A Study on Financial Information Sharing by Prime Furniture

Management Accounting

INTRODUCTION
Management accounting (MA) refers to the system in which all the relevant data is
collected by the management which helps in decision-making process. It is mainly used by the
internal management teams for the purpose of decision making. In this, all the financial
information is shared by the finance team to the internal management team of the organization.
The present report is about Prime Furniture which is London based company. This report covers
meaning and benefits of management accounting and its integration into the organizational
process. It also covers different techniques of management accounting and comparing the ways
in which company can use management accounting to face challenges.
LO1
Covered in PPT.
LO2
Management accounting techniques
Cost: In accounting, cost implies for the figure that a company spend to produce something
valuable. It does no include any profit. From the customer's point of view, the cost is known as
price. It includes both production cost and mark up value.
Cost analysis: It is process of measuring the cost and output relationship. It determines the cost
incurred in procuring input and how it can be arranged so that it will help in increasing the
productivity of the firm.
Types of cost
Cost are of different types, a detailed description is given below.
Fixed cost: It includes rent, insurance, salaries etc which remains same at each level of output or
level of production.
Variable cost: It changes with the change in the output level (Collis and Hussey, 2017). If there
is no production then variable cost will be zero.
Direct cost: It is the cost that is directly or completely assigned to the specific product or service.
It includes direct labour, direct material etc.
Cost volume profit
It helps in analysing the effect of change in cost and volume on the company's operating
income. It is based on several assumptions such as sales price per unit, variable cost per and
fixed cost is constant, everything is sold etc.

Flexible Budgeting
It is the more sophisticated budget that adjusts itself with the changes in level of activity.
It is an estimated financial plan of revenue and expenditure.
Cost variances
It refers to the deviation between the set budgeted outcome and the actual outcome of the
organization. These variances can be of two type’s positive and negative variances.
Cost allocation
It refers to the process of identifying and assigning cost to cost objects. It is used in
financial reporting and also useful in knowing the profitability.
Normal and standard costing
The method of cost allocation in which cost is assigned to the product based on material
labor and overheads is known as Normal costing. Standard costing involves creation of
estimation for each activity. It helps in comparing the actual cost and revenue with the standard
cost and revenue.
Different types of costing methods
Marginal costing
This method refers to the ascertainment of marginal cost by charging variable cost per
unit and written off the fixed cost against the contribution (Collis and Hussey, 2017).
Absorption costing
In this method, all the manufacturing cost is assigned per unit in the cost of production
irrespective of fixed and variable. It is used in external financing and for tax reporting (FIMYAR
and TURCHENYAK, 2017).
Activity-based costing
In this method, overhead and indirect cost is assigned to the products in a more logical
manner to the related product or services. It is mostly used in the environment where there are
many machines and products.
Role of costing in setting price
Costs never determine price but plays a crucial role in pricing strategy. Other than price
there are two other factors that is required to be taken into consideration which are demand and
supply. Price decides what and for whom to produce. Moreover, usually with the motive to
enhance both sales and customer base producer emphasizes on charging lower prices. A high