Management Accounting Assignment: UCK Furniture

Added on - 06 Jun 2020

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Management AccountingProject 2
Table of ContentsINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................11.1: Application of marginal and absorption costing in the preparation of income statement...11.2: Application of management accounting techniques to produce financial report.................21.3: Merits and demerits of marginal and absorption costing method........................................2TASK 2............................................................................................................................................32.1: Benefits and limitations of using planning tools..................................................................32.2: Estimation of expenses.........................................................................................................52.3 Cash Budget..........................................................................................................................5TASK 3............................................................................................................................................63.1: Adaptation of management accounting systems to respond financial problems.................63.2: Contribution of management accounting in improvement of financial performance..........83.3: Application of planning tools to reduce financial problems................................................8CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................9
INTRODUCTIONManagement accounting is the process of preparing financial report and statements whichgives financial and statistical information needed by the manager with the help of which they canmake an effective decisions in order to achieve desired goals and objectives of an organisation.The accounting manager is required to maintaining records and details of all financialtransactions occurred on daily basis. The main purpose of preparing this report is to giving theimportance that how management accounting help company in achieving competitive advantagein competitive market world. UCK furniture, a UK company which deals in providing qualityfurniture products to the large number of customers. The project covers the marginal andabsorption costing methods, different planning tools of budgetary control and its merits anddemerits. There are various management accounting system which are also discussed under thisreport (Stadler, 2013).TASK 11.1: Application of marginal and absorption costing in the preparation of income statementCost:It means the value of amount which is incurred in the process of production inorder to produce quality products. The cost of products includes monetary evaluation of material,efforts, risk, resources, time and equipments used etc.Marginal costing:It refers to the cost which is incurred in producing extra unit ofproduct in order to meet the needs and demands of customers. It includes variable cost andexcludes fixed cost. This methods of costing mostly used by an organisation to determine theeffect on profitability due to change in the level of production (Stair and Reynolds, 2013).Absorption costing:This methods of costing includes both fixed and variable cost whichare incurred in the process of production in order to produce good quality furniture product.Marginal costingAbsorption costingIn this costing method, only variable cost isincluded in the price of product and fixed costin ignored.In this method of costing, both variable andfixed cost are included in the price of product.Inventory is valued at total variable productioncost.Inventory is valued at full production cost.1
PARTICULARSJanuaryFebruarySales (35 per unit)315000402500less:Cost of Production (12+8+5)275000237500variable selling overheads (1 per unit)110009500variable cost286000247000Contribution29000155500less:fixed manufacturing overheads2000020000Fixed Admin & selling cost20002000total fixed costs2200022000NET INCOME AS PER MARGINAL COST7000133500NET INCOME AS PER ABSORPTION COSTING:Sales (35per units)315000402500less:Cost of Production (12+8+5+1.82)295020254790Gross Profit19980147710LESS:Fixed and variable cost:variable sales overheads (1 per unit)900011500Fixed selling cost20002000Total costs1100013500NET INCOME AS PER ABSORPTION COSTING:89801342101.2: Application of management accounting techniques to produce financial reportIt has been observed that both marginal and absorption costing cost are helpful inanalysing the cost of the product. Marginal cost methods helps in evaluation of the cost ofproduct on the basis of variable only whereas the absorption costing methods helps indetermining the cost by including both variable and fixed cost. It helps in providing opportunityto manager to make an effective planning and enhance their profitability of company as well(Onyon and et. al., 2014).1.3: Merits and demerits of marginal and absorption costing methodMarginal costing:Advantages:2
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