Management Accounting Techniques and Financial Analysis

This report discusses the various management accounting techniques used in analyzing financial problems and making effective decisions. It covers topics such as net profit calculation, planning tools, and measures to reduce financial problems. The report also includes a case study on UCK Furniture.

Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................1
PROJECT 1......................................................................................................................................1
Covered in PPT...........................................................................................................................1
PROJECT 2......................................................................................................................................1
Calculation of net profit by using various costing methods........................................................1
Various types of management accounting techniques................................................................2
Data interpretation by using costing method..............................................................................2
Advantage and disadvantage of various types of planning tools................................................2
Monthly expenditure for July and August..................................................................................4
Calculation of accounting system to analyse financial problems...............................................4
Measures to reduce financial problems in order to lead towards sustainable success................5
Analysis of planning tools used in company...............................................................................5
CONCLUSION ...............................................................................................................................5
REFERENCES ...............................................................................................................................7

INTRODUCTION
In business term, the field of accounting that is related with gathering, reporting,
summarizing and evaluating important information into internal reports of company that supper
management team to make effective decision (Bennett, Schaltegger and Zvezdov, 2011). There
are various system and reports that are beneficial in making and presenting detailed information
about different task and activities of company. MA is also supportive in determining the actual
reasons for negative results or problems and help in making better plans to remove these issues.
In this presentation report, several important MA system and reports are elaborated with
their integration and benefits to company process. Report also covers use of MA techniques to
calculate net profit and use of planning tools to make decision. In addition, importance of MA
tools in determining and resolving financial issues are discussed.
PROJECT 1
Covered in PPT
PROJECT 2
Calculation of net profit by using various costing methods
Calculation of net profit using marginal costing:
PARTICULARS January February
Sales (35 per unit) 315000 402500
less:
Cost of Production (12+8+5) 275000 237500
variable selling overheads (1 per unit) 11000 9500
variable cost 286000 247000
Contribution 29000 155500
less: Fixed cost expenses
Production overheads 20000 20000
Administration & selling cost 2000 2000
Total fixed costs 22000 22000
NET INCOME 7000 133500
Calculation of net profit using absorption costing:
Particular January February
Sales (35 per units) 315000 402500
Deduct:
Cost of Production 295020 254790
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Gross Profit 19980 147710
LESS:
Fixed and variable expenses:
Variable sales overheads (@1 per unit) 9000 11500
Fixed selling expenses 2000 2000
Total costs 11000 13500
NET INCOME 8980 134210
Various types of management accounting techniques
Management accounting methods are crucial instruments that enable a company measure
its net income by deducting all the costs involved during that time (Callahan, Stetz and Brooks,
2011). Such strategies are used by a furniture distributor like UCK to profit from the benefits of
optimal resource usage and sustainable development and growth. UCK furniture typically uses
marginal cost approach to become more precise, since it is known to be the most effective and
efficient system. This is because it represents more productivity and that only pays variable
expenses toward sales revenue. On the other side it is stated that other management reporting
methods include normal costing, absorption costing, historical costing etc. The primary purpose
of such methods is to assess net productivity from either the information presented in
management records and studies, including estimation of various factors such as fixed and
variable income, as well as the total paid by the company when paying all overhead costs.
Data interpretation by using costing method
The above calculation define that both costing approaches are beneficial that are used to
evaluate the net profit of UCK furniture for a respective year (Christ, 2014). As per the marginal
costing the contribution for month of January is far lesser than the amount of February month.
As in January the contribution is 29000 and in February it is 155500 thus the net profit after
writing off fixed costs in the month of January is 7000 and in February is 133500.
From the absorption costing method it is determined that net income in this method is
higher than net profit from marginal costing. Such as the net income in month of January is 8980
and for month of February it is 134210. the main difference between the net profit figure is the
treatment of variable cost which gets absorbed in case of absorption costing.
Advantage and disadvantage of various types of planning tools
In Management accounting, different kind of planning tool is used which is consider to
be most important component through which the company may undertake while making business
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choices (Gond and et. al., 2012). This will allow the company to evaluate and examine the
overall performance of different processes that support businesses in meeting specific goals.
Some different tools are used by UCK furniture are discussed underneath:
Ratio analysis: It is crucial technique to analyse the overall financial position,
profitability, liquidity, efficiency, risk and solvency within a specific time period. In UCK
furniture managers uses this to make perfect utilization of resources and determine the reasons
for slow growth or decline trends in any business context.
Advantages: The pattern in expense, revenue, earnings as well as other details can be identified
by calculating ratios of last few years related accounting statistics. With the aid of averages, this
data analysis could be helpful for predicting and considering new business operations (JOSHI,
BREMSER and et. al., 2011).
Disadvantage: The major disadvantage to UCK furniture is that ratios are determined from the
information recorded in financial statements and these statements includes various manipulation,
difference and incorrect entries due to which decision are wrong for company.
Standard costing: This is beneficial for UCK furniture, as it support in determining the
results of difference or variation from the estimated and actual figures. In case if actual cost are
higher than predicted cost than the results are regarded as unfavourable. Use fixed or regular
output and commodity prices, management may help to predict their additional costs and equate
model estimates with real costs upon execution of the job.
Advantages: The Standard costing is also known as an efficient cost control system. Within
standard accounting, managing and reducing expenses becomes a routine method for manager of
company.
Disadvantage: The major issue faced by UCK furniture by using standard costing is the actual
estimation of likely cost that are needed to be paid in future time.
Budgetary control: Budgetary management is a process that lets senior executives
maintain appropriate spending limits. Such regulation is necessary as unnecessary spending has
an adverse effect on business profits. Thus managers of UCK furniture tries to increase the profit
figures by implementing various strategies to increase the sales (Melnyk and et. al., 2014).
Advantages: This helps to analyse existing business patterns and to assess future business
policy. This means that people, products, equipment and resources are used efficiently as
production is scheduled as per the availability of such items.
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Disadvantage: Budgets will act as strategic effort restrictions, as each director seeks to achieve
the goals that are budgeted.
Monthly expenditure for July and August
Total cost = (Highest activity per hour spend – Lower hour spend)
Total expenses (Per units): (9820-7410) / 795-505) = 8.31
Month Calculation expense
July = 650*8.31= 5401.5
August = 750*8.31= 6232.5
Cash budgets Amount
Particular September
Opening Balance 9000
Cash Sales 39000
Sales on Account 5648
Total cash collected 53648
Less:
Purchase 16800
Selling and Administration expenses 13000
Equipment cost 18000
Dividend paid 4000
1848
Add:
Minimum Cash balance 5000
Estimated cash in Sept. 6848
Calculation of accounting system to analyse financial problems
Financial ratios
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UCK Furniture UCK Woodworks
ROCE
Operating profit/Capital
employed*100 3198890.156 8.562107596
17.24513902 0.0856
0.1724
Operating profit margin
Operating profit / sales
*100 2490000.73 8.562107596
0.2503 0.0856
Assets turnover Revenue / Net assets 44931.07764 0.10033239
=0.68 times =0.100 times
Measures to reduce financial problems in order to lead towards sustainable success.
In the above table, calculation of different ratio helps to define the overall financial
decline of UCK furniture and share price is also affected due to decrease in profitability of UCK
Woodworks (Shields, 2015). It is also observed that UCK furniture is getting better returns on
capital employed, on the other side the earning on capital employed to Woodworks are quite
slower which is making issue of UCK furniture.
Form the calculation it is also analysed that assets turnover for UCK woodwork is higher
and shows a better position in a year as compared to UCK furniture. There are different financial
issues that decrease the performance and some of important measures are used by management
to resolve financial problems. These are discussed below:
 Key performance indicators (KPI): This approach is deemed an important method for
evaluating and describing any worker's actual performance and that every operation with
UCK furniture.
 Financial governance: This method is beneficial in providing the code of conduct issued
by government that help in defining the actual standard and rules to run certain business
operation within company.
Analysis of planning tools used in company
A company uses many planning tools such as ratio analysis, budgetary control and
standard costing which are used to measure and make predictions to resolve the financial
problems (Suomala and Lyly-Yrjänäinen, 2012). Such methods help a UCK furniture to manage
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the risk and provide a number of potential scenarios so that reasonable precautions could be
implemented.
CONCLUSION
In the end of report, it is concluded that MA is an effective process that support in
making valuable reports with the help of system to ease the decision making process of internal
manager. Various costing methods such as marginal and absorption costing are used to calculate
the net profit for the year. Different planning tools such as Ratio analysis, Standard costing and
Budgetary control are effective in determining the financial issues and making effective ways to
resolve these issues.
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REFERENCES
Books and Journals:
Bennett, M., Schaltegger, S. and Zvezdov, D., 2011. Environmental management accounting. In
Review of management accounting research (pp. 53-84). Palgrave Macmillan, London.
Callahan, K. R., Stetz, G. S. and Brooks, L. M., 2011. Project Management Accounting, with
Website: Budgeting, Tracking, and Reporting Costs and Profitability (Vol. 565). John
Wiley & Sons.
Christ, K. L., 2014. Water management accounting and the wine supply chain: Empirical
evidence from Australia. The British Accounting Review, 46(4). pp.379-396.
Gond, J. P., and et. al., 2012. Configuring management control systems: Theorizing the
integration of strategy and sustainability. Management Accounting Research, 23(3).
pp.205-223.
JOSHI, P. L., BREMSER, and et. al., 2011. Diffusion of management accounting practices in
gulf cooperation council countries. Accounting Perspectives, 10(1). pp.23-53.
Melnyk, S. A., and et. al., 2014. Is performance measurement and management fit for the
future?. Management Accounting Research, 25(2). pp.173-186.
Shields, M. D., 2015. Established management accounting knowledge. Journal of Management
Accounting Research, 27(1). pp.123-132.
Suomala, P. and Lyly-Yrjänäinen, J., 2012. Management accounting research in practice:
Lessons learned from an interventionist approach. Routledge.
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