
company.
 As current and past expenses can easily
be conducted through this budget.
 In this manipulation of figures can
easily be done and observe generally.
M.3. Different planning tool uses and their application to serve the purpose of budget prepare
and forecast?
Forecasting, contingency tools are examples of planning tools that are used to make
control unnecessary expenses which are not covered to pre-determined budget. Prime furniture
must use these respective tools to eliminate or reduce operation cost and leads to complete the
task within pre-determined allotted budget amount. Such as it helps management to make correct
estimation of various expenses that become easy for management to frame as well as formulate
plans and actions in advance so that wastage of funds can be reduce (Renz, 2016)
D.3. Explain how planning tools used to solve financial issue to lead firm towards sustainable
success?
There are many tools used by company to handle situations in effective manner for this
they tend to prepare master budget, flexible budget, zero base budget, forecasting tools etc.
These facilitates Prime furniture management team to make estimation of unexpected hurdles so
that business activities can easily execute properly in future without wasting funds unnecessarily.
It supports companies to keep them away from uncertain financial problems.
P5 Comparison of the way in which organisations are adapting management accounting systems
Financial issues can be defining the situation in which company face problems due to
reason of insufficiency monetary resources. It is necessary for organisation to identify the reason
behind issues and after finding the cause of such issue, effective strategies or planning is done to

overcome. The company Prime furniture faces so many financial challenges few of them are
explain in detail as follows-
Sudden arising of situation that leads to great expenses: Due to the reason of lacking
of effective planning various financial issues takes place in Organisation Prime furniture. In this
unplanned expenses occurs and managers of the company use large funds to deal with the
situation that tends to results as problems of lack of money for performing business operations.
Late payment through customers- Credit facility is provided by Prime furniture to their
clients. Many time it is observe that customer lately clear their dues that tends to create problem
of limited or lack of monetary resource to carry out regular activities which are daily perform in
the organisation. Thus Prime furniture financial consultant is responsible to find out the reasons
behind such issues that prevails at the time of performing the task and correct solutions must be
find out by smart executives or managers of prime furniture to resolve these problems. With
regards to this purpose, various techniques are adopted by consultants. All these techniques are
describing in details in the below mentioned points as these are as follows-
Bench marking: This tool is used by organisation to measure the performance for this
entity by making comparison of their performance with the performance of competitors. With the
help of tool bench marking, Prime furniture finding the reasons of late payment through their
customers along with that comparing their credit policies with rivals and time to time make
changes in it so that effective results gained by company (Sugahara, 2017)
Budgetary targets: It shows the money estimation for particular year. This was used by
company Prime furniture to reason to identify variances between actual with figures which is
standard in terms to handle situation of monetary issue. But formulating smart strategies and
policy to overcome with these problems (Suomala, 2017)
Key performance indicator: KPI's are the tool that are mostly use for performance
measuring purpose of organisation. There are two type of Key performance indicator one is
financial and the other is non-financial. As financial is used to analyse and find out all the
expenses which are abnormal or unnecessary that are exist in the organisation. And non-financial
tool is used to observe as well as analyse problems in supply chain, organisation's operations etc.
The organisation Prime furniture use in their company financial Key performance indicator to
identify sudden expenses as these helps to identify or determine expenses which are unnecessary
done by organisation in business operations (Schaltegger, 2017)

Financial governance: It is known as set of different financial principles that tends to be
followed by organisation in terms to deals with money issues (Warren, 2020). With the help of
this tool Prime furniture consultant try to solve the problem which were faced by them with
finding most appropriate solutions so that problems can easily be eliminated. This also to be used
to observe monitoring strategy of company by analysing as suitable financial principles are
adopted or implemented in the organisation or not (Smith, 2019)
CONCLUSION
After thorough study and analysis final conclusion is made that management accounting
includes various activities like measuring, analysing, monitoring, controlling performance of
organisation to do effective decision making future. To access true status of company, various
different management accounting report and system are formulating as well as generated by
company. Different planning tools are used to do forecasting and prepare budgets. Few examples
of such tools are cash, sale, zero based, operating, master budget. Various financial issues are
also existing in business like abnormal expenses, late payment by clients, non-availability of
funds so to overcome with these problems various different techniques like Key performance
indicator, bench marking, governance are adopted by company to handle such situations.

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