Calculation of net profit by using various costing methods

Management Accounting Project 2 INTRODUCTION 1 TASK 11 1.1: Calculation of net profit by using various costing methods 1 1.2: Various types of management accounting techniques3 1.3: Data interpretation by using costing method3 TASK 24 2.1: Advantage and disadvantage of various types of planning tools 4 2.2: Analysis of every expenditure for the month of July and August 4 2.3: Calculation of cash budget5 TASK 35 3.1: Calculation of accounting system to analyse financial problems 5 3.2: Analysing the measures to

Management Accounting
Project 2

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1: Calculation of net profit by using various costing methods............................................1
1.2: Various types of management accounting techniques....................................................3
1.3: Data interpretation by using costing method...................................................................3
TASK 2............................................................................................................................................4
2.1: Advantage and disadvantage of various types of planning tools....................................4
2.2: Analysis of every expenditure for the month of July and August...................................4
2.3: Calculation of cash budget..............................................................................................5
TASK 3............................................................................................................................................5
3.1: Calculation of accounting system to analyse financial problems....................................5
3.2: Analysing the measures to reduce financial problems in both the company..................6
3.3: Analysis of planning tools used in company...................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting is utmost crucial aspects for every business organisation. It is
helpful for the better results and development of the UCK group everyday financial transactions.
The main aim of managers is to make use of appropriate resources that are helpful for the
company for the longer period of time. This project module aims to delivery better under
understanding of costing methods those are useful for calculating net profit for the UCK
furniture. Advantage and disadvantage of adapting various types of planning tools that are used
for the budgetary control are mentioned under this report. Use of management accounting
systems in order to resolve financial issues are examining and discussed effectively under this
report (Bromwich and Scapens, 2016).
TASK 1
1.1: Calculation of net profit by using various costing methods
It is crucial for companies like UCK Furniture to make use of better resources so that
maximum profits can be attain in near future time. The role of manager is to organise necessary
information that are needed for the calculation of net earnings generated by UCK furniture
within an accounting period of time. Basically, they are related with the production of products
and wide verities of furniture as per the demand of the people. In this process certain costs are
incurred those are needed to be paid by the project manager on its daily manufacturing. Some of
them are either directly or indirectly make impacts on goodwill as well as productivity at the
same time (Amoako, 2013). It is said that cost is the value that is paid by the manager in order to
attain something. It happens to be more reliable in which overall calculation of total costs for
production of product in context to record information about cost of inventory in appropriate
format such as profit and loss statement, balances sheet and cash flow statement.
This would be useful for delivering better understanding of cost behaviour and other vital
financial aspects those are suitable for the company in longer period of time. Costing consist of
detail information about fixed cost in which all those cost that are applied in the same or
irrespective with the level of activities are taken into account in proper manner. There are various
types of costing methods that are helpful for finance managers in respect to calculate total net
profit during the time. Some of them are discussed underneath:
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Fixed and variable cost: It is known as one of the effective cost that would remain
constant and unchanged with an increment or reduction in total number of products or services
sold or manufactured by the company. While variable cost is said to be corporate expenses those
are changed in relation with the production capacity. Certain examples are fuel, repair, salary etc.
Historical cost: This seems to be effective measure of total value that is being utilise in
accounting for the evaluation of cost of assets on balance sheet. It is entirely based on nominal or
real cost of production.
Absorption costing: It is known as one of the effective method which is used during
production of product and services. It consists of both variable and fixed cost because of this it
need to be full costing (Klemstine and Maher, 2014). It is not taken into account as that much
effective in decision making.
Marginal costing: It refers as the utmost effective method which will be used by the
managers in production of one additional units of product. It includes only variable cost because
of this, it is known as period costing. In steed of this, management used to make use of this
costing method more effective for future decision making.
NET INCOME AS PER ABSORPTION COSTING:
Particular January February
Sales (35per units) 315000 402500
Deduct:
Cost of Production 295020 254790
Gross Profit 19980 147710
LESS:
Fixed and variable expenses:
Variable sales overheads (@1 per unit) 9000 11500
Fixed selling expenses 2000 2000
Total costs 11000 13500
NET INCOME 8980 134210
Calculation of net profit by using marginal costing
PARTICULARS January February
Sales (35 per unit) 315000 402500
less:
Cost of Production (12+8+5) 275000 237500
variable selling overheads (1 per unit) 11000 9500
variable cost 286000 247000
Contribution 29000 155500
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less: Fixed cost expenses
Production overheads 20000 20000
Administration & selling cost 2000 2000
Total fixed costs 22000 22000
NET INCOME 7000 133500
1.2: Various types of management accounting techniques
In order to get more reliable benefits for an organisation, it is essential to make utilisation
of accounting tools and techniques for the purpose of increasing their overall growth and
efficiency at the same point of time. It is important to make proper analysis of their overall scope
and nature of UCK furniture in order to attain better results in near future time. Few tools and
techniques for effective use of financial planning. Marginal costing is considering one of the
reliable method which will be taken into account because the decisions are made on the basis of
contribution per units that are done during the time. Some other are standard costing and
historical cost techniques are also reliable techniques of accounting.
1.3: Data interpretation by using costing method
According to the above used various costing techniques that are taken into account for
calculating net profit for UCK furniture. It is important to select right method which will easily
be able to provide better results for the company. In case they are using marginal costing, the
results collected for the month of January and February is 7000 and 133500. While in case they
are going to consider absorption costing the results get increase with 8980 to 134210
respectively. For effective decision making they need to take into account absorption costing is
more effective as compare to marginal costing method.
 Advantage of using marginal costing: It is used to make certain analysis under which
only a single person or objects can remain variable.
 Disadvantage: The most tough task of using accounting techniques is that only variable
costs are considering during calculation of net profit (Jiles, 2014).
 Advantage of absorption: It used to analyse benefits of fixed costs that are associated
with the production process.
 Disadvantage: It can cause UCK furniture profit level and difficult to make comparison
and control of costs those are incurred during the time of production (Absorption costing,
2012).
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TASK 2
2.1: Advantage and disadvantage of various types of planning tools
Planning is an essential aspect that assist an organisation in attaining future aims and
objectives in effective manner. It is utilising to management in discharged of their basic
operations during forecasting, planning and communicating overall financial transaction. This
used to analyse various ways for effective control of business operations through undertaking a
appraisal of physical and financial targets of the company. All the effective activities that are
needed to be taken into account for overall expenses that are related with the UCK furniture. The
primary motive of the company is helpful to make ensure that expenses cannot reverse their total
earning those are incurred through the company before making budgets. Some crucial planning
tools are:
Forecasting tool: It is important for an organisation to make use of strategies in order to
determine future cost and expenses those are going to be incurred by the UCK group. This will
be helpful to control additional cost that are done at the time of production process.
 Advantage: The utmost crucial benefit of quantitative forecasting approach those are
related with projections that depends on strength of past data.
 Disadvantage: It is based on proper estimation so that it is hard to make better outcomes.
Contingency tool: It is known as organisational theory that used to claim that there are no
any other ways that make company to take better decision. This is simply helpful for analysing
business risks that are occur in the department (Huber and Scheytt, 2013).
 Advantage: This seems to be control losses that are major concern for an organisation. It
is more comprehensive for the managers to use this tool.
 Disadvantage: Because of the uncertainty, it is hard to control and deal with unseen risks
that are arises in an organisation.
2.2: Analysis of every expenditure for the month of July and August
In order to get better outcomes in accordance with the variable cost incurred by UCK
furniture. It will be examining that high and low activity procedure is taken into account as more
reliable task. To calculate total expense incurred during the month of July and August are
discussed underneath:
(Total expenses of high activity – Expenses from low activity)
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Total cost =
(Highest activity per hour spend – Lower hour spend)
Total expenses (Per units): (9820-7410) / 795-505) = 8.31
Month Calculation expense
July = 650*8.31= 5401.5
August = 750*8.31= 6232.5
2.3: Calculation of cash budget
TASK 3
3.1: Calculation of accounting system to analyse financial problems
It is vital for UCK furniture company to make evaluation of working orders to develop
effective problems that would be easy to lead with all impacts that are related with the
organisation. It has been found that some of the financial problems are affecting the entire
production process of the company. few of the issues are related with the profitability and cash
flow management (Otley and Emmanuel, 2013). In respect to evaluate overall performance of
the department, it is crucial to make use of financial ratios. These ratios can easily be able to
provide profitability and liquidity position of the company. On that basis this, manager can
properly be able to reach a certain level in near future. This seems to be right track for attaining
aims and objectives.
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Financial ratios
UCK Furniture UCK Woodworks
ROCE
Operating profit/Capital
employed*100
3198890.156 8.562107596
17.24513902 0.0856
0.1724
Operating profit margin
Operating profit / sales
*100
2490000.73 8.562107596
0.2503 0.0856
Assets turnover Revenue / Net assets
44931.07764 0.10033239
=0.68 times =0.100 times
UCK Woodworks UCK Furniture
They are held responsible for providing all the
essential requirements that are needed for the
desks.
It has been found that they are trading into two
parts, Table division and Drawer division.
They are getting maximum return on the
resources they are supplied to furniture.
While they are not so effective in terms of
ROCE which is only 0.174.
In case of operating profit they are getting only
0.85 out of total sales.
The results are showing 0.25 % of total
operating gain out of the total sales.
3.2: Analysing the measures to reduce financial problems in both the company
It has been currently seen that for better analysing, it is necessary for UCK Woodwork to
have detailed information about the financial downfall that are making huge impacts on the
market share of UCK furniture. Henceforth, it is significant for them to determine financial tools
and method with the motive of resolving financial issues. Some financial tools are mentioned
underneath:
Key performance indicators (KPI): This seems to be effective tools and techniques in
determining and evaluating overall performance of staffs by making comparison on past data
with present one.
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Financial governance: It is known as all the rules and regulations that are made by the
government in order to run their business in more effective and efficient manner for the long
period of time (Speklé and Verbeeten, 2014).
3.3: Analysis of planning tools used in company
There are various tools that are discussed in the above report. All of them are having
certain benefits and limitations. This will assist the department to make better understanding of
business and their future growth. Some of them are:
Contingency tools are more reliable and effective tools that is used for the purpose of
hedging all those business risk that are making huge impacts on the overall performance of the
company. while forecasting tools can be helpful for estimating future losses by preparing specific
kind of budget such as sales and operations. This will guide the manager to operate in better
manner in the department.
CONCLUSION
This project report used to conclude that there is various crucial method which are taken into
account for calculating net income of UCK furniture. Utilisation of planning tools with the merit
and demerit are also discussed those are beneficial for the company for the long time basis. All
the analysis is done to make better growth and sustainability in near future time.
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REFERENCES
Books and Journals:
Amoako, G.K., 2013. Accounting practices of SMEs: A case study of Kumasi Metropolis in
Ghana. International Journal of Business and Management. 8(24). p.73.
Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years
on. Management Accounting Research. 31. pp.1-9.
Huber, C. and Scheytt, T., 2013. The dispositif of risk management: Reconstructing risk
management after the financial crisis. Management Accounting Research. 24(2). pp.88-
99.
Jiles, L., 2014. Management accounting career readiness: Shaping your curriculum. Strategic
Finance. 96(2). p.38.
Klemstine, C. F. and Maher, M., 2014. Management Accounting Research (RLE Accounting): A
Review and Annotated Bibliography. Routledge.
Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control.
Springer.
Speklé, R. F. and Verbeeten, F. H., 2014. The use of performance measurement systems in the
public sector: Effects on performance. Management Accounting Research. 25(2). pp.131-
146.
Online
Absorption costing. 2012.[Online]. Available through:
<http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Marginal%20and
%20absorption%20costing.aspx>.
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