Management Accounting and Reporting: A Case Study of UCK Furniture Company

This document provides a comprehensive study of management accounting and reporting through a case study of UCK Furniture Company. It covers topics such as essential requirements of management accounting systems, methods used in management accounting reporting, calculation of costs through techniques, advantages and disadvantages of budgetary control planning tools, and how businesses adapt management accounting systems to respond to financial problems.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
P1. Management accounting together with essential requirements of systems...........................1
P2. Methods used in management accounting reporting.............................................................2
P3. Calculation of costs through techniques................................................................................3
PART 2..........................................................................................................................................10
P4. Advantages and disadvantages of budgetary control planning tools...................................10
P5. Evaluation how businesses adapts management accounting system for responding certain
financial problems.....................................................................................................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is the concept and provision that is defined as systematic process to
provide resources addition to financial information to managers for framing business related
decisions. Its major objective is to utilise statistical data along with taking accurate decision for
development of business (Berry, Broadbent and Otley, 2016). To gain understanding about
Management accounting, UCK Furniture Company is selected which performs the operations in
manufacturing or constructing wooden furniture includes tables, desks and so on.
The assessment is prepared in two parts. Part One demonstrates about management
accounting systems as well as accounting reports. It also includes application of management
accounting techniques along with devising financial reporting documents. Part two of the
assessment explains about planning tools in management accounting and comparison between
organisations in context to the ways they could use management accounting for responding
financial problems.
PART 1
P1. Management accounting together with essential requirements of systems
Management accounting is mentioned to procedure of examining costs and operations of
company for preparing financial reports, accounts as well as records that assists managers to
frame suitable decision for attaining objectives and goals (Corrigan and Rixon, 2017). The
concept is used at UCK Furniture Company for managing performances, collecting and
evaluating information about different areas and operations, forecasting sales trends and figures,
financial planning and analysing return rates. The importance of management accounting in
the company is as follows:
 Management accounting is important at UCK Furniture as it helps managers to devise
make or buy related decisions
 It is also important for forecasting future fro analysing the upcoming trends and initiating
business practices accordingly to meet objectives of the enterprise.
 In UCK Furniture, other importance of the concept is to predict cash flows as well as
impacts that flows of cash have on entire performances. It helps in designing trends
charts and utilising same information to decide the ways for allocation of resources for
generating projected profit growth.
1

Prerequisite of management accounting: Following are considered as prerequisites of
management accounting within UCK Furniture:
 Financial data that is provided by different departments is prerequisite in management
accounting at the company. It is because it aids administrators to devise and implement
policies to manage daily operations.
 Controlling techniques such as budgetary control as well as standard costing are also
prerequisite in the concept. It is so as the techniques are majorly utilised by managers for
keeping proper check on the ways resources are utilised to gain objectives.
P2. Methods used in management accounting reporting
The main accounting systems that are adopted by finance department of UCK Furniture are
the following with essential requirements:
Inventory management system: The system that is combination of procedures, processes
and technology for overseeing, monitoring and maintaining entire stocked products is said to
inventory management system (Cooper, 2017). The managers of UCK Furniture have adopted
inventory management system for the purpose of tracking inventory level, deliveries and orders.
The essential requirement of the system in the company is to create various documents related
with work order, material bills and many more. Addition to this, it is also required for avoiding
situations like overstock and outages of inventory at workplace.
Job costing system: The system that aids in accumulating information concerned with costs
related to particular service job or production job is described as job costing system. To analyse
the costs or tracking cost materials associated with direct material, labour and overhead,
managers of UCK Furniture prefers to use job costing system at workplace. The system is
essentially required for setting separate costs for different jobs and tailoring certain costs as per
customer requirements. Furthermore, the system enables preparing overhead quotations, tenders
and so on by using reliable estimates. It also provides effective evaluation of all work in progress
related jobs at given duration.
Price optimisation system: Mathematical program which aids in collecting information
about variation in demands at distinct level of prices is termed as price optimisation system. The
main purpose of using price optimisation system at UCK Furniture is to determine how potential
audiences respond towards differentiations in wooden product prices through distinct channels.
2

Essential requirement of price optimisation system in the entity is to set prices which will help in
meeting customer satisfaction addition to maximising operation profit of company.
There are certain mechanisms that are used by managers of UCK Furniture in
management accounting reporting. Management accounting reporting are the set of reports that
are devised for different organisational department to gain efficiency in performances and
managing cash flows (Dekker, 2016). Following are some of methods that are used by finance
department of UCK Furniture for management accounting reporting:
Budget report: One of method that is adopted by managers of UCK Furniture in
management accounting reporting is budget report in which different kinds of budgets are
created from information or data of past years for helping in making certain changes to make
future predictions. It also assists in analysing performances of different departments and
controlling costs.
Cost accounting report: In this management accounting reporting method, costs of
products which are manufactures by using unprocessed data are computed and recorded in
systematic manner. It involves data related to costs of overheads, materials, products and others.
In UCK Furniture, managers use the method to plan along with monitor revenue margins.
Performance report: Other method in management accounting reporting that
management accountant of UCK Furniture uses is performance report. It is computed annually or
on monthly of quarterly basis to analyse substantive revenues along with expenditures to amount
which is allocated in different business areas. Further, it computes disparities and scrutinises all
information for deciding new budget. Moreover, performance report is needed by administrators
for forecasting organisational future in terms of increase on production and costs.
P3. Calculation of costs through techniques
2.1
A.
Costs are calculated through using different techniques as per the requirements. In case with
UCK Furniture, managers use suitable costing techniques of marginal costing and absorption
costing. The cost cards along with potential merits and drawbacks of each method are as follows:
Marginal costing: Costing technique in which variable costs are charged to unit costs is
termed as marginal costing (Hoque, 2018). Cost card for UCK Furniture through marginal
costing:
3

4

Absorption costing: Other costing method that is used by entities for valuing inventory is
defined to absorption costing method. At UCK Furniture, absorption costing technique is used to
capture all costs that are related to manufacturing specific product. Cost Card for UCK
Furniture through absorption costing method:
5

B.
Merits and demerits of costing methods:
Marginal costing method: The benefits of using the marginal costing to UCK Furniture
are it is simple to understand addition to easy to operate. It also makes cost comparisons
meaningful, provides more reliable aspects to make decision, shows relative profit contribution
and assist in maximising capacity utilisation (Katsikas, Rossi and Orelli, 2016). The drawbacks
of the method are it fails in segregating total costs, creates difficulties in forecasting variability
degree and do not involve variable overheads.
Absorption costing method: The merits of the method are that it helps in all stages of
preparing accounts of company, shows decreased sales cost along with increased revenues and
takes account of all the fixed overheads which are associated in entire manufacturing procedure
so that realistic product costs are presented, the drawback of using the absorption technique
includes difficulties in making cost volume profits and also creates hurdles in assessing
operational effectiveness and efficiency. It also makes performances of the entity look more
desirable and manipulate profitability status together with mislead managers in making
decisions.
2.2
To produce financial reporting documents, management accountants of UCK Furniture has
applied management accounting technique that is absorption costing technique as it recognises
all costs that are incurred for bringing its furniture in saleable situations. Financial reporting
documents of the company are as follows:
6

2.3
a.
Preparation of financial reports for UCK Furniture is as follows:
7

Using high low method, estimated expenses for July are 8615005 pounds and August are
9446.05 pounds
b.
Application of inventory valuation technique for UCK Furniture, following are the
prepared reports with suitable methods:
8

9

PART 2
P4. Advantages and disadvantages of budgetary control planning tools
Preparation of budget:
10

11

Budget: it is defined as statement that involves estimation of expenses and revenues over
particular future duration. In other words, a document that aids business managers to make
estimate related to expenses and revenues for coming period on the basis of set objectives is
budget. For different purposes, distinct kinds of budgets are prepared at UCK Furniture. At same
time, all the transactions that include inflow and outflow of resources within the business are
written in respective budget (Levant and Zimnovitch, 2017). All types of budgets are necessary
in planning tools. Budgetary control is the mechanisms through which managers of entity utilise
various budgets for monitoring together with controlling operational costs in specific accounting
period.
Purpose of budget: Budgets are used for various purposes as per the needs of company. In
case with UCK Furniture, some of the purposes of budget are as follows:
 Controlling organisational spending: In an organisation, purpose of budget is to control
spending on unproductive transactions and pay only for necessary bills and expenses. In
UCK Furniture, main purpose of budget is to control spending of each departments and
only make expenses that are essential in nature.
 Decision making: Purpose of budget is also for making decision for business. in case
with UCK Furniture, major purpose of budget is to provide framework to make decision
for proposed actions. It also helps in managing business responsibly through controlling
expenditures in tight manner.
 Monitoring performances: Purpose of budgets is also to monitor overall performance of
an organisation through enabling actual revenues attained against predicted performances
(Maas, Schaltegger and Crutzen, 2016). At UCK Furniture, purpose of budget is to
analyse gaps among desired and actual performance so that variances are analysed and
suitable actions are taken on time for mitigation.
Different kinds of planning tools: Planning tools are the mechanisms that are used to
devise various budgets in the company. Following are some of budget which are prepared by
management accountants and their advantages and disadvantages to UCK Furniture:
Cash Budget: One of budget that involves all information concerned with inflows and
outflows of cash is termed as cash budget. Management accountant of UCK Furniture prepares
cash budget for assessing that the company have sufficient cash resources for further operations.
The advantage of cash budget to company is that it helps in avoiding debt related situation, keeps
12

businesses in touch with actuality and helps in recognising potential deficits as soon as possible.
However, disadvantage of the budget is it creates theft danger, limits spending power and limits
competence to build effective credit profile.
Sales budget: Budget which outlines sales expectations for upcoming year is described as
sales budget. It is prepared by accountants of UCK Furniture by breaking sales of each quarter
along with number of units or products to be sold. This budgetary planning serves a basis for
various budgets of the entity. One of advantage of sales budget to UCK Furniture is that it helps
in reaching desired selling objective. It also helps in proper planning of other budget and
allocation of resources effectively. However, disadvantage of the budgetary planning is that it do
not consider unforeseen expenses and cannot provide accuracy in upcoming trends. Along with
this, preparing sales budget consumes huge time of managers (Patten and Shin, 2019).
P5. Evaluation how businesses adapts management accounting system for responding certain
financial problems
In competing business environment, all organisations are facing some of other financial
problems for managing operations and achieving sustainability. Financial problem is the
organisational issue that is concerned with unable finance of deficit of monetary resources in the
entity. These hurdles make businesses weak and complexities in managing day to day activities.
Various financial problems that are analysed by management accountant of UCK Furniture are
the following:
Spending more than earning: An organisation manager faces the financial problems at the
time when they makes more spending of monetary resources than its earnings (Persson, 2016). In
context to UCK Furniture, managers for the purpose of attracting large customers are making
huge money on advertisemenys and also purchase assets that result in financial problem.
Imbalanced cash flow: The financial problem in which cash flows are not equal and this
creates huge difficulties in managing other activities. In UCK Furniture, finance department has
analysed that the inflows of cash are not equivalent to outflows and this leads to huge problems
in the company.
Comparison of performances of UCK woodworks and divisions of UCK Furniture with
calculating of performance measures:
13

Management accounting techniques:
KPI: It is the technique through which managers can effectively meet objectives as
determined earlier. By using the technique, managers of UCK furniture selects particular area of
the business and tracks all its related performances so that it can take actions effectively. This
technique can be used by the company to resolve imbalanced cash flow problem as it will help in
analysing performances of different departments in terms of using cash and making profits from
it (Peysakhova and Anyushenkova, 2018).
Benchmarking: It is another management technique that helps in comparing
organisational working and strategies with other leading company in the industry. In case with
UCK Furniture, managers can use it for resolving problem of spending more than earning as they
can analyse how other businesses spends money in various activities to grab customer awareness
and implementing similar strategies.
Financial governance: It is technique that is concerned with regulations, rules and other
elements to manage financial activities of company. With this technique, all finance related
14

problems are properly analysed and related legislations are applied to resolve all concerned
issues correctly.
Following are comparison between UCK Woodwork and UCK Furniture in the manner
management accounting system is adopted for responding financial problems:
UCK Woodwork UCK Furniture
Managers of UCK Woodwork can respond
towards financial problem of imbalanced
cash flow through adopting cost
accounting system as it can assist in
estimating unit cost of each product and
accordingly devising strategies (Rupert and
Kern, 2016).
Management accountant of UCK
Furniture can respond financial
problem related to imbalance cash
flow through implementing inventory
management system so that all the
transactions are tracked and inventory
that is available and disbursed can be
monitored to analyse cash inflows and
outflows.
In context to financial problem of more
spending than generating money,
administrators of UCK Woodwork can
resolve it by using price optimisation
system in which all the activities and the
involved prices are analysed effectively so
that unnecessary expenses are eliminated
and productive activities are prioritised for
valuing money and controlling cost.
Management team of UCK Furniture
can resolve problem of more spending
money then earning through job
costing system in which it can allocate
costs to different jobs related with
business practices.
CONCLUSION
From the mentioned discussion it has been concluded that all companies are required to
manage their accounts in proper manner. Some of management accounting system that are used
at firms are price optimising system, job costing system and many more to manage all account
ting transactions. Methods to prepare management accounting reporting are budget report, cost
accounting report and performance report. Purpose of budget at companies includes controlling
organisational spending, decision making and monitoring performances. Accounting techniques
15

that can assist in resolving financial problems are financial governance, KPI addition to
Benchmarking.
16

REFERENCES
Books and Journals
Berry, A. J., Broadbent, J. and Otley, D. T. eds., 2016. Management control: theories, issues and
practices. Macmillan International Higher Education.
Corrigan, L. T. and Rixon, D., 2017. A dramaturgical accounting of cooperative performance
indicators. Qualitative Research in Accounting & Management.
Cooper, R., 2017. Target costing and value engineering. Routledge.
Dekker, H. C., 2016. On the boundaries between intrafirm and interfirm management accounting
research. Management Accounting Research. 31. pp.86-99.
Hoque, Z., 2018. Methodological issues in accounting research. Spiramus Press Ltd.
Katsikas, E., Rossi, F. M. and Orelli, R. L., 2016. Towards integrated reporting: Accounting
change in the public sector. Springer.
Levant, Y. and Zimnovitch, H., 2017. Epistemology and management science: Is accounting
history still a legitimate subject of study?. Accounting History. 22 (4). pp.450-471.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136.
pp.237-248.
Patten, D. M. and Shin, H., 2019. Sustainability Accounting, Management and Policy Journal’s
contributions to corporate social responsibility disclosure research. Sustainability
Accounting, Management and Policy Journal.
Persson, M. E. ed., 2016. AC Littleton's final thoughts on accounting: A collection of
unpublished essays. Emerald Group Publishing Limited.
Peysakhova, E. I. and Anyushenkova, O. N., 2018. The role of accounting in the economic
security system of an economic entity. Наука и образование: новое время, (5),
pp.232-236.
Rupert, T. J. and Kern, B. B. eds., 2016. Advances in accounting education: Teaching and
curriculum innovations. Emerald.
17