Management Accounting: Calculation of Costs and Financial Statements

This document provides detailed information on different accounting methods, corporate accounting preparation tools, and management processes to address financial problems. It covers topics such as calculation of costs and preparation of financial statements under marginal and absorption costing method, benefits and limitations of budgetary control planning tools, and ways in which management accounting methods help organizations respond to financial problems.

MANAGEMENT ACCOUNTING

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
TASK 2...................................................................................................................................................3
P3. Calculation of costs and preparation of financial statements under marginal and absorption costing
method.....................................................................................................................................................3
M2. Accounting techniques to produce financial statements...................................................................7
D2. Interpretation of prepared financial statements.................................................................................8
TASK 3...................................................................................................................................................8
P4. Limitations and benefits of planning tools of budgetary control........................................................8
M3. Use of different planning tools and their application for preparing and forecasting budgets..........11
TASK 4.................................................................................................................................................11
P5. Analysis of ways in which management accounting methods help organisation to respond to
financial problems that will have sustainable success............................................................................11
M4. MAS to solve financial issue..........................................................................................................13
D3. Importance of financial plans for planning and managing monetary sources which can contribute in
overcoming problems regards to finance...............................................................................................13
CONCLUSION.........................................................................................................................................13
REFERENCES..........................................................................................................................................15

INTRODUCTION
The word MA is described as a means of establishing internal reporting with aid of monetary and
non - monetary details (Alsharari, 2019). There are a broad variety of strategies such as
absorption, marginal in which to render financial reports. Prime furniture limited is the firm
chosen for this project. It involves in manufacturing of different types of furniture items. The
document provides detailed information on different accounting methods, corporate accounting
preparation tools and management processes to address financial problems.
MAIN BODY
TASK 2
P3. Calculation of costs and preparation of financial statements under marginal and absorption
costing method.
Micro economic techniques:
Cost- This can be described as the overall cost of undertaking various forms of development and
operations. Various categories of costs occur, including fixed costs, contingent costs, actual
expenses, indirect costs, and many others.
Cost volume analysis- The cost-benefit planning is a significant method to the weakening
framework and attributes of options that are used to assess the optimal way to achieve gains
while preserving costs (Cescon, and Grassetti,
Taschner and Charifzadeh, 2020).
Cost variance- This can be described as the estimation method for the disparity between real and
expected costs. It is viewed in unfavorable and positive ways.
In the context of planning financial accounts, there are a variety of important techniques such as
absorption and marginal strategies. They can be used for writing business financial reports. In the
following description, these are defined as follows:

 Absorption costing method- This is a method of costing methodology which specifies and
generally allocates the costs of different activities. Under it item's costs shall be done as
fixed and unfixed costs.
 Marginal costing method- The costs involved in multiple operations can be interpreted as
a way to classify them. The fixed costs are called the cost of time and the cost of the
products varies.
Product costing:
 Fixed cost- It is a kind of expense not influenced or adjusted by the change in the volume
of output.
 Variable cost- It is a form of expense which can be modified or influenced by changes in
the amount of output.
 Standard costing- Standard costing incorporates planned expenses with real costs in
financial reports. The adjustments between the expected costs and the real costs are then
reported as shown.
 Activity based costing- The activity costing approach determines the operating functions
of each process and measures the cost relative to the practical usage of the product and
the facility for each process (Aureli, Cardoni and Lombardi, 2019). This method
attributes indirect costs more direct than conventional costs.
 Role of costing in setting prices- Costing plays a significant role in price regulation when
firms adjust rates on the basis of it. That's because if the costs are greater than anticipated
than the values fixed by businesses, vice versa.
Cost of inventory:
 Inventory cost- Costs in inventory are purchase costs, distribution costs and increased
cost control. Various forms of manufacturing expenses are defined as follows:
Ordering cost
Carrying cost
Purchasing cost
Hiring cost
 Valuation methods:

First in first out method- This approach is correlated with the inventory in the factories
for manufacturing first of goods that comes first.
Last in first out method- This is a process which is related to the last stock in factories for
output.
Weighted average costing method- The weighted average accounting value methodology
is one of three approaches to measure the business inventory that measures the overall
expenditure of a commodity component based on the output of-item, relative to their
number. To evaluate the amount and value of the products being made, businesses use the
weighted average.
Calculations:
Income statements using absorption costing and marginal costing are as follows:

M2. Accounting techniques to produce financial statements.
In the corporate finance sector, most revenue reports are organized through absorption and
marginal costing structures. As with Prime furniture, income is reported by absorption and
incremental costing approaches (Ferdous, Adams and Boyce, 2019). The pluralities of
approaches, with the exception of these, include planning of financial reports such as a
traditional cost scheme, costing events, etc. In relation to standard costing, the calculation of
potential costs used for comparison will be seen as being related. Operational expense is
dispersed and assessed for different types of operation by growing activity.
D2. Interpretation of prepared financial statements.
From above, it could be seen that net income for quarters 1 is £ 840 under absorption costs and
this is £ 940 for quarters 2. Owing to the increased amount of sales, net profit was higher in Q2.

Under marginal costs, the losses are reported by both quarters. Loss of £ 980 for portion 1,
whereas it is £ 6740 for quarter 2, in quarter 2, high losses were due to increased marginal sales
prices. Different methods of taking expenses can be due to the disparity in profit/loss between
both the two strategies-fixed and variable through 2 methods when planning the income
statement. The rationale behind change in net margin and loss under both techniques is due to
consideration of cost in different manner as in marginal costing only variable cost is taken as cost
of production. While in absorption costing fixed and variable both are taken as cost of
production.
TASK 3.
P4. Limitations and benefits of planning tools of budgetary control.
Budgetary control- This can be understood as a kind of method and efforts by several various
expenditure plan to control monetary and anti-financial performance. In this aspect of budget
position, the management of organizations takes corrective measures to produce more results
through these strategic planning. There are a variety of budgets expected so these are:
Operational budget- It is a budget type that allows the management to determine over a certain
time the volume of product needed to complete multiple activities. For the management in the
sense which prime furniture is limited, the accountants plan this estimation. The managers take
corrective decisions with regard to the control of multiple activities in this budget.
Benefits-
This budget is useful for businesses to track the use of various types of resources in an
organization.
In addition to this, above budget contributes in managing different kind of operations which are
performed in prime furniture limited to produce various kinds of items.
Drawbacks-

It takes too much time and resources for allocating expenditures, which is the key issues under
this budget.
This budget is not suitable for companies which are operated at small level or have small size.
Cash budget- It is a report that describes both cash revenue and expenditures and concentrates on
projections for a given accounting cycle (Modell, 2019). After all budgets such as income,
master budget, capital budget and buying budget, the final budget is produced. Expenditures and
changes of financial items are marked. It is primarily for external actors and cannot be
conveniently modified after release. This budget has many advantages and disadvantages in the
above-mentioned company aspect, such as:
Benefits-
This is useful for businesses to manage cash and profits on a daily basis.
By help of such budget, it becomes easier for companies to track usage of allocated cash items
and different kinds of items which lead to cash incomes.
Drawbacks-
This budget is focused on assumptions such that corporations cannot rely solely on it for other
financial arrangements.
This budget does not produce any accurate outcome for companies and due to which it becomes
risk for companies to take better decisions.
Capital budget- The process for assessing potentially huge project or investment is the working
capital process undertaken by a company. Building of a new facility or large investments in an
external undertaking is project reports requiring the budgeting of wealth before approval or
rejection. In order to decide whether expected rewards that are produced follow a appropriate

goal benchmark, a business could evaluate cash inflows and outflows in a future project for life.
Investment assessment is sometimes considered the capital budgeting process.
Benefits-
The financial situation of primary furniture is evaluated with a thorough budget analysis.
Another benefit of this budget is that it is helpful for assessing company’s long term investments
and guiding about investments.
Drawback-
The major challenge in this budget is that changes are difficult to create.
It does not produce accurate projections each time and companies cannot rely on this because
investment error may lead to huge loss of company.
Pricing:
Pricing strategies:
 Penetration pricing strategy- Initially, the penetration pricing plan decreases the price of a
commodity such that it easily reaches a substantial portion of the industry. For customers,
the approach succeeds because of the reduced price of the new business.
 Skimming pricing strategy- Price skimming is a commodity strategy whereby a
marketing company establishes the actual price for a good or service at comparatively
high prices originally and gradually reduces price over time. There's been
incomprehension. When rivalry from the first consumers is exceeded, the company
decreases the price to lure another price-sensitive community.
How competitors determine prices- Companies determine pricing in line with consumer
dynamics and competitive operations. The main activities that are carried out are evaluated and
prices are based on it.

Supply-demand consideration- The economic term for a field of supply and demand is pricing.
The prices of units of a given commodity or other traded products, such as labor or financial
liquid commodities, are fixed in a situation where they are equal to the price offered (on existing
rates), resulting in equitable financial production and consumption.
Strategic planning
SWOT Analysis- An organization, entity group, individual or team may be applied to SWOT
analysis (Petera and Šoljaková, 2020). Indeed, a number of project priorities are assisted by
research. For instance, the SWOT method can be used for the assessment and externalization of a
product or Company, a transaction or a relationship. SWOT analysis may also help to evaluate
an unique source of origin, market cycle and demand for goods or the introduction of
technologies
Benefits- An organization, a coordinating structure, an individual or team can be affected by
SWOT analysis. The study would actually meet a range of project priorities. For instance, the
SWOT approach may be used to determine a product or brand, a contract or relationship, or to
externalize an operating entity. SWOT analysis may also help to define a single point of supply,
market cycle and commodity demand or application of technology.
Drawbacks- The analysis of SWOT refers to four groups of strengths, weaknesses, opportunities
and threats in each country. However, the approach does not have a framework for ranking one
element’s value over the other. The true impact of every aspect on the goal is therefore difficult
to determine.
M3. Use of different planning tools and their application for preparing and forecasting budgets.
Different types of budgets for stronger financial decisions are being used by firms. Their
reports contain many plans such as the forecast for cash, the operating budget and the financial
plan as above. Both these projections can be used to monitor their cash assets efficiently and to
plan different activities accurately. All these expenses play a significant role in the overall
measurement of revenue and spending. This is probable because the management of this
organization, to estimate current activities, analyses data measured in previous years. It can be

stated therefore that the prediction devices for budgetary control are too critical to accurate. In
the context of Prime furniture limited, different planning tools like cash budget helps them to
deal with issues which are related to higher cash expenses and others. By help of such planning
tools they allocate their funds and track the usage of funds in an effective manner.
TASK 4
P5. Analysis of ways in which management accounting methods help organisation to respond to
financial problems that will have sustainable success.
Monetary issues- The competition in the current market situation develops and leads to monetary
difficulties (Zandi, Khalid and Islam, 2019). These challenges are defined by an insufficient
planning and application of a strategy. In addition, the lack of sales, where firms strive to execute
various tasks, causes financial difficulties. Here are few special financial issues facing most
companies:
 Errors in accounting records- This can be defined as the financial issue associated with
intentional or unintentional figural distortion leading to inappropriate accounts planning.
Because of this financial dilemma, companies cannot find substantial sales, investments
and much more. In the above-mentioned Prime furniture, they face this problem that
concerns their financial reports.
 Inadequate protection of financial assets- It is a kind of dilemma that is related to the
possibility of losing investment. This dilemma lies in the depletion of fixed and unfixed
asset control. As a result, corporations have other challenges, including shortage of
personnel and more.
MA methods to respond financial problems:
 Benchmarking- This technique involves a company's financial factors of rival companies
of order to detect detrimental variances. As a result, the organisation will recognise the
reasons contributing to the financial crisis. In the above industry, they use this approach
to determine their basic monetary challenge. The financial factors are associated with the
other businesses.

 Key performance indicator- They can be defined as a technique consistent with the right
financial and non-financial evaluation. The financial factor concerns the company's
efficiency, costs etc., while non-financial dimensions include worker stress level,
the connexions, etc.
 Financial governance- It can be recognised as a technique in which all financial
operations of a company are correctly recorded for a given period of time (Jakobsen,
Nørreklit, and Trenca, .2019). This approach describes actual monetary problems and
uses theoretical approaches to fix the issues.
Management accountant skills:
 Better communication skills- Stronger communication skills must be provided for the
efficient accounting firm so that monetary information can be obtained within the
company.
 Effective knowledge of accounting concepts- Accounts must also have complete analysis
resources to make financial information.
These accounting skills could be used to solve the money difficulties. This is because
undertakings can resolve any sort of situations on the grounds of this and can mentor business
managers to solve problems.
Comparison of companies in order to solve financial issues by help of MAS:
Basis of
difference
London beer factory Orbit beers
Monetary issue Their financial problem has to do with
accounting mistakes in this company. It
forbids them to study the actual
business information.
The shortage of asset security is the
challenge facing the company. As a
consequence, it is not possible to track
and evaluate the value of land.
Accounting Apart from this, above company has This company used stock

system used cost accounting system in order to
manage record of all kinds of expenses
and other non manufacturing costs.
This helped them to track data in an
effective manner to take right decision.
management in order to manage their
different kinds of assets in an
effective manner. It became possible
because under this accounting system
each stock is categorized and recorded
in a systematic manner.
Techniques to
solve issues
To address the financial dilemma this
company used benchmarking
techniques. To find errors, they
compared their financial reports with
another company using this approach
and thus resolved their dilemma.
They also employed main outcome
indicator technologies. They studied
the financial repercussions of this
strategy and discussed their dilemma.
It was made possible by calculating
and comparing the true value of the
resources with the usual value.
M4. MAS to solve financial issue.
The way to fix financial concerns is to implement the MAS in fewer periods. Like the Prime
furniture above, by way of a price optimization scheme, their dilemma was resolved (Tashako,
Appuhami and Munir, 2019). Although the revenue was inadequate, they tested their pricing
strategy with the adoption with the above-mentioned costing system, and the financial problem
of this company was resolved. In the above section, this can be stated that both kinds of
accounting systems named stock management system and cost accounting system are useful for
Prime limited company to deal with issue of poor record of accounting information and assets.
Hence, this can be articulated that accounting systems are useful for above company to deal with
issues and risks.
D3. Importance of financial plans for planning and managing monetary sources which can
contribute in overcoming problems regards to finance.
They also employed main outcome indicator technologies. They studied the financial
implications of this strategy and discussed their dilemma. It was facilitated by calculating and
comparing the actual worth of the resources with the usual value.

CONCLUSION
This can be inferred on the basis from the above project study that MA is valuable to
business organizations for handling different aspects. The report concludes on numerous
strategies for preparing report of revenue, such as absorption and marginal costs. The study also
discusses the preparation resources along with their function in resolving financial problems.

REFERENCES
Books and journal:
Alsharari, N.M., 2019. Management accounting and organizational change: alternative
perspectives. International Journal of Organizational Analysis.
Cescon, F., Costantini, A. and Grassetti, L., 2019. Strategic choices and strategic management
accounting in large manufacturing firms. Journal of Management and
Governance, 23(3), pp.605-636.
Taschner, A. and Charifzadeh, M., 2020. Management accounting in supply chains–what we
know and what we teach. Journal of Accounting & Organizational Change.
Aureli, S., Cardoni, A., Del Baldo, M. and Lombardi, R., 2019. Traditional management
accounting tools in SMEs’ network. Do they foster partner dialogue and business
innovation?. Management Control.
Ferdous, M.I., Adams, C.A. and Boyce, G., 2019. Institutional drivers of environmental
management accounting adoption in public sector water organisations. Accounting,
Auditing & Accountability Journal.
Modell, S., 2019. Across the great divide: bridging the gap between economics-and sociology-
based research on management accounting. Journal of Management Accounting
Research, pp.0000-0000.
Petera, P. and Šoljaková, L., 2020. Use of strategic management accounting techniques by
companies in the Czech Republic. Economic research-ekonomska istraživanja, 33(1),
pp.46-67.
Zandi, G.R., Khalid, N. and Islam, D.M.Z., 2019. Nexus of Knowledge Transfer, Green
Innovation and Environmental Performance: Impact of Environmental Management
Accounting. International Journal of Energy Economics and Policy, 9(5), p.387.
Jakobsen, M., Mitchell, F., Nørreklit, H. and Trenca, M., 2019. Educating management
accountants as business partners. Qualitative Research in Accounting & Management.
Tashakor, S., Appuhami, R. and Munir, R., 2019. Environmental management accounting
practices in Australian cotton farming. Accounting, Auditing & Accountability Journal.