Management Accounting

Management
Accounting

Contents
PART 1.........................................................................................................................................................4
TASK 1..........................................................................................................................................................4
P1: Explanation of management accounting and its essential systems...................................................4
P2: Explanation of use of techniques of management accounting..........................................................5
M1: Evaluation of benefits of management accounting systems............................................................6
D1: Critical evaluation of systems of management accounting...............................................................6
TASK 2..........................................................................................................................................................7
P3: Calculation of costs by using appropriate techniques........................................................................7
M2: Application of management accounting techniques......................................................................15
D2: Producing financial reports which interpret data for complex business activities..........................15
PART 2.......................................................................................................................................................16
TASK 3........................................................................................................................................................16
P4: Advantages and disadvantages of planning tools............................................................................16
M3: Analysis of use of planning tools....................................................................................................22
TASK 4........................................................................................................................................................22
P5: Evaluation of organizations adopting management accounting systems to solve problems...........22
M4: Analysis of organizations attaining success after resolving problems............................................24
D3: Evaluation of planning tools............................................................................................................24
CONCLUSION.............................................................................................................................................25
REFERENCES..............................................................................................................................................26

INTRODUCTION
Management accounting refers to use of provisions of accounting systems in an effective
and efficient manner so as to take better decisions for the benefit of the company (Al-Hebry and
Al-Matari, 2017). Thus it essentially helps the management in effective decision-making. It aids
the management in performing better so as to maximize the profits of the firm. The company
which has been selected for this report is UCK Furniture which is a furniture firm in United
Kingdom. In this assignment, specific focus will be made on demonstration of understanding of
management accounting systems, application of techniques, use of planning tools and
comparison of ways in which organizations can use the systems for solving their financial
problems.
PART 1
TASK 1
P1: Explanation of management accounting and its essential systems
Management accounting refers to use of the available accounting and financial data of the
company in a productive manner so that decision-making can be improved in order to maximize
the profits and to achieve the goals and objectives of the organization. UCK Furniture can use it
to set different goals and framing a time-limit to achieve them (Alzoubi, 2016). The various
types of systems in management accounting which it can use are as follows-
Cost accounting system- It is a system which is widely used for the purpose of
determination of costs, their segregation and classification of overheads. The managers of UCK
Furniture can use it which will help the firm in finding and segregating its costs and effectively
reducing them to earn more profits. This system will enable the company in dealing with its
costing issues and find out the reasons of excessive cost, variances and deviations and preparing
strategies to rectify them.
Inventory management system- In this system, better tracking and valuation of
inventory is enabled which helps the companies in keeping a better track and order of their stock
level. UCK Furniture can use it which will help them in periodically checking their stocks and
resolving any kind of problems or issues related to inventory. It will enhance better maintenance
of inventory level and its various techniques like LIFO, FIFO can help in effectively dealing with
problems related to stock of the company. Thus it can reduce the costs of maintenance and
increase the overall profits of the firm.

Job costing system- This is a system which is used mostly by manufacturing companies.
As UCK Furniture is a firm which takes orders for making of furniture it can use this system
which will enable it in keeping a better track of its job orders. For it this system is of must use as
it regularly takes orders for furniture of its clients.
Price optimization system- In this system, an analysis is done by the companies to
determine a pricing strategy which best suits their needs and requirements (Di Vaio and Varriale,
2018). Multiple factors are required to be considered for it. UCK Furniture can use it which will
help them in dealing with their pricing issues if any and ensure that the firm gains sustainable
competitive advantage over its rivals. Also, this system is highly useful in countering the
problems related with price determination. Its techniques help in determination of the right price
which will increase the profit level of the company.
P2: Explanation of use of techniques of management accounting
Different types of techniques can be used by firms in management accounting which will
enhance them to take better decisions (Techniques of management accounting, 2015). Their
analysis in the context of UCK Furniture is as follows-
Financial planning- In this technique, detailed financial plans are made and arrangement
of sources of finance is done. It helps in achievement of both short-term and long-term objectives
of the company. This can help UCK Furniture in detailing out projections and helps in bringing
efficiency and effectiveness in its operations.
Analysis of financial statements- In this technique, financial statements like P&L A/c,
Balance Sheet etc. are analyzed to draw conclusions and comparing with the established
standards. UCK Furniture can use this technique to compare and find out deviations and
variations if any so that rectification measures can be taken immediately.
Standard costing- This technique analyzes the standard costs and actual costs in making
of a product to compare them with established industrial standards to find out whether results are
adverse or favorable (Gull and et.al., 2018). It can help in quickly identifying deviations and
variances if any and taking of steps to rectify them. UCK Furniture can make use of this
technique for enhanced profitability level.
Budgetary control- Budgetary control techniques can help a firm in formulation and
checking of budgets for a particular period of time. A firm like UCK Furniture can easily use
these techniques which will help it in framing of budget and keeping its expenses well within
check.
Marginal costing- Marginal costing refers to the extra cost incurred in production of an
extra unit of output. It helps in determination of break-even point which is the level where a firm
neither earns profit nor incurs loss. UCK Furniture can use it for cost control, better decision-
making and enhancement of profits.

Fund flow statement- Fund flow statement is used for determining the inflows and
outflows of funds over a particular period of time. UCK Furniture can use it for analyzing the
movement of its funds and identification of sources and outflows of funds.
Cash flow statement- A cash flow statement is extremely helpful in determination of
inflows and outflows of cash and other cash equivalents (Heinicke, Guenther and Widener,
2016). Its preparation is essential to ensure that proper liquidity level is maintained in the
company. UCK Furniture can use it to ensure that it maintains liquid assets if the need to use
them for payment purpose arises. Also it can be used by the organization to help in controlling
the movement of cash. It helps in raising the overall efficiency, effectiveness and productivity in
operations and also aids in decision-making.
M1: Evaluation of benefits of management accounting systems
There are different benefits of management accounting systems for UCK Furniture. Cost
accounting system can help it in determination and controlling of costs, inventory management
system can track the stock levels, job costing system helps in tracking of job orders and price
optimization system determines the optimum price to be charged by the firm for its products.
Thus all of them aid managers of UCK Furniture in decision-making and framing of long-term
plans for the benefit of the organization. Selection of the right system is required for the benefit
of the company if it has to resolve its various issues.
D1: Critical evaluation of systems of management accounting
Management accounting systems can help UCK Furniture in effective decision-making.
They are of immense help in framing of short-term and long-term plans. These systems can help
in raising efficiency, effectiveness and productivity in operations. Thus they are of immense help
for firms in making plans of increasing their level of profitability. Therefore, cost accounting,
inventory management, job costing and price optimization systems are of much use in taking of
useful decisions.
TASK 2
P3: Calculation of costs by using appropriate techniques
Material 4 * 3
£
12.00
Labor 4 * 2
£
8.00
Production O/H 5 per unit
Final Production O/H
£
20.00
Estimated cost per unit ( production 20000/10 £

cost) 2.00
Selling price 35 per unit
Variable selling cost 1/ unit
Fixed selling cost 2000/month
January
Production 11000 units
Sales 9000 units
Absorption costing
Sales 9000 * 35
£
315,000.00
Production cost
Opening stock 0
Less:
Material 12 * 11000
£
132,000.00
Labor 8 * 1000
£
88,000.00
Variable production cost 5 * 11000
£
55,000.00
Fixed production cost 2 * 11000
£
22,000.00
Over absoprtion
-£
2,000.00
Closing stock 27 * 2000
£
54,000.00
New production cost
£
241,000.00
Net profit
£
63,000.00

Marginal costing- It refers to cost incurred in production of an extra unit of
output. UCK Furniture can use this technique in finding out the position where its overall cost is
increasing (Hlaciuc and et.al., 2017). It can thereby use methods to reduce the cost and maximize
its profits.
Merits-
 Marginal costing helps in controlling of costs as excessive costs can be easily identified
by using this technique. It can control overheads and help in better allocation of costs.
 This technique is simple to use as well as understand. It can also be combined with other
methods without encountering much difficulty.
Demerits-
 By use of this technique it becomes quite difficult to classify the costs into fixed and
variable. Also, in a firm where there are multiple products it is less useful.
 It can be inaccurate or faulty in giving a true picture of all operations of a business
enterprise as it is difficult in it to determine the increase in costs.
Absorption costing- It is a method of determination of costs by taking of direct
as well as indirect expenses into account (Ipino and Parbonetti, 2017). UCK Furniture
can use it which will result in identification of full cost of manufacturing a product or
providing a service.
Merits-

 Using this technique results in taking into account all the costs and expenses which are
incurred with the production or manufacturing process (Li and Yang, 2016). This can be
highly useful for a company like UCK Furniture which takes orders for making of
furniture.
 Using this technique results in more accuracy in profit determination as all the expenses
and costs are deducted from the total revenue. This can help UCK Furniture in evaluating
its earnings.
Demerits-
 Use of absorption costing does not result in improvement in operational efficiency as it
cannot perform a good analysis on cost and volume (Yilmaz and Ceran, 2017). This can
hurt the prospects of a big firm like UCK Furniture.
 Comparison of product lines is not possible by using this method which can thereby
create problems for big concerns. As UCK Furniture deals in various furniture products
this can create issues for it.
Thus, from the above discussion it may be concluded that use of both the
techniques have advantages as well as disadvantages for a manufacturing firm like UCK
Furniture. If it uses both of them effectively and efficiently then it can control its cost
operations to a large extent which will help it in achieving its long-term aim of achieving
maximization of profits.

M2: Application of management accounting techniques
Management accounting techniques like marginal costing, absorption costing can be
effectively used by firms like UCK Furniture to determine and control their overall cost. They
also aid its management in effective decision-making and also in identification of errors and
frauds. Also sound management can be ensured using these techniques and the work done by
different subordinates can be checked properly. If some measures are required to be taken to
improve the efficiency of work done then they also help in taking them.
D2: Producing financial reports which interpret data for complex business activities
Financial reports like Fund flow statement, Cash flow statement, P&L A/c, Balance sheet
can be produced by the management. They help them in comparing the performance with
previous years to see whether the profit has increased or not. If there are problems cropping up in
business operations they also help in eradicating them so that overall performance of the firm is
good enough to increase the level of profits in the future. Also the analysis of these statements
helps management accountants to frame business strategies for various types of purposes.

PART 2
TASK 3
P4: Advantages and disadvantages of planning tools

Different types of planning tools can be used by organizations for achieving efficiency
and effectiveness in their operations (Man and RĂVŞ, 2017). These are budget, cost-volume-
profit analysis and pricing strategies. UCK Furniture can use them so that it can achieve its long-
term objective of maximization of profits.
Budgets-
A budget refers to an estimate of receipts and payments over a particular period of time
mostly a year (Seow and Wong, 2016). UCK Furniture can use it to allocate its expenses and
forecast its revenues so that controlling of operations can be done easily.
Advantages-
 It helps the management in early detection of its problems so that immediate rectifying
solutions can be taken to resolve them.

 It acts as a medium through which goals and objectives of a business are periodically
evaluated, tested and established so that they can serve as a guideline for the entire
organization.
Disadvantages-
 Approximations and judgements are used in it for forecasting purposes which may not
always be accurate and therefore can result in wrong interpretations and analysis.
 The process of preparation of budgets is quite costly. It is not easy for small-scale firms
to spare that much funds to prepare a budget.
Cost-volume-profit analysis-
Cost-volume-profit analysis is used for determining how change in level of output and
costs affect a firm’s operating income (Shumeyko, Sagamonova and Sagamonova, 2018).
UCK Furniture can use it to take decisions for the benefit of company and raise its level of
profits.
Advantages-
 It aids the management in taking strategic decisions which can be helpful in the future.
 It offers detailed perspectives in the business as by giving snapshot of various activities in
the company.
Disadvantages-
 This analysis has chances of errors happening due to human mistakes. Thus it may give
inaccurate results.
 A firm which deals in multiple products might find it difficult to analyze its operations
using this technique.
Pricing strategies-
Pricing strategies can be used by a business enterprise when selling a particular product
or service in the market (Su, Baird and Schoch, 2017). UCK Furniture can use it to determine
the price according to the conditions prevailing in the market.
Advantages-
 Use of pricing strategies makes the products of the firm look more appealing to the
customers.
 Maximization of profits can be done by adopting of a specific pricing strategy which will
enhance the earnings of the firm.
Disadvantages-
 Adoption of a wrong pricing strategy can result in problems for the company in the form
of loss of customer base or decrease in the level of profits.

 Pricing strategies are adopted on the basis of judgements and decisions made by the
management. If they go wrong it may hurt the short-term as well as the long-term
prospects of the company.
M3: Analysis of use of planning tools
Planning tools like budgets, CVP analysis and pricing strategies can be effectively used
by UCK Furniture so that decisions can be taken. They are helpful in making forecasts,
judgements and analysis. They act as roadmap for the entire organization and help it in detecting
errors, frauds, deviations and variances. They make a plan for the firm if it has to achieve its
short-term and long-term goals and objectives and has to maximize its level of profits. Thus,
overall these tools lead to efficiency and effectiveness in an enterprise.

TASK 4
P5: Evaluation of organizations adopting management accounting systems to solve
problems

The analysis of numerical shows that UCK Woodworks is lagging behind UCK Furniture
in various parameters. Thus it should adopt different business strategies so that its overall
return can be improved. This will enable it to reduce cost and increase the level of profits
which will change its financial metrics. UCK Woodworks needs to find out the root cause
of problems and issues and should focus on bringing more efficiency, effectiveness and
productivity in its operations so that it can get ahead of its competitors in the market and
does not lags behind. It may overhaul its production process, train its workers, bring more

creativity in its marketing and promotion strategies and also use systems of management
accounting to resolve its problems.
UCK Furniture primarily faces two problems-
 Inventory problems- Inventory problems are being faced by the organization due to lack
of tracking of its stock items. This therefore creates problems and issues in the working
of company.
 Wrong Price- Sometimes the organization sets up wrong price for its products and
services which leads to it losing market space to its competitors.
Key performance indicator- KPI refers to a tool used for measurement of performance
of a firm. It can be of two types- financial and non-financial. UCK Furniture makes use
of it to find out solutions for its problems.
Types of KPIs-
 Financial- These KPIs measure the financial performance of a business enterprise
(Sundin and Brown, 2017). Ratio analysis is an example of financial KPI. Using it UCK
Furniture can effectively eradicate is problem of inventory.
 Non-financial- These KPIs do not measure performance of a company quantitatively but
measure it qualitatively (Vesty and et.al., 2016). This can be in terms of employee and
customer satisfaction level and various other parameters.
Difference between UCK Furniture and UCK Woodworks-
Basis UCK Furniture UCK Woodworks
Problem faced It faces problem of setting of
wrong price because of lack of
judgment.
It faces problem of reduction
in profits earned over the
years.
Management accounting
system used
It can use price optimization
system to resolve this
problem.
It can use cost accounting
system to solve this issue.
KPI used It uses ratio analysis which is
a financial KPI.
It uses Net profit margin
which is a financial KPI.
M4: Analysis of organizations attaining success after resolving problems
Organizations like UCK Woodworks can attain success after resolving the problems and
issues facing them. If they make proper use of KPIs and management accounting systems and
bring efficiency and effectiveness in their operations than their problems will be solved. Also, by
ensuring proper training to workers they can enhance their level of skills which will lead them to
work properly for the benefit of the organization so that it can continue to achieve sustainable
success in the future.
D3: Evaluation of planning tools
Planning tools like budgets, CPV analysis and pricing strategies can help a firm in
achievement of success in future. These tools and techniques are highly effective if an

organization needs to plan its operations. If used properly with correct judgment and decision-
making by the management they will result in increase in the level of profits and achievement of
goals, targets and objectives of the company.
CONCLUSION
From the above assignment, it can be concluded that management accounting is quite
useful for the managers to take decisions after ascertaining its various parameters. Systems of
management accounting and its methods help in reporting and finding out problems of
organization. Also, calculation of costs can be done using its approaches and planning tools can
be used for making short-term and long-term plans for the firm. Firms are using its different
systems to respond to their financial problems and attaining their goals.

REFERENCES
Books and Journals:
Al-Hebry, A. A. and Al-Matari, E. M., 2017. A Critical Study of Cost Approaches in the
Accounting Thought: Conceptual Study. International Review of Management and
Marketing. 7(3). pp.105-112.
Alzoubi, E .S. S., 2016. Ownership structure and earnings management: evidence from
Jordan. International Journal of Accounting & Information Management.
Di Vaio, A. and Varriale, L., 2018. Management innovation for environmental sustainability in
seaports: Managerial accounting instruments and training for competitive green ports beyond the
regulations. Sustainability. 10(3). p.783.
Gull, A .A. and et.al., 2018. Beyond gender diversity: How specific attributes of female directors
affect earnings management. The British Accounting Review. 50(3). pp.255-274.
Heinicke, A., Guenther, T. W. and Widener, S. K., 2016. An examination of the relationship
between the extent of a flexible culture and the levers of control system: The key role of beliefs
control. Management Accounting Research. 33. pp.25-41.
Hlaciuc, E. and et.al., 2017. The interface between financial and management accounting. The
USV Annals of Economics and Public Administration. 17(2 (26)). pp.103-110.
Ipino, E. and Parbonetti, A., 2017. Mandatory IFRS adoption: the trade-off between accrual-
based and real earnings management. Accounting and Business Research. 47(1). pp.91-121.
Li, X. and Yang, H. I., 2016. Mandatory financial reporting and voluntary disclosure: The effect
of mandatory IFRS adoption on management forecasts. The Accounting Review. 91(3). pp.933-
953.
Man, M. and RĂVŞ, B., 2017. IMPLEMENTATION OF MANAGEMENT ACCOUNTING
TOOLS SOLUTION TO ENHANCE THE PERFORMANCE OF PUBLIC CAPITAL
COMPANIES IN DIFFICULTY. CASE STUDY: ROMANIAN TELEVISION
COMPANY. Internal Auditing & Risk Management. 12(1).

Seow, P. S. and Wong, S. P., 2016. Using a mobile gaming app to enhance accounting
education. Journal of Education for Business. 91(8). pp.434-439.
Shumeyko, M. V., Sagamonova, G. V. and Sagamonova, E. V., 2018. Improvement of
Engineering Accounting and Control System in Construction on the Basis of Accounting
Engineering Tools. In Materials Science Forum (Vol. 931, pp. 1194-1199). Trans Tech
Publications Ltd.
Su, S., Baird, K. and Schoch, H., 2017. Management control systems. Journal of Accounting &
Organizational Change.
Sundin, H. and Brown, D. A., 2017. Greening the black box: integrating the environment and
management control systems. Accounting, Auditing & Accountability Journal.
Vesty, G. and et.al., 2016. Management Accounting and Biodiversity: The Cultural Circuit of
Capitalism and the Social Construction of a Perfect Market?. In Handbook of environmental and
sustainable finance. (pp. 445-470). Academic Press.
Yilmaz, B. and Ceran, M. B., 2017. THE ROLE OF RESOURCE CONSUMPTION
ACCOUNTING IN ORGANIZATIONAL CHANGE AND INNOVATION. Economics,
Management & Financial Markets. 12(2).
Online
Techniques of management accounting. 2015. [Online]. Available through:<
https://accountlearning.com/tools-and-techniques-of-management-accounting/>