Management Accounting and Cost Analysis for Prime Furniture

Business

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
Describe management accounting and discuss the essential requirements of various types of
management accounting systems................................................................................................3
TASK 2............................................................................................................................................6
Describe different methods used in management account reporting..........................................6
TASK 3............................................................................................................................................7
Using the techniques of cost analysis, calculate the costs and prepare the income statement
using marginal and absorption costs...........................................................................................7
TASK 4............................................................................................................................................9
Explain the advantages and disadvantages of different types of planning tools used for
budgetary control........................................................................................................................9
TASK 5..........................................................................................................................................12
Comparisons of how organisations are using management accounting system to respond to
financial problems.....................................................................................................................12
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is a part of accounting. It arose out of the need to make greater
use of accounting to make managerial decisions. It gives a analysis of the activities of business.
It helps in the planning and control of trading operations of the firm(Abernethy and Wallis,
2019). This report includes a critical discussion on the management accounting and also showed
the essential requirements of various management accounting systems used in Prime Furniture.
Various methods of management account reporting is also defined to evaluate the performance
of the Prime Furniture. Further, it also includes the income statement on the basis of marginal
and absorption costing. Various planning tools for the budgetary control are also discussed. A
comparison of Prime Furniture and Dreams Furniture has also shown the use of management
accounting system responding to the financial problems.
TASK 1
Describe management accounting and discuss the essential requirements of various types of
management accounting systems.
Managerial Accounting is defined as the practise of creating reports regarding the
corporate operation to assist the managers making short-term and long-term decisions. It helps a
company in achieving its objectives by identifying, measuring, analysing, interpreting and
disseminating(Anshassi, Laux and Townsend, 2019). The information accumulated in all aspects
of accounting that are significant to the management for business operations, when it comes to
the cost of goods and services purchased by the organisation.
It is used for the internal goals and helps the managers in decision-making. This is a process that
involves both monetary and non- monetary information and financial resources to managers in
the decision-making process. Manager use the provisions of accounting information to inform
themselves before making decisions within the organization, enabling them to better manage and
perform monitoring functions. It plays a vital role in decision - making, planning, performance
management and integrated financial reporting. It gives an opportunity to take effective decisions
regarding their day-to-day business activities.
Functions of management accounting:

1. It help the manager to plan about the future and enhance decision-making power which
assists in formulating and implementing the strategies.
2. Budgets are used by management accountants to quantify a company's operation plan.
3. Performance reports are used to track the differences between actual and budgeted
results.
Management Accounting Systems: It applies all the concepts and works across all the
departments of a corporation(Arashpour and et.al., 2018). An effective and impressive system
will look at each of these areas:- finance, sales, operations, human resource, Information
technology and marketing. It also provides non-financial information in addition to the financial
data. Cash in hand, accounts payable and receivables updates, delivery decisions and inventory
status are few examples. All of this accumulation of data makes it easier to determine crucial
performance indicators in many business domains. These are primarily used to track the costs
associated with the manufacturing of goods and services.
Types of management accounting systems:
1. Job Costing System: It refers to allocating manufacturing costs of individual item or
batch of the products and is implemented if the commodities are different from one
another. The process of accumulating information about the expenses associated with a
specific product and services. The substance may be necessary for the companies such as
Prime Furniture in order to send the cost content of the goods to a customer as a part of
the contract that reimburses data. The data will also be enforced to assign the inventory
prices to the processed products. It needs three types of information to accumulate
information: Direct material, Direct Labour, Direct overhead. The essential Requirements
of job costing in Prime Furniture is:
 It helps in estimation of all type of cost used in the production process.
 It collects the cost sheets of similar jobs.
 It helps in the evaluation of work quality.
1. Price Optimization System: It can be used in deciding the prices of multiple products at
a time and to control the costs of resources. It is a mathematical program that calculates
how demand varies at different price levels, and then combine the data with information
on costs and inventory levels to recommend prices that will improve profits(Comi,
Schiraldi and Buttarazzi, 2018). A project manager of Prime Furniture can optimize the