Management Accounting Systems and Budget Preparation

This study evaluates multiple elements and related aspects of management accounting with regards to UCK furniture. It also covers several practical sums related to MA techniques and preparation of budget.

Management
Accounting

Contents
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................3
Demonstrate an understanding of management accounting systems:....................................3
1.1...........................................................................................................................................3
2.1:..........................................................................................................................................5
2.2...........................................................................................................................................9
2.3.........................................................................................................................................10
(a.).........................................................................................................................................11
(b.)........................................................................................................................................12
PART 2..........................................................................................................................................13
3 Preparation of Budgets:.....................................................................................................13
4.1 Comparison of enterprises that conform to MA systems to address the financial issues:17
4.2 Ratio analysis:................................................................................................................17
4.3 Evaluation of the planning tools:....................................................................................19
REFERENCES..............................................................................................................................21

INTRODUCTION
Managerial accounting may be considered an accounting division that analyses the definition,
review, calculation, and evaluation of business-related information that management utilize to
take decisions dependent on evaluation/analysis as well as helps handle the activities of the
organization better (Bennett and James 2017).
This study evaluates multiple elements and related aspects of management accounting
with regards to UCK furniture. It also cover several practical sum related to MA techniques and
preparation of budget.
PART 1
Demonstrate an understanding of management accounting systems:
1.1
Management Accounting: This may be characterized as a collection of practices aimed at
encouraging management and allowing them to be prepared with the facts and data required to
make management decisions in support of an enterprise.
Importance of MA: It is imperative for decision-making phase of management within entity. It is
also important for political and corporate strategy formulation. It assists in
managing outputs, performance and task management which assists in making operations more
effective. It is most critical management framework because it also helps to maximize operating
performance and hence to raise revenues (Burritt and Tingey-Holyoak, 2012).
Perquisites of MA: The entire process of MA depends on raw data and details which is
converted in meaningful information for managerial decision-taking process. This require
adaption of frameworks which support in decision-making.
1.2
MA Systems: These are several specified MA systems that provide clear mechanism for the
adaptation of managerial accounting processes, as below:
Inventory management system: This deal largely with successful handling of inventories. The
system/framework includes detailed documentation pertaining to each organisation's product
object. It makes it possible for administrators to handle all product items and supplies and reduce
associated cost of production. This allocates the crucial deficiencies in inventory-related
programs to help managers define significant factors that influence total cost of inventories.

Job Costing System: This focuses primarily on defining work processes and allocating
expenditures to each given job-process. It is a common framework that includes internal process
oversight. This program needs detailed details which effectively classifies tasks and expenses
associated with these functions (Cazier, Rego, Tian and Wilson, 2015).
Price optimisation system: The most powerful and relevant structure through which different
goods / products can be priced correctly. This helps management modify or sustain a new sale
price, which often means the existing costs ought to change. This also helps managers to draw up
a marketing strategy and to implement strategies for demand determination. To evaluate most
cost-effective price for particular products, this approach requires technological and
organizational experience as well as use of certain approaches/methods.
1.3
Several crucial Benefits/advantages of discussed MA systems:
MA-Systems Core Benefits
Inventory Management This is indeed vital for the business in
which inventory movement throughout the
business is observed and positioned. This also
lets managers
use organisation's inventories/stock items
effectively.
Job Costing System It is especially beneficial in terms of achieving
efficiency and effective/efficacious allocation
of different costs to specific business processes
/ jobs (Christ, 2014).
Price Optimisation System It's effective in assessing most sustainable
prices for goods and services for development
and handling workers and also in assessing the
quality of things manufactured/produced. This
system provides basis for setting prices.

1.4 Critical examination of how MAS and MA are integrated to the processes of the
organization:
As an organizational process, multiple procedures and operations/tasks act as core basis
for various systems/frameworks of MA. The results of various organizational processes are
important considerations for the above systems. Managers perform manager procedures for
productions, accounting and financial services, such as costs details, stock levels, requirements
and several other accounting/budgetary details, as is case for UCK. All procedures with MA
frameworks therefore need to be integrated.

2.1:

Descript
ions
Descript
ions
Amount
(GBP)
Descript
ions
Amount
(GBP)
a)
Units
produce
d
11000 9500
b) Direct
Material
(4kilo-
gramx3p
ound/kil
o-
gramx11
000)
132000
(4kilo-
gramx3p
ound/kil
o-
gramx95
00)
114000
c) Direct
Labour
(4
hoursx
2pound/h
ours
x11000)
88000
(4
hoursx
2pound/h
ours
x9500)
76000
d)
Variable
Overhe
ad
(5GBP/d
eskx110
00)
55000
(5GBP/d
eskx950
0)
47500
e) Prime
Cost 275000 237500
f)
Producti
on
overhead
20000 20000
g)
Cost of
goods
produce
d
295000 257500
h)
Variable
revenues
cost
(1pound/
deskx11
000)
11000
(1pound/
deskx95
00)
9500
i)
fixed
selling
cost
2000 2000
j)
Cost of
Goods
sold
308000 269000
k) Profit= l-
j 77000 63500
l) Revenue
s
(35
GBP/des
kx11000
)
385000
(35
GBP/des
kx9500)
332500
Cost Card under Absorption costing:
January February

Descript
ions
Descript
ions
Amount
(GBP)
Descript
ions
Amount
(GBP)
a)
units
produce
d
11000 9500
b)
Revenue
s price
per desk
35 35
c)
Variable
cost per
desk:
Direct
material
(4kilo-
gramx3p
ound/des
k)
12
(4kilo-
gramx3p
ound/des
k)
12
Direct
Labour
(4
hoursx
2pound/h
ours
8
(4
hoursx
2pound/h
ours
8
Variable
overhead 5 5
Variable
revenues
overhead
1 1
d) Contribu
tion 9 9
Total
contribut
ion
99000 85500
e) Fixed
costs
Producti
on
overhead
NOTE1 22000 19000
Revenue
s
overhead
2000 2000
Profit (d-
e) 75000 64500
January February
NOTE1
Production overhead is considered taking into account
average production each month, i.e. 10000 units.
Hence, for January, the overhead amount=
(20000/10000)x11000
Hence, for February, the overhead amount=
(20000/10000)x9500
Cost Card under Marginal costing

Merits and Demerits of Marginal and Absorption method:
Marginal Costing:
Merits: It is used to calculate total costs and the effect on sales amount of variable costs. All
costs then divided into fixed-costs and variable-costs based on their essence of volatility. Profit
is measured as normal and contribution amount is derived because here entire cost is excluded
from profits. This effects in income as enterprise lowers overhead expenses.
Demerits: The segregation of costs as in the fixed-costs and variable elements is major critical
task or difficulty. Clearly dividing all expenses into fixed versus variable expenses is quite
complicated, because all costs are variable in long term. These grouping can also often produce
inaccurate results. In comparison, marginal costs can be prove less helpful in a business with
several different types of product-items (Fullerton, Kennedy and Widener, 2014).
Absorption Costing:
Merits: Absorption costing is consistent with concept accrual and matching accounting
principles involving the alignment of expenses with revenues for a specified accounting period.
This is preferable method as it shows more accurate results as compare to marginal costing as
herein all the factory overheads are separately shown.
Demerits: The cost of absorption doesn't provide specific details regarding fixed and variable
expenses. But it will not be appropriate for strategy and decision-making purposes for managers.
With the aid of absorption method, flexible budgets can not be planned since it doesn't allow a
difference among fixed versus variable costs.

2.2
For the period ending Februar
y
Revenue
Revenues for January 385000
Revenues for February 332500
Total revenue (A) 717500
Cost of goods sold
Cost for January 308000
Cost for February 269000
Total Cost of goods sold (B) 577000
Net income(C= A-B) 140500

Descript
ions
Descript
ions
Amount
(GBP)
Descript
ions
Amount
(GBP)
Units
produce
d
11000 9500
a) Direct
Material
(4kilo-
gramx3p
ound/kil
o-
gramx11
000)
132000
(4kilo-
gramx3p
ound/kil
o-
gramx95
00)
114000
b) Direct
Labour
(4 hours
x
2pound/h
ours
x11000)
88000
(4 hours
x
2pound/h
ours
x9500)
76000
c)
Variable
Overhea
d
(5GBP/d
eskx110
00)
55000
(5GBP/d
eskx950
0)
47500
d) Prime
Cost 275000 237500
e)
Producti
on
overhead
20000 20000
f)
Cost of
goods
produce
d
295000 257500
g)
Variable
revenues
cost
(1pound/
deskx11
000)
11000
(1pound/
deskx95
00)
9500
h)
fixed
selling
cost
2000 2000
i)
Cost of
Goods
sold
308000 269000
j)
Workings- Cost of Goods sold January February
The absorption costing technique has been applied here. This technique
recognises all costs incurred to bring the product to saleable condition, and all
the costs are absorbed by the produced units as a part of their cost.

2.3.
Interpretation: According to presented incomes statements & costing cards compiled applying
marginal and absorptions methods, This evaluated that net earnings herein marginal method are
pound 75000 and pound 64500 respectively during months Jan. month and Feb month, whereas
net-profits are pound 77000 and pound 63500 respectively in same months by absorption
process. There are variations in net profits' figures owing to above or under abortion of fixed-
costs.

(a.)
Month Hours
Spent
Expense
s
January 630 7960
February 505 7410
Mar 705 8285
April 555 7535
May 780 9110
June 795 9820
Highest number of hours
= June = 795
Lowest number of hours
= February = 505
Variable cost= (9820-
7410)/(795-505)
Variable cost= 8.31035 GBP per
unit
fixed cost= 9820 -
(795x8.31)
fixed cost= 3213.55 GBP
expenses for july=
3213.55 + (650x8.31)
expenses for july= 8615.05 GBP
expenses for august=
3213.55 + (750x8.31)
expenses for august= 9446.05 GBP

(b.)
Opening Inventories 0
Purchase 100
Units 10 1000
200
Units
130
Units
LIFO
130 13.8462
200 11
70 10
Cost of
Goods
Sold
Value of
closing
stock
(30 x
10)
FIFO
100 10
200 11
100 13.84615
Cost of Goods Sold
Value of closing stock (30 x 13.84615 )
AVCO 100 10 1000
200 11 2200
130 13.84615 1800
Average Cost(13.84615 + 11 +10)/311.61538
Cost of goods sold4646.154
(400x11.61538)
Closing Stock348.4615
110
2200
1384.615
3694.615
415.3845
143.85
2200
700
3043.85
300
11 2200
13.8462 1800

PART 2
3 Preparation of Budgets:
1) schedule of
expected cash
collections for
September
Descriptions
Septemb
er
(GBP)
Cash Sale 39000
Collection for
revenues on
account:
July 392
August 4416
September 840
Total
collections 44648

Descriptions
Septemb
er
(GBP)
Payment for
inventory
purchased in
September
4800
(24000x.2)
Payment for
inventory
purchased in
August
15000
Total
disbursement
for inventory
purchase
19800
2) Schedule of expended cash disbursements for merchandise inventory
purchases in September

3) Cash Budget
Descriptions
Septemb
er
(GBP)
opening
balance (A) 20000
Collections
Cash Sale 39000
Collection for
revenues on
account:
July 392
August 4416
September 840
Total
collections (B) 44648 64648
Disbursements
Payment for
inventory
purchased in
September
4800
(24000x.2)
Payment for
inventory
purchased in
August
15000
Selling and
administration
expenses
9000
(excluding
depreciation of
4000)
Purchase of
equipment 18000
Dividend to be
paid 3000
Total
disbursements (C) 49800
Balance (A+B-C) 14848
Financing
Activity:
Loan Taken 1152
Closing
Balance 16000

4.1 Comparison of enterprises that conform to MA systems to address the financial issues:
Organizations are adopting MA frameworks such as budgeting, variable costing, budgetary
controls, standard costing, absorption costing etc. to help tackle financial challenges. This is
easier through using MA methods to identify financial problems. Surely, solutions to financial
problems could not easily be sought when obstacles cannot really be described sufficiently (Hall,
2016).

4.2 Ratio analysis:
i) Return on capital employed(ROCE)
Return on capital employed = Operating Profit/ Capital employed x
100
UCK Furniture Design Division
ROCE= 25.4978 %
UCK Furniture GearBox Division
ROCE= 11.2747 %
UCK Woodworks
ROCE= 8.56211 %

ii) Assets Turnover
due to absence of information relating to net assets, capital employed
has been assumed as net assets
Assets turnover = Revenues/Total assets
UCK Furniture Design Division
Assets turnover = 0.56277
UCK Furniture GearBox Division
Assets turnover = 0.77983
UCK Woodworks
Assets turnover = 0.1918

iii) Operating profit margin
Operating profit margin = Operating Profit/ Total revenues x 100
UCK Furniture Design Division
Operating profit margin= 45.3077 %
UCK Furniture GearBox Division
Operating profit margin= 14.4578 %
UCK Woodworks
Operating profit margin= 44.6406 %

Analysis:
ROCE analyzes the productivity of business as regards the capita-lmoney being spent
within enterprise. It demonstrates the company's income sum as share of employed capital-sum.
The more it is a organisation, the better the proportion is (Lavia López and Hiebl, 2014). In that
case, ROCE is around 25,49percent and 11.27percent for UCK's Designing Unit and GearBox
department, while Woodworks only has ROCE level of 8.56percent. That implies UCK
Furniture’s Designing-Unit generates major income per-unit of capital-initial sum invested, as of
followed by GearBox-division and Woodworks.
The level of an assets turnover means that the company receives per component of total
equity. The GearBox segment of respective company has a 77.98perce nt and UCK Design Units
a 56.27percent of asset turnover, whilst Woodwork has the least asset revenue ratio of 0.1918.
This shows that GearBox section generates the highest profit for each piece of total assets.
An operating profits ratios are the percentage of the net income a corporation receives from
gross income. The larger this percentage, the safer the organization. The average operating
income for company's Woodworks was 44.64%, preceded by designing unit of 45.30% and
GearBox i.e. 14.46%. What UCK's Woodworks Unit means will gain the greatest profits from its
sales.
4.3 Evaluation of the planning tools:
Planning tools in MA such as budgeting, budgetary controlling, project assessment,
standard costing, cost variation analysis and ratio measurement help which financial challenge to
generate sustained performance.
Budgeting is a method wherein budgets are formulated for different items like revenues,
cash, expenditures, production, procurement, etc. That helps to predict the desired activity scales.
This also serves to measure the predictions to the actual results (Jacobs, 2012).
The method by which managers compare budgetary objectives with current ability or
performance is budgetary control and determine and seek to mitigate discrepancies between
projections and actual reported earnings. It allows to resolve problems which allow the
discrepancies (among actual figures and forecasts) to emerge.
A specific project must be reviewed at regular intervals to decide whether it is going
according to pre-determined targets and forecasts. The project management process is defined as
project evaluation or review at appropriate periods of time. It will maximize productivity and

ensure that pre-decided targets are achieved on schedule, and that final outcomes are in line
with standards expected.
CONCLUSION
From above study it has been articulated that Management accounting is the field that
interacts with planning and money management. Management accounting system thus helps
company to determine likely plan of action which contributes to possible advantages. It
is resource planning mechanism without doubt and aims to foresee the possible courses of
operations. MA surpasses the mechanism necessary for managing and preparing the activity that
contributes to successful decision-making.

REFERENCES
Books and Journals: