Management Accounting: A Comprehensive Guide for Prime Furniture

Management Accounting

Table of Contents
Introduction......................................................................................................................................3
LO1..................................................................................................................................................4
LO2..................................................................................................................................................8
LO3................................................................................................................................................11
LO4................................................................................................................................................14
References......................................................................................................................................17
Appendix........................................................................................................................................19

Introduction
Management accounting is the process of preparation of business reports for the decision-making
in the organisation. .Budget related decision can be adopted by the organisation in accordance
with this accounting system. Controlling the financial performance of the organisation will be
possible with the help of management accounting. The study will highlight the different types of
planning tools along with different types of management accounting systems. Besides that,
marginal and absorption costing methods will be analysed in accordance with Prime Furniture.
Prime Furniture is a growing London-based company.

LO1
(Refer to Appendix)
P1: Explain management accounting and give the essential requirements of different types
of management accounting systems.
Introduction to management accounting
Definition of management accounting.
Management accounting can be defined as a process of providing financial resources and
information to the management for proper decision-making in the organisation (Langfield-Smith
et al., 2018). Internal team of Prime Furniture can utilize these financial reports for the decision-
making in the organisation. Aim of management accounting is to control over the decision-
making of the management of the organisation.
Management accounting system
Management accounting system focuses on internal reports of an organisation for the evaluation
of decision and processes of the management in the entity (Hiebl and Richter, 2018). Prime
Furniture can use different types of management accounting systems. Cost accounting, price
optimisation, job costing and inventory management are parts of management accounting system
of the organisation.
Important to integrate these within an organisation
Management accounting can conduct cost analysis of Prime Furniture. Thereafter, current
expenses can be identified with the help of management accounting in the organisation. Besides
that, future recommendations can be obtained win accordance with that (Honggowati et al.,
2017). Management accounting can help Prime Furniture in the development of buyer persona.
Age, gender along with income level of consumers can be analysed. Prime Furniture will be able
to manufacture products in accordance with the demand and preferences of consumers. For
instance, Prime Furniture can adopt decision of reduction in salaries or overhead expenses in the
organisation to improve the profitability.
Analysis
Explore the origin, role and principles of management accounting
Origin of the management and financial accounting are different. Management accounting has
been invented with the help of Du Pont and General Motors. It has been estimated that the
concept of management accounting has been introduced in 1900s (Hopper and Bui, 2016).
Role of management accounting: Role of management accounting can be stated as to perform a
series of different tasks for the better decision-making in the organisation. Prime Furniture can
be able to ensure financial security and stability with the help of management accounting. Long-
term and short-term planning in the business can be possible with management accounting.
Role of management accounting in Prime Furniture is to raise funds and maintain the capital
structure. Budgets and financial reports can be controlled in accordance with the role of

management accounting. Strategies for future goals and objectives can be developed in Prime
Furniture for maintaining cost and performance.
Principles of management accounting: Designing and compiling of past financial records and
reports is a principle of management accounting. It can manipulate budgetary control system
along with standard costing techniques in Prime Furniture. Management accounting can control
source accounting in the organisation. Thereafter, performance of staffs in the organisation
along with their wages can be controlled (Hopper and Bui, 2016). Monitoring over the machine
power will be possible through the principle of management accounting. Contribution of capital
in the organisation can be maintained in accordance with the principle of management
accounting. Creation of utility of financial reports among stakeholders along with integration of
these statements can be developed with the help of the principle of management accounting.
Prime Furniture will be capable of absorbing the overhead costs of the organisation. In addition
to that, resources management in the organisation will be possible with the help of the
organisation. Principle of management accounting can manipulate controllable and
uncontrollable costs in the organisation.
Distinction between management and financial accounting
Basis of
differences
Financial accounting Management accounting
System Financial accounting focuses on the
profit generation of the organisation.
Management accounting can
highlight and control over all of the
functions in Prime Furniture
(Rikhardsson and Yigitbasioglu,
2018).
Users Financial accounting can develop
financial statements and reports
(Schroeder et al., 2019). Internal and
external stakeholders of Prime
Furniture can use these reports and
statements.
Management accounting reports can
be used by the help of internal users
of Prime Furniture, management of
the organisation is the user of this
accounting reports and statements.
Efficiency Profitability, performance and
efficiency of the organisation can be
determined with the help of financial
accounting.
Issues in the operations and
activities of Prime Furniture can be
determined with the help of this
accounting system. Resolving
strategies can be developed through
this method as well.
Time of
preparation
Financial accounting reports can be
developed quarterly, half yearly or
annually.
Management accounting reports
must be developed more frequently.
Table 1: Differences between management and financial accounting
Different types of management accounting systems

Cost-accounting systems: Cost accounting system is a procedure utilised by organisations to
determine the cost and profitability of products and services of the entity.
Benefits
 It can disclose the profitable and unprofitable products and activities in Prime Furniture.
 Cots accounting system can guide the organisation for future production policies (Ameen
et al., 2018).
 Reasons for decrease in the profit in the organisation can be determined.
 Material and supplies can be controlled with the help of this system.
Inventory management systems: Monitoring and maintenance of stocks in an organisation is
possible with inventory management system.
Benefits
 Efficiency in the productivity in Prime Furniture can be acquired.
 Inventory cost can be minimised to improve profit.
 Maintenance the flow of inventory will be possible to continue the development of
products.
 Timely procurement of raw materials will be possible.
Job-costing systems: Job costing system refers to the procedure of calculation of a particular
manufacturing job rather than the overall process.
Benefits
 Control of costs is possible with this system in Prime Furniture
 Estimation of cost of each job is possible with the help of analysis of past jobs.
 Overhead recovery rates can be determined (Alborov et al., 2017).
 Trend analysis in Prime Furniture will be possible with the help of this process.
Price-optimising systems: Price-optimising is a process of maximising the price of products in
accordance with the customer willingness to pay.
Benefits
 Maximisation of profits in products of Prime Furniture will be possible.
 Better decision-making in the organisation can be adopted.
 The organisation will be able to maintain consistency in the manufacturing process.
 Minimisation in the manual work is the benefit of this system.
P2: Explain different methods used for management accounting reporting.
Presenting financial information
Why information should be relevant to the user, reliable, up to date and accurate
Accurate financial information is required to determine the financial health of an organisation.
Management will be able to understand the current situation of Prime Furniture with the help of
relevant information. Up-to-date information must be noted for the identification of cash flow in