Report on Application of Marginal and Absorption Costing

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Application of cost analysis techniques for formulation of income statement.....................1
1.2 Application of management accounting techniques regarding financial reporting ..............3
1.3 Advantages and disadvantages of Marginal and Absorption costing...................................3
TASK 2............................................................................................................................................4
2.1 Advantages and disadvantages of different planning tools used for budgetary control.......4
2.2 Estimation of expenses if change in number of hours..........................................................5
2.3 Preparation of cash budget....................................................................................................5
TASK 3............................................................................................................................................6
3.1 Application of different management accounting systems to respond financial issues .......6
3.2 Contribution of management accounting to improve financial performance.......................8
3.3 Application of planning tools to reduce financial issues to achieve success........................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
.........................................................................................................................................................9

INTRODUCTION
Management accounting includes the use of different cost techniques like Marginal and
Absorption for preparation of income statement. Marginal costing method helps in ascertainment
of cost which is considered most important for decision making. Absorption costing provides the
information regarding total manufacturing cost including fixed and variable. It is considered as
important profession which includes devise planning and performance management systems
which helps in control and formulation of organisational strategies. UCK Furniture deals in the
manufacturing of Table and Drawer division (Chiwamit, Modell and Yang, 2014).
In the present report explain about, advantages and disadvantage of planning tools used
for budgetary control, application of marginal and absorption costing for formulation of income
statement. Also, adaptation of different management accounting systems to respond financial
problems.
TASK 1
1.1 Application of cost analysis techniques for formulation of income statement
Cost: It is an amount which is given up by organisation to attain something new. It is an
monetary evaluation of efforts, resources, material, risk, time and utilities etc. It can be of
different kind which is defined below:
Fixed and variable costs: Fixed cost remains constant and never fluctuates with change
in level of output. But per unit fixed cost is diminished with the increase in level of production.
It includes rent and depreciation. On other hand, variable cost changes with the variation in level
of production. This cost has direct relation with production. It includes raw material, labour etc.
Opportunity and outlay costs: Outlay costs are also called as actual cost which is
incurred by organisation for machinery, material etc. Such costs are calculated on the basis of
accounting cost concept. Opportunity cost is the cost in terms of revenue which is foregone while
selecting next best alternative foregone.
Difference between Marginal and Absorption costing
Marginal costing: This method helps in calculation of increase in total cost due to
change in the level of output by one unit. This technique only consider variable cost while
calculating total cost of production. Important characteristics of marginal costing are mentioned
below:
1