Management Accounting and Budgetary Control for Prime Furniture

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
P1:Explain management accounting and requirements of various types of management
accounting systems......................................................................................................................3
P2: Different methods for management accounting reporting....................................................5
M1: Benefits and application of management accounting system..............................................6
TASK 2............................................................................................................................................7
P3/M2: Calculate costs by using cost analysis techniques..........................................................7
P4: Mention the benefits and disadvantages of various types of planning tools of budgetary
control.......................................................................................................................................10
M3: Analyse the use and applicability of planning tools for preparing and forecasting budgets.
...................................................................................................................................................12
P5: Compare the manner in which Prime furniture is adapting management accounting
system to tackle financial problems..........................................................................................12
M4: Analyse the manner management accounting helps in attaining sustainable success for
business.....................................................................................................................................14
CONCLUSION .............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting can be defined as a process of planning and directing financial
as well as non-financial aspects of an organisation in the direction of the goals of a company. It
assists directors in taking various decisions for an organisation. It involves various reporting
methods, preparation and analysis of budgets, taking actions for any kind of discrepancy and
techniques to solve accounting as well as financial problems (Eliseeva, 2018). The company
chosen in this report is Prime Furniture. It is a UK based dormant company with registered office
in Birmingham. It was established in the year 2019. There is only one director of the firm- Mr.
Haider Ali. The report is divided into two tasks. First part discusses about management
accounting and its various systems along with methods of its reporting. Second task describes
various accounting techniques in addition to advantages and disadvantages of different planning
tools of budgetary control. It also compares the ways of adapting management accounting system
to tackle financial problems.
TASK 1
P1:Explain management accounting and requirements of various types of management
accounting systems.
Management accounting refers to the practice of recognising, analysing, explaining and
informing about the financial information to the managers, so that it can be used for attaining
organisational goals. Its main aim is to guide directors of Prime furniture about the internal
scenario of organisation so that decisions could be made with full knowledge (Sedevich-Fons,
2019).
Principals of management accounting
Prime furniture adopts some of the following rules for maintaining its accounts.
 Relevance- The information provided in the accounting-book should be relevant enough
to be used by internal and external users. Prime furniture should take care that right
decision can be taken only and information provided by it is up-to-mark and there is no
irrelevant content in the financial statements.
 Principal of causality- It directs Prime Furniture to record only those events that has
occurred in reality. This rule indicates that there is a relation between the cause and effect

of an event. In simple words, company can write down only that information that has
actually happened and also has proof of it.
Management accounting system along with its role.
Management accounting system is a process of identifying, measuring and analysing the
financial information so that efficient decisions can be taken for achieving the goals of
organisation (Datar and Rajan, 2018). It also focuses on preparing reports for external party
users along with assisting in tracking cost linked with manufacturing of goods and services,
analysing budgets etc. In Prime furniture, it helps the managers in determining the costs of
different processes and controlling it.
There are various types of systems in management accounting that Prime furniture can employ-
 Cost-accounting system- It is a method of recording inflow and outflow of cash in a
particular accounting period. In other words, all income and expenses which are realised
in cash, presently or lately are recorded in this. It helps the producers of Prime furniture
in tracking the flow of money at every single stage. Through this an optimal cost of
product can be ascertained to generate profits.
 Inventory management system- It simply means to organise all elements of stock by
tracking its supply chain from one end of purchasing tot he other end of sales. It controls
the way a company manages its inventory. Prime furniture uses software – Zoho
inventory, to track the level of stock and its movement inside and outside the firm. It
ensures that organisation is capable enough to provide required amount of goods to its
clients and in desired time (Quinn and Strauss, 2017). On the other hand, it makes sure
that, the supply for manufacturing products is also available to the team correctly.
 Job-costing system- It is a process of collecting information about the cost of
product(job) at every single stage, for instance, customised sofa. It ensures that firm is
able to ascertain the value of material which has been used for production and what part
has been scrapped. With the help of this technique, Prime furniture can communicate the
expense incurred on every specific unit manufactured on its demand and can also
determine its profit margin capacity in that project. Through this, company can also
check out its cost forecasting criteria and can compare the actual results with budgeted
ones.