Management Accounting: Roles, Principles, and Financial Problem Solving

This report discusses the roles and principles of management accounting and how it helps organizations solve financial problems. It covers topics such as costing methods, budgetary control, pricing strategies, and the importance of good accountants. The report also includes a comparison of companies and their approaches to solving financial issues using management accounting methods.

MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION.......................................................................................................................................3
TASK 1.......................................................................................................................................................3
Covered in PPT.......................................................................................................................................3
TASK 2.......................................................................................................................................................3
P3. Calculation of costs and preparation of financial statements under marginal and absorption costing
method.....................................................................................................................................................3
TASK 3...................................................................................................................................................5
P4. Limitations and benefits of planning tools of budgetary control........................................................5
TASK 4.......................................................................................................................................................6
P5. Analysis of ways in which management accounting methods help organisation to respond to
financial problems that will have sustainable success..............................................................................6
CONCLUSION...........................................................................................................................................6
REFERENCES............................................................................................................................................7

INTRODUCTION
Accounting is a major aspect for any firm as it helps in recording and analyzing financial
transaction, Management accounting is the essence of accounting, it is accounting reports
prepared for the help management of the company, so internal sources of the company uses the
management accounting. The goal of the reports prepared is to find out the performance and
current position of the company (Arroyo, 2012). Prime furniture which is situated in UK is
selected and analyzed in the report. The report contains various factors in relate to management
accounting system. It talks about pricing strategies and costing methods and what a company
needs to do to overcome their financial problems. The report start with management accounting
principle and roles which are explained with relate to the company. The report helps the
company to find out methods they can use to overcome financial problems or monetary problems
in a planned manner. Importance of good accountant is also explained in the report.
TASK 1
Covered in PPT
TASK 2
P3. Calculation of costs and preparation of financial statements under marginal and absorption
costing method.
Marginal costing: Marginal costing is a cost technique where the variable cost charged
to units of cost. Fixed cost for the said period is completely written off against the contribution.
It implies the additional cost in producing the additional unit of the output. It is classified into
fixed and variable cost and valuation of stock is done under this.
Absorption costing: It ascertains that all the manufacturing cost is assigned to the unit of
good produced (Chenhall and Moers, 2015). Cost of finished goods includes the following cost:
direct material, direct labour, variable manufacturing overheads and fixed manufacturing
overheads. It is required for tax reporting and external financial reporting.
Product costing:

Fixed cost- Cost that cannot be altering or not affected due to change in production
volume.
Variable cost- It is a type of cost that which can be altered or affected due to change in
production volume (Kotas, 2014).
Standard costing- Standard costing combines the expected expense in the accounting
records with the actual cost. Thereafter, the variations between the planned and the actual costs
are reported as indicated.
Calculations:

TASK 3
P4. Limitations and benefits of planning tools of budgetary control.
Budgetary control: budgets are prepared under this method for future period and then
they are compared with actual performance so that the deviation can be driven. This comparison
will help prime furniture to take corrective action and implement new strategies. It defines the
objective of the company and firm has clear goal so that they can achieve them.
There are different types of budget which a company can use:

 Operational budget: it helps in determining the number of material requires completing the
task over a period of time. The accountants plan this estimate for their managers in the sense
Prime furniture limited. With this program, the administrators take corrective measures with
respect to the administration of various operations (DRURY, 2013).
Benefits- This budget is helpful for companies in order to track usage of different types of
resources available in a business entity.
Demerits: time and cost is consumed to maintain the budget under this and if it does not
come right, it may result in wastage of time and money for the company.
 Cash budget: under this all the cash consideration transaction are analyzed and expectation
are basis of the accounting year. Actual budget are prepared after the planning of all kind of
budget like revenue, purchasing, master and capital budget.
Benefits- This is beneficial for companies as it manage daily basis of cash expenses and
income.
Drawbacks- This budget is based on assumptions so companies cannot rely on it completely
for further financial plans.
 Capital budget: It finds that the recording of all the forecasted sales, production levels,
expenditure in resources and even tons to be gained and lose is a costly company strategy. In
relate to Prime furniture limited, the balance sheet as well as the income statement is
evaluated according to the budget.
Benefits- With a detailed budgeted review summary of Prime furniture limited’s financial
situation is estimated.
Drawback- The main issue of this budget is that it is difficult to make necessary changes
under it (Hiebl, 2014).
Price strategy:
 Penetrating price strategy: The companies reduce the price of the product initially so that
they can reach large number of customers initially and cover the huge market base. The
approach is used to shift the customers from existing company to a new company.
 Skimming price strategy: when the company is launching a premium product or a new
product skimming price strategy is used. The company placed the price at higher side and

gets huge profit out of the sale of product initially. After the initial stage the company
lowers the price to attract other segment of customers.
How company determine price: the complete analysis of the market is done. Company set
price after observing market trends and activities of the competitors and then they make decision
to set a price for their commodity (Kokubu and Kitada, 2015).
Supply demand consideration: it is a price determination concept on a sector. It states that the
balance on demand and supply can only be obtained when the price of the unit of a said product
or other exchanged item, such as labour or liquid financial assets, shall differ until the quantity
required (on current prices) is settled in a situation where it is equal to that provided.
Strategic planning:
SWOT analysis: strength weaknesses opportunities and threats of the company is
analyzed for the given period of time so that the company knows where they need to focus and
what are their strength.
Benefits: it tells about the opportunities in the market like new projects, expansion
opportunities and many more in which the company can work on to grow globally. It reflects
the weak areas of firm where special attention can be given by the firm and the external
threats to the firm is also analyzed and strategy are prepared to outclass those threats
(Sánchez-Rodríguez and Spraakman, 2012).
Drawbacks: obviously it takes lot of time so it is time consuming in nature. It may
require experts and specialist which leads it to costly also. The analysis may change with respect
to time as the nature of business is unpredictable.
TASK 4
P5. Analysis of ways in which management accounting methods help organisation to respond to
financial problems that will have sustainable success.
Monetary issues: with the increase in the rivalry the companies are facing monetary
problems nowadays. Lack of preparation and execution are the reason of creating such issues.

Shortage of revenue generation leads to financial problems for the business. Some of the
challenges the business faces are:
 Error in accounting records: the company may accidently prepare incorrect accounts or it
may be deliberate but it can result in financial problems for company (Tucker and Lowe,
2014). Prime furniture have also faced such problem which results in increase of financial
problem for the company.
 Inadequate protection of financial assets: losing a huge investment is related to the
investment issues. The reason for this cans loss of fixed and variable assets. As the result
business face lot of problem in relate to resources.
Methods to respond to financial problem:
 Benchmarking: The companies try to compare their financial aspect with other leading
company so that variance can be finding and company can work on reducing such variance.
The company can also figure out the reason for financial problem (Suomala and Lyly-
Yrjänäinen, 2012). Prime furniture has used this method to assess their particular monetary
problem. All the financial aspect is compared with all the leading firms in the industry.
 Key performance indicators: all the aspect is considered here weather it is financial or non
financial in nature. All the key factors which can affect the organization are analyzed and
focus is made to rectify them. Financial aspect covers the productivity and the cost of the
products while the non financial aspects include stress, relation with employees and
confidence of the employee.
 Financial governance: all the financial activity of the corporate is reported accurately for a
specific period of time. The method is use to define real monetary problems and define
theoretical answers to solve those problems.
Management accounting skills:
 Better communication skills: the accountant should have good communication skills so that
they can pass their message to organization/management without any noise and can properly
explain them all the areas and function which are needed to be explained.
 Effective knowledge of accounting system: accountant should have a thorough knowledge
of accounting so that they can prepare financial reports properly and accurately.

If the accountants have the mentioned skills, they can help the company to overcome financial
issues by giving methods and idea and by preparing accurate and precise statements of finance.
Comparison of companies in order to solve financial issues by help of MAS:
Basis of
difference
Prime furniture Morgan furniture
Monetary issue Financial issue is related to accounting
errors in the operation. It results in
stopping them from learning actual
facts and details of the business
(chaltegger and Burritt, 2017).
The issue related to the organization is
the absence of asset protection. Due to
which the valuation of properties
cannot be monitored and assessed.
Techniques to
solve issues
This organization used benchmarking
technology to solve the financial
problem. They compared their financial
statements with another organization
using this method in order to find out
errors and thus solved their problem.
They used key indicator technology
for results. They evaluated the
financial implications of this method
and addressed their issue. The
methodology used is by measuring the
true worth of properties and by
matching them with the normal value.
CONCLUSION
According to the report it can be said that management accounting is very essential for
the company financial performance and tackling there problems. Management accounting roles
and principle are also discussed in the report and what an accountant need to become successful
is also discussed. Report is concluded by preparing income statement and marginal and
absorption costing statements. Various planning tools are also mentioned and how they can help
in solving the various financial problems. The report also talks about various type of cost and the
methods to minimize it, it also talk about pricing and various type of pricing strategy which a
company can use and how the company determine the final price of the commodity

REFERENCES
Books and journal:
Arroyo, P., 2012. Management accounting change and sustainability: an institutional approach.
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Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management
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society. 47. pp.1-13.
DRURY, C. M., 2013. Management and cost accounting. Springer.
Hiebl, M. R., 2014. Upper echelons theory in management accounting and control
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Kokubu, K. and Kitada, H., 2015. Material flow cost accounting and existing management
perspectives. Journal of Cleaner Production. 108. pp.1279-1288.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Otley, D. and Emmanuel, K. M. C., 2013. Readings in accounting for management control.
Springer.
Sánchez-Rodríguez, C. and Spraakman, G., 2012. ERP systems and management accounting: A
multiple case study. Qualitative Research in Accounting & Management. 9(4). pp.398-
414.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts
and practice. Routledge.
Suomala, P. and Lyly-Yrjänäinen, J., 2012. Management accounting research in practice:
Lessons learned from an interventionist approach. Routledge.
Tucker, B. P. and Lowe, A. D., 2014. Practitioners are from Mars; academics are from Venus?:
An investigation of the research-practice gap in management accounting. Accounting,
Auditing & Accountability Journal. 27(3). pp.394-425.