Management Accounting: Measurement and Interpretation of Financial Statements

MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
TASK 2............................................................................................................................................3
P3. Measurement of income statements......................................................................................3
M2. Accounting techniques to produce financial statements......................................................8
D2. Interpretation of prepared financial statements....................................................................8
TASK 3........................................................................................................................................8
P4. Benefits and drawbacks of planning tool..............................................................................8
M3: Key roles of different planning tools:................................................................................11
TASK 4..........................................................................................................................................11
P5. Roles of MA systems in responding to financial-problems:...............................................11
M4. Adaption of MA systems to respond to different financial problems:...............................14
D3. Analyzing use of planning tools to respond to financial problems:...................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Managerial Accounting requires the adoption of specialist insights and expertise in
describing and gathering accounting details and records in a particular manner, in order to
promote management of employees in the creation of strategies, protocols and in the arranging
and tracking of organization procedures (Bedford, D.S., 2015). It provides procedures and
principles that are appropriate for efficient preparation for the selection of appropriate business
activities and for management by assessment and efficiency review. Prime Furniture, the
furniture maker firm selected for this report. The study contains detailed discussion on varied
accounting systems/frameworks, reporting methods including planning tools effective for
resolving financial problems.
MAIN BODY
TASK 2
P3. Measurement of income statements.
Micro economic techniques:
Costs – As far as accounting is concerned, the costs pertain to the monetary amount of the
expenditure / costs on raw resources, inventory, consumables, supplies, personnel, utilities, and
so forth. this is sum listed in financial statement as expenditure or costs with different titles.
Cost Volume Analysis- CV Analysis explains the dynamics of benefit dynamics in relation to
shifts in costs and quantities. In simple words, it is a forecast of the impact of prices and volumes
on profits. Formally known as CVP Study, the top management might identify the revenue level
with which company will be in a no-profit-no-loss point for this measurements. This state is
termed as break-even level.
Cost variances – These are referred to as variations if actual incurred costs are varied
from standardized costs. Whether the actual costs is narrower than the standardized costs or
if actual benefit is higher than standardized profits, the positive variability is established. Even,

on the contrary, where the real expenses are greater than the normal expenses or income are
smaller, this is considered an unfavourable variation.
There is a significant variety of integral methods to drawing up financial statements such as
absorptions-method and marginal-cost method. The use of these methods enables the discovery
of various monetary and non - monetary facets. The following techniques are listed as follows:
• Cost-absorption method: Here, under this system, all production costs are clearly considered
individually in order to calculate gross profit figure.
• Marginal costing approach – The marginal costing system is primarily used for internal
reporting, with the goal of allowing managers to track and manage organisational activities. It is
a control strategy for the calculation of marginal costs as well as consequences on income of
differences in quantities or in form of a result by separating the gross costs from fixed
and variables costs (Cokins, 2013).
Product costing:
Fixed costs – These costs/expenses are those costs/expenses that typically do not change over the
longer term, even though business experiences changes to the average revenue rates or other
purchases.
Variable cost- Such costs are expenses that move up and down in certain proportion to quantity
of outputs produced.
Standard costing – This costing is a way of measuring the expense of the output process. It is just
a cost management element which the manufacturer utilizes, for example, to estimate the
spending for the next year on various costs, such as raw products, direct labours, or overheads.
Activity-based costing: This is methodology for more precise assigning of overheads costs by
assigning them to different operations. After the net expenses are assigned to the projects, the
expenses which are assigned to the things of product which are required for the tasks. The
system may be employed to reduce operating costs in a tailored way (Simons, R., 2013).