Management Accounting and Financial Performance

This assignment analyzes the impact of management accounting on the financial performance of UCK Furniture. It examines specific techniques like budgetary control, standard costing, and ratio analysis, highlighting how they contribute to risk reduction, decision-making, and overall sustainable operations. The report delves into the application of planning tools for financial problem resolution and emphasizes the importance of KPIs and benchmarking in achieving success.

Management Accounting

INTRODUCTION
Management accounting is a process which helps in preparation of accounting reports.
These reports provide internal information about departmental functions of organisation. Internal
stakeholder like manager, employees are used such reports to enhance their performance and
achieve their predetermined targets. Marginal and absorption costing are two important methods
used by manager for valuation of their inventories. It helps in optimum utilisation of their given
resources. UCK Furniture is involved in the business of production business which produces
Tables and Drawers (Nørreklit, 2014).
In the present report explain about, application of two cost analysis techniques regarding
preparation of income statement, application of accounting techniques which helps in production
of financial reporting, advantages and disadvantages of marginal and absorption costing. Also,
application of different planning tools for budgetary control, ascertainment of the availability of
cash through preparation of cash budget and use of management accounting systems to respond
financial issues.
TASK 1
1.1 Application of cost analysis techniques for formulation of income statement
Cost: Amount which is paid by the management of organisation to deliver the quality
products to their final customers. It is important for manager of UCK Furniture to track the cost
which helps in attainment of success in business actions. The different elements which are
included while calculating cost are efforts, materials, labour, time, risks etc. Cost are of different
kinds like fixed and variable cost, historical and replacement cost, opportunity and outlay cost
etc.
Fixed and variable cost: Fixed cost is the amount which remains unchanged whether
change in output level and sales revenue. This includes the cost which is incurred on plant and
machinery, building, equipments etc. Due to the increase in the production, the per unit fixed is
decreased simultaneously. On other hand, variable cost means which is changed with the change
in production of total number of units. This includes the cost which is going to incur by
organisation on raw material, labour etc.
Marginal costing: It is one of the effective technique which is used by the manager of
UCK Furniture to calculate the value of their inventories. This method helps in ascertainment of
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increase and decrease in cost due to production one more extra unit. Under this method, only
variable cost are charged to units and fixed costs are totally write off. The value of inventories
which is calculated by this method is undervalued to due to the ignorance of the cost of fixed
assets (Quinn, 2014).
Absorption costing: It is important method which helps in actual valuation of
inventories because of the consideration of fixed cost. As per this costing technique both fixed
and variable cost are apportioned to cost centres. While using this method, all the resources and
expenses which are incur by organisation during production of their products are used for
calculation of costs.
Distinguish between marginal and absorption costing
Marginal costing Absorption costing
This method is useful in short term decision
making
This method is useful in long term decision
making and preparation of pricing policies for
long term.
This method provides large emphasis on
selling and pricing aspects
While using this method more focus should be
provided on production
It values the inventory at full production cost It values the inventories at variable production
cost
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1.2 Production of financial reports through application of accounting techniques
The two different techniques like marginal and absorption helps in formulation of income
statements of organisation. It provides the opportunity to the management of organisation to
prepare financial reports. Marginal costing only includes variable cost and Absorption costing
includes both fixed and variable. It helps to plan future events for organisation.
1.3 Advantages and disadvantages of marginal and absorption costing methods
Absorption costing
Advantages
 It considers all resources and expenses which are incurred not only direct cost and
variable cost (Zaleha Abdul Rasid, Ruhana Isa and Khairuzzaman Wan Ismail, 2014).
 It provides opportunity to the management of organisation for long term decision making
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 It helps in ascertainment of pricing strategies
Disadvantages
 Application this method provides higher profits which misleads the management of
organisation and investors.
 It is considered as bad method for evolution of the cost in comparison to marginal costing
method.
 This will reduces the ability of management of organisation regarding take important
decisions about operational efficiency.
Marginal costing
Advantages
 It helps in taking short term decisions
 It provides the opportunity regarding formulation of production and sales policies
 It is simple method to use and calculate the cost because there is no need to segmentation
of cost into fixed and variable.
Disadvantages
 The value of inventories which is calculated by the use of this method is undervalued in
comparison to the method of absorption costing
 Historical data is used for calculation of cost which is not relevant for making future
decisions.
TASK 2
2.1 Advantages and disadvantages of different planning tools used for budgetary control
Budget: It is said as financial plan which formulated by the manager of organisation for
specific period of time. This includes the planning about the different aspects like assets,
liabilities, income, expenditures, raw materials, government policies, cash flow etc.
Budgetary control: It includes about the comparison of actual with budgeted. This
process helps in identification of deviations. Different kind of solutions which are provided by
manager in this regard helps to control wastage of resources and attain sustainability in their
operations. This process provides direction to the employees and improves their skills and
knowledge regarding performance of their different functions ( Messner, 2016).
Steps of budgetary control
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The different steps which are need to follow by manager of UCK Furniture during
budgetary control is mentioned below:
 Establishment of plan: It is the first step which includes about the forecasting of future
events which are required to achieve by organisation. This helps to bring coordination
among different actions of employees.
 Recording of actual performance: Manager has the obligation regarding appraisal of
actual performance of employees.
 Comparison with budgeted: Here actual performances are compared with planned.
 Identification of variances: On the basis of above comparison variances are identified
by management to accomplish their targets.
 Providence of solutions: It is the last step, where solutions are provides regarding issues
which helps to overcome from such deviations (Schaltegger and Burritt, 2017).
Planning tools
Contingency planning tools: This tool helps regarding monitoring of different functions
with the help of contingency plans. It provides the opportunity regarding effectively deal with
external factors.
 Advantages: It contributes in reduction of expenditures through achievement of proper
control.
 Disadvantages: Large number of problems are arise in front of manager which effects
the performance capabilities.
Forecasting tools: This tool helps in determination of consequences of external factors.
It helps in planning about future strategies which helps in effective execution of business
operations (Mistry, Sharma and Low, 2014).
 Advantages: Helps to face future problems and expands actions of organisation
 Disadvantages: All strategies and plans are prepared on the basis of assumptions
2.2 Estimation of expenses due to changes in number of hours
Calculation of variable cost per unit using identifies high and low activity level:
Calculation of variable cost per unit using identified high and low activity level:
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TASK 3
3.1 Adaptation of management accounting systems to respond financial issues
UCK Furniture deals in two divisions Table and Drawer. Activities of this organisation is
depends upon the functions of UCK Woodwork. It provides the components of Table and
Drawer to UCK Furnitures for production of final products. Many financial issues are faced by
organisation due to inefficiency of management (Robalo, 2014).
Financial problems
 Profit level: Due to their interdependency upon UCK Woodwork's lowers down the
capability employees. This will affects their operations and lowers down their
profitability.
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 Quality of product: They suffer many issues regarding maintenance of quality of
products. This will happen because components are delivered by different segment
company (Renz and Herman, 2016).
Tools to respond financial issues
 Key performance indicators: This includes various tools which provides financial and
non financial information. Such information is further used for identification of issues
and provide appropriate approaches. For ex., income statement, profit and loss account
etc.
 Benchmarking: This includes about setting of standards which work as benchmark and
employees are need to achieve them while provides their services in organisation. It helps
in improvement of passion and performance of employees.
UCK Furniture UCK Woodwork's
This provides the function regarding
manufacture of final products
This will provides the activities regarding
manufacture of intermediary components.
The return of capital employed is 17.24%. The return of capital employed is 8.56%.
The profit margin which is ascertained is
25.03%
The profit margin which is attained is 8.56%.
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3.2 Contribution of management accounting regarding improvement of financial performance
Management accounting includes the various tools and techniques of cost accounting
which helps in formulation of different reports. These reports contributes in formulation of future
budgets which provides direction to employees regarding improvement of performance.
Contribution of management accounting systems to attain sustainability in operations of UCK
Furniture which are mentioned below:
 Technique of budgetary control helps in formulation future policies which helps in
reduction of risks and improvement of performance to gain sustainability.
 Integration of different techniques of management accounting like marginal and standard
costing with organisational process helps in improvement of decision making and attain
sustainable matters (Albu and Albu, 2012).
 Adoption of different accounting systems helps in formulation of internal reports which
provides financial and non financial information. It results in attainment of the trust and
confidence of internal and external stakeholders (DRURY, 2013).
3.3 Application of planning tools which helps in reduction of financial problems to attain success
The main aim behind the use of planning tools is to provide direction to the different
departments of organisation regarding implementation of new programmes. The different
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planning tools and techniques are budgeting, budgetary control, project appraisal or evaluation,
standard costing, analysis of cost variances, ratio analysis etc. Contribution of planning tools to
respond financial issues are mentioned below:
 Budgetary control: This system helps in comparison of actual income and expenses with
planned. It helps in assessment of risks and issues which present in actual. It contributes
regarding earning of large number of profits (Callahan, Stetz and Brooks, 2011).
 Standard costing: This method used regarding recording of variances which are shown
in between actual and expected cost. It helps in application of more appropriate
approaches regarding reduction of cost and improvement of profit margin.
CONCLUSION
It has been observed from the above report that, utilization of planning tools by the
management of UCK Furniture’s helps in attainment of sustainability in their operations and
improves their financial performance. Standard costing and ratio analysis are two important tools
which helps in assessment of potential risks and use of KPI and benchmarking provides solution
to overcome from such issues. Marginal and absorption costing are two important methods
which are used regarding valuation of inventories. It helps in attainment of their predetermined
targets within stipulated period of time.
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