Management Accounting: Costing, Budgeting, and Pricing

This report highlights the different kind of cost and difference between the same. After that report explain the method of valuation and understanding in regards of Overhead and cost variance. After that report explains kind of budget and advantage & Disadvantage of same. Also explain the Pricing and costing aspect and the position of the Prime furniture in the current scenario.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 2............................................................................................................................................3
Microeconomic techniques.........................................................................................................3
Product costing............................................................................................................................4
Cost of Inventory........................................................................................................................5
TASK 3............................................................................................................................................8
Using Budget planning................................................................................................................8
Pricing.......................................................................................................................................10
Costing......................................................................................................................................10
Strategic Position......................................................................................................................11
Comparison between two companies that can utilize management accounting to respond to
financial issues..........................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Management Accounting is generally known as a branch of the accounting which looks
at providing the useful information to the manager in the Quoted firm and on the basis of the
same different decision are being taken in the Quoted firm to overcome the variety of the issue.
Prime Furniture is a furniture manufacturing and selling company based in UK. This report
highlights the different kind of cost and difference between the same. After that report explain
the method of valuation and understanding in regards of Overhead and cost variance. After that
report explains kind of budget and advantage & Disadvantage of same. Also explain the Pricing
and costing aspect and the position of the Prime furniture in the current scenario. In the end
report explain way two Prime furniture can adopt the different accounting system in an Quoted
firm.
MAIN BODY
TASK 2
Microeconomic techniques
Cost
Cost is regarded as a amount of the investment which is invested to find out the outcome or
deliver any sort of the services. In simple words cost is the amount of money incurred in making
of a product or getting ready the services which need to be offered in the market (Jansen, 2018).
There are two kind of cost in general that is Fixed cost and Variable cost
Fixed Cost, It is kind of cost which generally used to not change in the nature with the
change in the unit of the production in the factories.
Variable cost, Variable cost at the same note is kind of a cost which is used to change in
the nature with the change in the production of the unit at the work place.
Cost analysis is generally known as a group of the activity which consider cost summary into
Quoted firm and reporting all the factor. Another aspect of cost analysis is the comparison of the
cost with the motive of reporting the variety of the different condition.
Cost-volume profit, flexible budgeting and cost variances.
Cost volume profit analysis, is the framework which is generally used to understand the
way change in the Volume and cost used to affect the Prime furniture operating income in the

long run. This sort of the analysis generally includes the variety of the different kind of
assumption to be made.
Flexible budgeting, Flexible budgeting is generally regarded as a budget which generally
used to change with change in the volume or the activity.
Cost Variance, Cost variance is generally known as different between the cost which is
expected as per the budget and actual amount of cost which has been incurred.
Cost Variance = Earned value – Actual Cost
Product costing
Fixed and variable costs, cost allocation
Fixed cost, Fixed cost generally used to fixed in the nature which means they never used
to change with the change in the volume of the production of the Prime furniture in the long run.
Variable cost, Variable cost at the same time is very flexible in nature as any change in
the volume of the production generally used to see the change in the cost of production, this cost
is known as variable cost (Mack and Goretzki, L., 2017).
Cost Allocation
Cost allocation is generally regarded as a process in which the Quoted firm used to find out the
amount of the cost need to be incurred by the Quoted firm in production of the product and on
the basis of same different cost are allocated.
Normal, Standard and AB Costing
Normal costing is the kind of the costing which is used in the deviation of the cost, generally the
actual data is generally used in the Quoted firm to derive the cost of the product.
Standard costing is a system in which the standard of the costing is generally set up in
the past and on basis of same variance is generally find out by finding out difference between
actual cost incurred and amount of the cost should be incurred in production (Malina ed., 2018).
Activity based costing is the kind of the costing system in which the Quoted firm used to
consider the different activity in the Quoted firm and on the basis of the same different cost are
assign to different activity to find out the costing of the Prime furniture.

Costing used to play a very crucial role in the deciding the price of product of the Prime
furniture. As generally all the Quoted firm used to take cost as a basis and on the basis of same
adds the profit margin to ascertain the price of the product.
Cost of Inventory
Inventory cost is generally related to different kind of the cost which is generally related
to storing the inventory at the warehouse. In general all the cost which is incurred at the time of
procuring the good and keeping it in the warehouse and sending back to the consumer comes
under inventory cost (Maskell and et.al., 2016).
Different kind of inventory cost are as follows:
Ordering costs, kind of the cost is the kind of the cost which is incurred at the time of
ordering the product in the Quoted firm, procuring the product and fixing them into warehouse
generally comes under the same.
Holding up costs, It is the cost which is incurred to keep the product in the warehouse.
Depreciation is one such kind of the cost which comes under such cost.
Stock Out Costs, It is the kind of the cost which is generally incurred at the time of
sending the product from the warehouse to the hand of consumer.
Benefits of reducing inventory costs to an organisation
Reducing inventory cost generally assist the Prime furniture in maximizing the amount of
the profit margin to a extent as reducing the cost of product and selling the product at same rate
may assist Prime furniture in maximizing the profit. Also, reducing the amount of the cost will
certainly assist the Prime furniture in procuring more number of the product and available with
good quantity of the product at the workplace (Messner, 2016).
Valuation methods
There are three different kind of valuation method which can be used:
Discounted Cash Flow: It is the kind of valuation method which estimates the value of
the investment on the basis of the future cash flows.
Comparable Prime furniture analysis: It is the kind of valuation in which valuation are
generally made on the basis of metrics of different business of same size.

Precedent transactions analysis: Is the kind of analysis in which the price paid for
Prime furniture is generally consider as a indicator of Prime furniture value's
Cost variances & Overhead costs.
 Cost variance is the difference between the actual amount of the cost and the budgeted
amount of the cost decided.
 Overhead cost generally means the ongoing business expenses not directly associated
with creating of new product or the services.

Reconciliation Statement
Quarter 1 Quarter 2
Profit as per Absorption costing
4361.538461
5385 3208.16
+ op stk @ FOH rate at op. date 2461.54
- Cl stk @ FOH rate at cl. date 2461.54 970.00
Profit as per marginal costing 1900.00 4700
Interpretation: Looking at the different data which is presented above it can be easily
interpreted that absorption costing is more favourable for the Prime furniture as compare to the
marginal costing. Finding out the reason is that marginal costing used to consider fixed and
variable both the cost at the time of calculating the net income.
TASK 3
Using Budget planning
Preparing the budget
Budget is a financial plan which used to define the sales volume and revenue, cost, expenses,
liabilities and the cash flow of the Prime furniture in the coming year. There are variety of the
different kind budget which are generally prepared in the Quoted firm, some of them are as
follows:
Capital Budgeting: capital budgeting is the kind of the budget which used to define the
proposed asset which Quoted firm will require in the future and also used to define the asset
which has to be reduce by Quoted firm (Mills, 2018).
Operating Budgeting, is the kind of budget which generally used to define the
expenditure and revenue of Prime furniture on the basis of daily operation of business.
Alternate Budget
Cash flow budget: This kind of the budget used to define the estimation related to the
amount of cash receipts and expenditure which will be occurring in a short period of time. This
budget is generally based upon the amount of cash inflow and outflow.

Advantage
This sort of the budget in the Quoted firm used to assist the Prime furniture in finding out the
position of the Prime furniture in current scenario and on the basis of the same different decision
are made in regards of procuring new resources.
Disadvantage
This sort of the interest some time in the Quoted firm used to divert the interest level in the
Quoted firm, as if employee in the Quoted firm generally has the idea of surplus cash it is not
that good sign for the Prime furniture.
Production budget, is a kind of the budget which is prepared in the firm with the sole
motive of keeping eye on to the function of production house, different activity under these are
keeping eye on unfinished good and finished, this budget is made on the basis of the sales budget
of Prime furniture.
Advantages
This is the kind of the budget is known as a grounding budget in the firm, as this is the
kind of the budget which used to play the role of influencer for some other budget as well such
as sales and cash flow budget in firm.
Disadvantages
This sort of the budget in the Quoted firm also creates the variety of the issue for the
Quoted firm, as product is one of the crucial task any misunderstanding or wrong drafting of
production budget in the Quoted firm can impact the efficiency of variety of the task which has
been performed.
Zero based Budgeting, Zero based budgeting is the kind of the budget in Quoted firm which is
generally prepare on the basis on current scenario, they do not used to consider the past
performance to prepare the new budget at working place (Collis and Hussey, 2017).
Advantage
This sort of the budget can enhance the efficiency of Quoted firmal activity, reason
behind the same is identified that it allow the Quoted firm in including different element which
was ignored at the time of building of previous budget.
Disadvantage

This sort of the budget in the Quoted firm are very time consuming as it requires to invest
good amount of time to prepare the budget.
Behavioural Budget
It is the duty and the responsibility of the manager that they are fair and honest at the time
of constructing of budget in the Quoted firm. As if manager in the Quoted firm used to make any
sort of unethical decision in regards of budget making will create the good liability for the Prime
furniture to overcome the same.
Pricing
Pricing strategy
There are variety of the different kind of pricing strategy is used by different consumer,
such as penetration, skimming and etc. Prime furniture in generally used the Skimming pricing
method at the workplace. It is the pricing method in which Quoted firm used to keep the price of
the different product low in the initial stage, after that they used to wait for the response from the
market and on the basis of the same used to increase the price of different product of the Prime
furniture (Farkas, Kersting and Stephens, 2016).
Competitor pricing
Generally all the competitor in the market, used to derive the pricing of variety of the product by
deriving the amount of the cost of the Prime furniture and on the basis of the same they used to
add the profit margin of the Prime furniture to derive the price of different product in the market.
Competitor also used the skimming pricing method, reason behind the same might be because of
amount of the competition which is presented in the market.
Supply and demand consideration
Supply of the product and the demand of the product are two aspect which is always consider at
the time of deriving the selling price of the Prime furniture product. As if the demand of the
Prime furniture product is high in the market, selling price is also kept high on the same time if
supply is high then to be competitive in the market selling price is generally kept low to attract
the consumer toward Prime furniture offering.

Costing
 Actual Costing, it is the kind of the costing system in which direct cost are generally used
to determine the cost of the specific product in the Quoted firm.
 Normal costing at the same time is the kind of the costing which is used in derivation of
costing. It is used exception of the manufacturing overhead in the Quoted firm.
 Standard costing is the kind of the costing which is based upon the budgeted or estimated
costing for a single product.
Difference in cost
Reason behind difference in the costing system in the Quoted firm is that it used to consider the
different basis for calculation of variety of the data in the Quoted firm. For example Job costing
system used to consider the cost of carrying out the variety of the job. At the same time process
costing used to consider the cost of carrying out different process in the Quoted firm. On the
same note Batch costing used to look at batch and contract costing in the firm (Ray and
Gramlich, 2016).
Strategic Position
SWOT
Strength Weakness
Financial Strength
Technology
Profit margin
Competition
Threat Opportunity
employee conflict
Legal law
Goodwill building by the way of
environmental friendly product.
expansion
PEST
 Political factor: Brexit in the nation has created some sort of the issue for the Prime
furniture, as Brexit has brought some restriction in the market. Also political stability in

the market has assisted the Prime furniture in staying with the same policy for longer
period of time.
 Economical Factor: This factor is very favourable in the nation as it will assist the Prime
furniture in raising the variety of the fund when require in the Quoted firm. Reason
behind the same is identified that inflation and interest rate are very favourable.
 Social Factor: Prime furniture used to develop variety of product by looking at the need
and preference of different individual and on the basis of the same Quoted firm is able to
maintain good social condition
 Technological: Quoted firm can adopt the good technology in the Quoted firm to develop
more customer friendly product to be offered to the consumer in the market.
Porters 5
 Threat from competitor is high
 Threat from new entrant is low
 Threat from substitute product is low
 Bargaining power of supplier is low
 Bargaining power of consumer is high
Comparison between two companies that can utilize management accounting to respond to
financial issues
There are different types of management accounting methods available in world of
business that can use by Prime Furniture and Case furniture. Here, comparison is based on
approaches used by both organizations.
It can be said that to solve financial issues due to poor management and other reasons,
Prime Furniture can use benchmarks as one of the best methods. It is one of the most common
management accounting tool can utilize by firm for measuring their and other performance,
which help them to identify barriers for success.
On the other hand, for same purpose Case furniture can use effective tool but different
from above company. They can utilize key performance indicator as KPIs to determine issues
and take appropriate actions for them.
Financial governance definition-
It refers to way Prime Furniture collects, monitors, manages and controls financial
information or data (Eichengreen, Lombardi and Malkin, 2018). It includes how firm track their

financial transactions and manage performance effectively. It can be used to prevent financial
issues by monitoring activities and controlling data. It helps company to track their all
transactions and monitor operations. It permits enterprise to determine risk faster. With frequent
measuring and controlling put in place, finance can determine when financial info signals
business risks.
Use of financial governance to monitor strategy-
This process can use to monitor business strategy in effective manner, it allows firm to
implement and measure their tactics with specific area related and measurable financial aims,
ultimately strengthening business abilities. By monitoring all the activities and actions
management can monitor success of their strategy on timely manner. They can take better
decision and options to make tactic more effective which is quite beneficial for company in term
of increasing long term success.
Characteristics of effective management accountant-
Management accountant play vital role in company as they perform a series of actions or
tasks to assure their business's financial security, managing essentially all financial actions or
matters (Lepistö and Ihantola, 2018). There are different types of characteristics management
accountant have like organizational skills, constantly learning, sense of responsibility, ability to
work in a group of people, trustworthiness, reliability, knowledge of accounting field and
emphasizing accuracy. All these skills are very important and beneficial for management
accountant.
Skills used to prevent or deal with issues-
It can be said that all above skills and characteristics, accountant can utilized to deal and
prevent with issues while playing their role in company. For example, individual can prevent
problems at workplace by working in team and provide appropriate directions to them which in
return manage financial performance of business effectively. By having overall knowledge about
accounting area, applicants can prevent any issues related to finance in effective manner.
Development of systems and tactics require timely & effective reporting-
Management reporting systems aid in capturing data that is required by manager to
operate an effective business and its operations. It permit management to provide effective
reports at timely manner.

CONCLUSION
After going through the report it has been summarized that there are variety of the
different kind of the cost in general. Also report summarized that there are variety of the
different kind of valuation method as. After that report concludes the alternate kind of budget as
well as advantage and disadvantage of same. Then report explains the current pricing strategy of
the Prime furniture, as well as strategy of different competitor in the Quoted firm. After that
report concludes the position of the Prime furniture in the market, in the end concludes the way
different Quoted firm used to adopt the accounting tool.

REFERENCES
Books and Journals
Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
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International Financial Architecture: The Erosion of Multilateralism in International
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Farkas, M., Kersting, L. and Stephens, W., 2016. Modern Watch company: An instructional
resource for presenting and learning actual, normal, and standard costing systems, and
variable and fixed overhead variance analysis. Journal of Accounting Education. 35.
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management accountants. Qualitative Research in Accounting & Management.
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managing the lean enterprise. Productivity Press.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research. 31. pp.103-111.
Mills, D., 2018. Financial Reporting: A Case Study Analysis (Doctoral dissertation, The
University of Mississippi).
Ray, K. and Gramlich, J., 2016. Reconciling full-cost and marginal-cost pricing. Journal of
Management Accounting Research. 28(1). pp.27-37.