Management Accounting Tools and Techniques

This assignment provides a comprehensive overview of management accounting tools and techniques. It explains the importance of management accounting in helping internal managers analyze company performance and make effective plans to deal with future risks. The assignment discusses various planning tools used in management accounting, including budgets, standard costing, and ratio analysis. It also highlights the significance of financial governance in determining a company's current status and market position.

Management Accounting
Part 2

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Calculation of cost by using various methods.......................................................................1
1.2 Range of management accounting techniques.......................................................................3
1.3: Analysis of data collected from income statement...............................................................3
TASK 2............................................................................................................................................4
2.1 Advantage and disadvantage of using planning tools............................................................4
2.2 Analysis of expenses of July and August.............................................................................5
2.3: Objective and cash budget....................................................................................................6
TASK 3............................................................................................................................................8
3.1: Use of accounting system to determine financial issues.......................................................8
3.2: Evaluating financial issues faced by UCK furniture............................................................9
3.3: Analysis of planning tools that is used in management accounting.....................................9
CONCUSION .................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
In present era, every company wants their operation and system to be manage in
appropriate manner. So management accounting is defined as one of the valuable aspect of
company that help internal manager to analyse the financial performance and improve them in
required (Amoako, 2013).
In this report, costing method are discussed to calculate the net profit for company. There
are number of tools that help to overcome different issues. Report shows their advantage and
disadvantage and how they support in budgetary process. Management accounting system also
helpful in resolving different financial problem and comparison of two com0pnaies are discussed
in this report.
TASK 1
1.1 Calculation of cost by using various methods.
In recent management tools and techniques has been updated that help to calculate the net
profit by analysing the cost for a given period of time. In general cost is defined as the amount
paid by buyer of to seller in order to purchase a particular product. Thus cost are involved by
companies in their production and other process to make their operation work effectively. So
costing is consider to be a systematic procedure of calculating actual and complete expenses or
cost incurred by UCK furniture in producing furniture with the present cost of capital. It is
observed that cost is either directly and indirectly related to the production process that support
in completing a task (Brewer, Sorensen and Stout, 2014). So there are different types of costing
method that are linked with UCK furniture business activities. Some of these are discussed
below:
Absorption costing: This type of cost are applicable on manufacturing a product for
company over a period of time. Absorption costing includes fixed and variable cost as it is
knows as full costing method of calculation profit. This method is consider to be one of the most
effective method as it help in making crucial decision. But at the same time there are certain
limitation to absorption costing method as it affect the net profitability of company and decrease
its market position (Absorption costing, 2018.).
Marginal costing: This is related to calculation of cost incurred by companies on
producing an additional unit of output. It consider only variable factor while calculating

complete contribution per unit at a particular time and this is knows and period costing method.
This is taken into account for making effective future decision and increasing the profitability of
business.
NET INCOME AS PER ABSORPTION COSTING:
January February
Sales (35per units) 315000 402500
Opening Stock 0 54000
Direct material (12*11000) 132000
114000
(12*9500)
Direct labour (8*11000) 88000
76000
(8*9500)
Overheads (5*11000) 55000
47500
(5*9500)
Overhead absorbed (2*11000) 22000
19000
(2*9500)
Under / Over charged -2000 -1000
Closing stock (2000*27) -54000 -
Total cost of production 241000 309500
Gross profit : 74000 91000
Fixed and variable cost:
variable sales overheads (1 per unit) - 9000 - 11500
Fixed selling cost -2000 - 2000
Total costs - 11000 - 13500
NET INCOME AS PER ABSORPTION
COSTING: 63000 77500
Computing net profit by using marginal costing (January)
Particular Amount Total
Sales (35*9000) 315000
Variable cost:

Opening inventory 0
Direct Material (12*11000) 132000
Direct labour (8*11000) 88000
Variable OH (5*11000) 55000
Closing inventory (25*2000) -50000 -225000
Variable selling cost -9000 -9000
Gross profit 81000
Fixed cost:
Fixed prod. Cost 2000
Fixed selling cost 20000
-22000
Net profit 59000
PARTICULARS February
Sales (35 per unit) 402500
less:
Opening stock 50000
Direct material (12*9500) 114000
Direct labour (8*9500) 76000
Variable overhead (5*9500) 47500
Closing stock 0
Variable selling cost -11500
COP 287500
Gross profit 103500
fixed manufacturing overheads 20000
Fixed Admin & selling cost 2000
total fixed costs 22000
NET INCOME AS PER MARGINAL COST 81500

1.2 Range of management accounting techniques.
In accordance to develop, grow and sustain financial stability manager of UCK furniture
has to make effective use of management techniques and tools that support in giving more strong
result for company. Some of these are defined underneath;
Marginal cost: It is defined as the cost added by manufacturing one extra unit of product
or services. This is consider to be the change in total cost that arises when quantity produced in
increase by one unit.
Historical cost: In accounting, historical cost is the original nominal monetary value of a
particular product. This involves reporting of assets and liabilities at their historical cost that are
not updated for changes in the actual values ((JOSHI and et. al., 2011).
1.3: Analysis of data collected from income statement
From the above calculation it has been ascertained that with the help of absorption
costing gross profit for January is 74000 and for February it is 91000. The net profit for both
months January and February is 63000 and 77500 respectively. It has been also observed that
through marginal costing the gross profit for January is 81000 and net profit is 59000. And the
Gross profit for February is 103500 and net profit is 81500.
TASK 2
2.1 Advantage and disadvantage of using planning tools.
In present time, budgets is an effective system that help to estimate overall expenses and
control cost for company at a particular period of time. It help in increasing profit of company
and improving the production process. In order to maintain sustainable in business activity
manager prepare number of budgets such as flexible, sales, production and marketing by which
effective policies are made. So in respect to control the affect of budgets certain planning tool are
used that are discussed below:
Forecasting Costing: With the help of this planning tool manager of UCK furniture are
able to predict about the future expenses so that they are able to ascertain the upcoming profit
and loss. It help in use of present resource in effective manner so that profitability of company
can be maintained. Forecasting tool give best result as it predict the future depending on the past
data so that future losses can be avoided (Klemstine and Maher, 2014).

Advantage:
 The primary purpose of using this forecasting tool is it provide effective estimation for
total cost and expenses in more suitable way.
 Thus better forecast help to make valuable decision for the main objective of earning
more revenue at a particular period of time.
Disadvantage:
 It is observed that prediction about future risk cannot be accurate as business operation
are qualitative in nature.
Contingency tool: This is consider to be an effective planning tool that help internal manager of
company to analyse and evaluate all type of contingency and risk those are non-identical for
business operation. So, in UCK manager use to analyse each factor closely so that any
contingency that may effect the future business can be removed. Some advantage and
disadvantage are discussed below:
Advantage:
 With the aid of this tool manager are able to examine the actual expenses and losses that
company is going to get after the formulation of budgets.
 Contingency tool support to control all related risk and problems those may effect the
productivity of company in nearby future (Lim, 2011).
Disadvantage:
 The main demerit of this tool is that, many time there may arise urgent issues or risk that
cannot be resolved at a particular time.
 This is a lengthy process and require more time and prior permission from the top
authority of company.
Scenario tool: This tool help in short term forecasting that further support to create budgets and
control unexpected expenses. So manager of company look upon scenarios that might effect their
production process and reduce their profitability level.
Advantage:
 Early determination help UCK furniture to overcome scenarios that assist them to make
better decision.
 It really unfolds and the origin of conflict that happen to realize better by the managers.
Disadvantage:

 The main disadvantage of this tool is that in tough situation it is unable to give best result.
2.2 Analysis of expenses of July and August.
Step1: Identification the highest and lowest activities
Highest activity level is 795 hours in June
Lowest activity level is 505 hours February
Step2: Calculation of variable cost per hour
Variable Cost per hour =
Difference between cost
component of highest and lowest
activity level / Difference between
highest and lowest activity level
Variable Cost per hour = (9820-7410) / (795-505) £ 8.31 per hour
Step3: Calculation of fixed cost
Fixed Cost =
Highest
activity cost –
(Variable cost
per unit x
Highest
activity units)
or
Lowest
activity cost –
(Variable cost
per unit x
Lowest

activity units)
Fixed Cost = 9820-(8.31*795) £ 3213.55
Step4: Calculation of total variable cost for July and August
Total variable cost = Variable cost per hour * No. of required hour
Total variable cost for July (650 Hours) = 8.31*650 £ 5401.5
Total variable cost for August (750 Hours) = 8.31*750 £ 6232.5
Step5: Calculation of total cost for July and August
Total Cost = Fixed cost (Step 3) + Variable Cost (Step 4)
Total cost for July (650 Hours) = 3213.55+5401.5 £ 8615
Total cost for August (750 Hours) = 3213.55+6232.5 £ 9446
2.3: Objective and cash budget
(1) Preparation of schedule of
expected cash collections for
September
Particulars £ £
Cash Sales 39000
Sales on account:
For July 392
For August 4416
For September 840 5648

Total Expected Cash Collection 44648
(2) Preparation of schedule of
expected cash disbursements in
September
Particulars £ £
Inventory Purchase:
For August 15000
For September 4800 19800
Selling and administration
expenses 13000
Less: Depreciation 4000 9000
Equipment Purchase 18000
Dividend Paid 3000
Total Expected Cash
Disbursement 49800
(3) Preparation of cash budget
for the month of September
Particulars £
Opening Cash Balance 9000

Add: Total Expected Cash
Collection 44648
Less: Total Expected Cash
Disbursement 49800
Expected Closing Cash Balance 3848
Add: Bank Credit 1152
Expected Closing Cash Balance
with bank credit 5000
TASK 3
3.1: Use of accounting system to determine financial issues
Ratios Formula UCK furniture’s UCK woodworks
ROCE (Return on
capital employed):
Operating profit/Capital
employed*100
5890+3600/23100+31
930*100
=9490/55030*100
=17.24%
6955/81230*100
=8.56%
Operating profit
margin
Operating profit / sales
*100
9490/13000+24900*1
00
=25.03%
6955/81230*100
=8.56%
Assets turnover Revenue / Net assets 13000+24900/23106+
31930
=0.68 times
8150/81230
=0.100 times
Comparison
UCK Furniture’s UCK WOODWORKDS

This specific organisation is connected with
manufacturing desk.
The main intention of this unit is to provide
each necessary raw material to UCK furniture
that help in manufacturing of goods.
From the above calculation ROCE is 17.24%,
that shows company is getting suitable and
accurate return on investment (Tessier and
Otley, 2012.).
For Woodwork the ROCE is only 8.6% in the
year 2017. It means that company is lacking in
return on investments.
The Assets ratio is 0.68 times for the given
year. It has been measured with the need of
examine the overall performance.
In year Only 0.10 time inventory of UCK
furniture is revolving at a particular time
frame.
3.2: Evaluating financial issues faced by UCK furniture.
In present era, almost every company faces various kind of financial problems that may
reduced the productivity of company. Both companies faces different financial issues such as
lack of money management, unexpected expenses, more spending than earning etc. So in order
to resolve these issues manager of company uses different management accounting tool those are
mentioned below:
KPI: With the help of this tool manager of UCK furniture and WOODWORKS are able
to determine the financial position. This can be done by calculating financial informatics facts
and figures from the last year accounting statements.
Financial Governance: This is consider to be one of the most effective financial tool
that help in determining the current status and market position of company. But the manager of
companies has to follow specific rule and regulation implemented by legal authority. This help in
overcoming financial issue in effective manner (Van der Stede, 2015).
3.3: Analysis of planning tools that is used in management accounting.
There are various important planning tool that help to overcome different financial issues
such as budgets, standard costing and ratio analysis. The budgets are necessity to be calculated
before making any order so that they can make maximum profit at a particular time frame. Ratio
analyse help UCK Group to determine the return they are going to receive from their initially
investments (Zoni, Dossi and Morelli, 2012).