Management Accounting.

Management
Accounting

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P.1. What do you mean by management accounting and explain the requirements of various
types of management accounting system ?..................................................................................3
P.2. For the purpose of management accounting reporting, different methods are used explain?
.....................................................................................................................................................5
M.1. Benefits of management accounting system & their applications are evaluated in context
to Prime Furniture?......................................................................................................................6
D.1. Evaluate how management accounting system and reporting is integrated?.......................7
TASK 2............................................................................................................................................7
P.3. By using most suitable techniques of cost analysis, cost is to be calculated and by taking
helps of absorption and marginal costing, prepare statement of income?...................................7
M.2. Application of range of MA techniques accurately and produce suitable financial
reporting documents?...................................................................................................................8
D.2. Produce financial reports which apply and interpret data accurately for wide range of
business activity?.........................................................................................................................9
TASK 3............................................................................................................................................9
P4 Advantages and disadvantages of using planning tools for budgetary controlling................9
M3 Analysis of use of different planning tools and their application for preparing budgets and
forecasts.....................................................................................................................................11
M.3. Analyse the use of planning and their applications for the purpose of preparation and to
forecasting budget?....................................................................................................................11
Task 4.............................................................................................................................................12
P5 Response of management accounting systems to financial problems..................................12
M4 Analysis of response of management accounting to financial problems lead to sustainable
success.......................................................................................................................................14
D3 Evaluation of responses of planning tools to appropriately solve financial problems........14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management Accounting is the accounting branch in which accounting is presented or
provided to management team in appropriate or systematic manner so it become easy for them to
perform the functions related to planning, organising, staffing, directing, controlling , decision
making so that smoothly the business can run. The organisation which was chosen in this
assignment is Prime Furniture. It is the brand that deals in various latest designs of furniture at
affordable prices. There are so many shops established in different locations of country United
Kingdom (Alyousef and Mickan, 2016). The topics that are included in respective project of MA
are definition of management accounting and their system. Application of wide range of
techniques of management accounting. Describe in detail the use of planning tools that are most
commonly used in management accounting. Compare different ways where company use the
tool management accounting to handle various problems that are relates to finance.
TASK 1
P.1. What do you mean by management accounting and explain the requirements of various
types of management accounting system ?
Management Accounting- It includes two words first one is management and the other is
accounting. It is based on accounts that tends to raise managerial efficiency through providing all
relevant information and data that are important for every manager s in effective decision
making. To assist the management by supplying the information which is necessary for
accounting. Their scope is broad as cost accounting, statistic and financial accounting are linked
to the concept management accounting. The future based transactions are the main concern of it.
Management Accounting system- As it represents the internal confidential reports as these
provide support for top managers to take the decision which is effective.
Kinds of management accounting system
 Prise optimisation: It is also consider as important factor when furniture practice develops
pricing strategies. Thus online price optimisation technique need competitive price
comparison to take best decisions. There is constantly variation in prices are there in the
world of digital environment so it necessary for prime furniture to search the point where
best sales ratios are to be achieved with competitive prices that gives several benefits
continuously to retailers (Bedford and Speklé, 2018).

 Cost Accounting system: It is most suitable method to adopt by all manufacturing concern
to calculate cost. Apportionment of cost is also done in this system on the basis of three
elements such as fixed, variable and overheads cost. For Prime furniture it is necessary to
calculate cost of different products and maintain records so that their managers fix the
prices of items with including their profit margin.
 Stock management: It is a computer based system that is to be use in the organisation to
track orders, deliveries, sales etc. It is most common system that are adopted by furniture
industry to make records of inventory. With the help of it Furniture practice eliminates
the issues of under and over inventory. Highest in first out policy is adopted by famous
furniture brands. Due to availability of sufficient stock with latest designs in their stores
tends to increase value of company.
Comparison of MA and FA
Basis Management accounting Financial accounting
Define It is a system which is
providing relevant and useful
details to the management
which directs them to
formulate an effective plans
and policies.
It is a system which mainly
focuses on preparing financial
statements includes profit and
loss account, balance sheet etc.
so as to ensure about their
existing financial position in
market.
Parties involve Internal parties such as
managers and management
who have authority to make
plan and monitor the business
activities.
External parties such as
investors, financial institutions
etc. who have authority to
make financial decision.
Time focus Future perspective Historical perspective

Rules & regulations Not any restrictions by any
outside parties (Chiwamit,
Modell and Scapens, 2017).
Must require to follow
IRS/GAAP and prescribed
formats.
P.2. For the purpose of management accounting reporting, different methods are used explain?
Management accounts are also described as managerial or cost accounting, stressing
organizational or data documentation accomplished and the financial accounting. MA is also
recognized as the cost accounting. These reports are employed for decision-making, policy,
planning and success assessment. In the light of the criteria of these reports during the record
attempting to keep and accountability period, such reports must be properly planned because
some important decisions rely on them.
 Budget reports - This reports for different small firms, big corporations and agencies are
very important for the evaluation of company's results. Although every organization
needs a total budget to understand the corporation's master plan. An enterprise budget
is planner for recognizing defaults and irregularities in the corporation's collecting
process, if those problems occur, stringent measures must be enforced because cash flows
are essential for all companies. Both poor debit must be deducted. Accounts receivable
accounts are also highly relevant.
 Cost managerial accounting reports- Managers measure the costs of all items produced
in this study. For instance, catering assessment would take into account all expenses for
raw materials, staff, overheads and added expenses. The product processes then split the
sums by the quantity of product. These reports offer the managers the right to identify the
costs of each commodity and these report contains all summary detail. These reports
continually measure and track profitability, and simple – the decreased pictures of such
expenses go into processing, measured on the basis of past encounters, and there are
possibilities for unpredictable situations where the wide budget provides (Dahal, 2018).
 Account receivable aging reports – When there are defaulters in the organization or the
breakdown of consumer times helps management to assess default problems and
recognise problems in the method of organization collection, then stricter procedures
needs to be enforced if those problems occur so because cash flows is very important for

business activity. Any poor debit must be written down. Accounts receivable accounts are
also very relevant for this report.
 Cost managerial accounting reports- In this kind of report, management accounting shall
measure the costs of each article that is produced. For e.g., in respective
company analyses are carried out by evaluation of raw materials, labour costs,
overheads and other added expenses. The Furniture costs then splits the sum by the
amount of items manufactured. This report includes all summary details and authorizes
the management to embrace price for each item. Profit-margin is measured and tracked
by these reports, as well as there is a clear description of such costs heading into
manufacturing (Murthy and Rooney, 2018).
M.1. Benefits of management accounting system & their applications are evaluated in context to
Prime Furniture?
Different systems provide different benefits, if company adopts management accounting
system to achieve desired objectives. Here we explain few management accounting systems with
its advantages.
Benefits of inventory management system
 The system assists furniture practice to satisfy their clients demands whenever it requires
by keeping relevant information related to stock when they engaged in manufacturing
activity helps to avoid problems of over and under absorption.
 It enables to cut all the unnecessary expenses and tends to increase benefit ratio.
Cost accounting system advantages
 Helps in taking effective decisions regarding labour and machines. By using this system
“Furniture Practice” analyse whether there is need to do replacement or not and it helps
to find and compare cost of production through use of machinery or labour and choose
the most suitable option which involves less cost to produce.
 It helps to do measurement of cost and helps to analyse where Prime practice need
improvement, in this way it supports managers or cost executives to remove the cost of
inefficiency. As well as to consolidate those factor that offers great efficiency.

D.1. Evaluate how management accounting system and reporting is integrated?
Integration b/w management accounting system and accounting reporting is very
necessary in the organisation Prime furniture because with help of these only effective plan is to
be formulate and decision making is done to achieve goals on time. In managerial reports,
recording of all transactions of prime furniture is to be done and it became possible only if
appropriate systems are used by smart workforce on time (Paolone, and et.al., 2020).
TASK 2
P.3. By using most suitable techniques of cost analysis, cost is to be calculated and by taking
helps of absorption and marginal costing, prepare statement of income?
Marginal costing technique is a form of costing procedure which takes account the cost of
developing one additional unit. In simple words, it only takes into account variable costs.
On other hand, the absorption costs method takes into account fixed and variable costs. Fixed
costs here is cost which does not adjust in shorter term depending on the production units, such
as rental costs, insurance costs, etc., while variable cost depends on the units and shifts as
each units produced, such as the direct material costs, direct labour costs, etc.

Analysis: Here, as shown in above computation of profits, Difference in profit/loss
assessed by applying marginal and absorption method is due to over or under absorption of fixed
overheads.
M.2. Application of range of MA techniques accurately and produce suitable financial reporting
documents?
Financial reporting documents like cash flow statement, P&L, Balance sheet can be
preparing with support of different techniques of management accounting. Finance team of
Prime furniture tends to analyse their financial position by observing various documents. as well

as with help of different techniques like cost accounting system they tend to find the cost of
production and abnormal losses are also be calculated with the help of this as due to this, cost of
the product leads to effected and finally it makes negative impact on profit and business growth.
D.2. Produce financial reports which apply and interpret data accurately for wide range of
business activity?
Every company whether small or large should prepare their financial reports, for that
proper accounting is to be done by accountants by using different software like SAP, Busy ,
Tally etc. To identify true and fair position of business, members of finance analyse and prepare
profit and loss statement and then prepare balance sheet after doing adjustments. At last B/S is to
be finalise by chartered accountant and in Prime furniture these statements are stamped by CA
with their signature as this shows that the respective document reflects true position. It is
necessary to prepare with great attention because shareholders invest their amount after
analysing financial documents of the company (Prowle and Lucas, 2016).
TASK 3
P4 Advantages and disadvantages of using planning tools for budgetary controlling
Budget pertains to statement that is formulated utilizing historical figures and yet looks
forward to predicting the long term course of elements. The organization shall evaluate different
budget items, such as cash spending plan sales spending plan expenditure budget financial plan,
etc., to formulate master budget. Such budgets represent not only planning tools, but
also standard for tracking and regulating activities. Budgetary control pertains to the centralized
controller of budgetary analysis wherein formulated budgets are contrasted with overall results in
order to assess the variances (Quinn and Hiebl, 2018).
Advantages of planning tools for budgetary control:
Organizations utilize planning techniques like the distinct revenue budgets, sales budgets,
funds budgets etc. prepared for the acquisition or maintenance of financial assets. The principal
benefit of utilizing planning tools would be that it assists the management to evaluate the
direction it needs to take towards progress and expansion. For instance, budgets such as cash
budget may help respective company to avoid over as well as under liquidation. These tools will
help the corporation to facilitate better cooperation and utilize of available resources. Corrective
measures further enable to minimize ambiguities and waste of resources.

Disadvantages of planning tools for budgetary control:
Planning tools with respect to budgetary controlling mechanisms include budgets that are
both budgetary and structural in essence, such as cash budget, capital-fund budget, investment
budget, etc., including non-monetary budgets, such as fixed as well as variable expenses budgets,
etc. They are designed on the bases of historical statistics to assess course of future. That's one
of key drawbacks of using financial planning tools for controlling operations. For instance,
Prime Furniture planned the expenditure budget on base of preceding data, but inflationary
situation shifted significantly in the future, making management of business inefficient. This will
then make the budget allocation unsuitable for usage as a benchmark to be calculated against.
Developing realistic budgets is often not straightforward and time-consuming, that is not better
for financial management of independent companies.
Cash budget:
It is budget that used measure cash and cash inflows and outflows in a given business
operation. This will assist the corporation's management mechanism in determining the various
sources, form and outflows of cash into an entity. It will allow prime furniture management to
find capital and cash accessibility for the budget time.
Advantages: It allows the organization to prevent liquidation and winding up situations. It allows
the organization to schedule and smooth out business activities. This also provides the tools to
support the business and allows the organization to expand (Shi, 2019).
Disadvantages: cash budget generally based on cash rigidity calculation of the
organization. The rigidity of the market climate, which can further lead to failure for businesses,
is an unpredictable condition.
Sales Budget:
In a fiscal year, this is expected to sell the item. It helps the organization coordinate its
planning manufacturing process. Prime furniture management may use this to assess the time
during which sales are declining, and then offer some specific information that is important to
expand promotions.
Advantages: The preliminary planning of master budget is detailed sales budget. This
offers a reliable evaluation within the organization of the estimate which management plan must
obtain to efficiently execute other operations.

Disadvantages: The market situation is so unpredictable that inaccurately estimating sales
that may lead to problem of over-production and output in the business.
Capital Budgeting:
These are the approaches a company adopts to evaluate the different options accessible
for funding the new investment creation and extension of the capacity expansion. The
organization's managers can choose from many frameworks, which include NPV, payback as
well as many other.
Advantages: Capital investments that are required to render big projects. What are
actually connected to various capital budgeting instruments that allow the business to prevent the
risks of wrong investment that are important and beneficial to the financial stability of the
organization (Hoozée and Mitchell, 2018).
Disadvantages: One of organization's main instruments is budgeting of capital, however
some significant forecasts are also involved. But if any error in the corporation's forecast will
take growth trail away and decrease the corporation 's profitability These are long-term facets of
the business and are essentially irreversible.
M3 Analysis of use of different planning tools and their application for preparing budgets and
forecasts
Forecasting relates to rendering future projections. The budgets act both as strategy
resources and as management tools for the enterprise. They look towards the possibilities and
foresee as their goals. Prime Furniture may use the multiple planning tools to prepare budgets
and predicting. Planning tool helps to increase the efficiency of the corporation's longer-term and
shorter-term strategies. It lets the organization measure its performance towards average
performance in market sector. Prime Furnitures should use this approach to plan strategies and
anticipate the improvements that they will be needed to implement in their procedures to
establish competitive advantages.
M.3. Analyse the use of planning and their applications for the purpose of preparation and to
forecasting budget?
Various tools are used by the organisation to manage the expenses which is involved at
the time of production Few examples of the tools that are most commonly used are forecasting

tool, contingency tool etc. as with these tools unnecessary expenses are eliminated which are not
needed to prepare budget. The brand furniture practice should use these tools for the purpose to
make reduction in operations cost and complete the activities that are involved in the business
within pre-determined allotted budget amount. Like , planning tools of forecasting assist
management to make calculation of proper estimation of future expenses which makes easy for
management to formulate actions and plans in advance to reduce wastage of funds.
Task 4
P5 Response of management accounting systems to financial problems
Financial issues correspond to matters that could interrupt financial management
of entity. Financial issues can vary from simple delays to severe risks which can contribute to a
breakdown of the company as well. This is also very necessary for managers to make significant
attempts on facets of the financial management, including the planning of budgets, expenditure
decisions, sources of funding, capital structures etc. Few financial issues facing Prime Furniture
management are described below:
Cost rises: two key causes can disbalance firm's financial sustainability one of which is cost
increasing. The corporation's cost structure may vary from the projected one since raw material
rising costs as well as other associated cost or even other potential explanation for the rise
in costs of Prime Furniture may involve inadequate financial planning, employee productivity
not quite as required and the ongoing use in commercial operations of old tech, etc (Kumarasiri,
2017).
Decrease in revenue: A decline in sales is also a factor capable of undermining financial
sustainability within business. The principal income of a corporation is sales sources and, if a
corporation is faced with a sales downturn due to these factors as market uncertainty or the
disease outbreak recent, it cannot sustain a profitability and can contribute to a downturn
in company's financial health. The inadequate marketing campaigns of Prime Furnitures can
justify this downturn.
Tools and techniques used to solve financial problems:
 Benchmarks – Benchmarking is method used for assessing the factors by which the
company wants to maximize its efficiency against best performance within the sector. In
addition, other organizations' performance and operating processes are analyzed in order

to recognize the best practices which will allow enterprises to achieve their own progress
and performance targets. This allows management to define challenges as well as
solutions.
 KPI – Key Performance Indices or KPIs are a method to track financial as well as non-
Financial variables that influence the corporation 's fiscal management. The corporation's
effective financial planning is directly related to the organization's performance, growth
and advancement Managers concentrate on certain resources of company which can be
proven as company's assets.
 Financial governance – This is tool cum process wherein monetary transactions of the
firm are analysed from source then regulated, controlled and monitored to ensure the
streamlined process of financial management. It asserts that if all the transactions are
tracked from sources, all the issues will be identified and the path to resolution can be
decided. This tool ensures sound financial health of the company.
Comparative analysis of financial problems of two competing firms
Particulars Prime Furnitures VIG Furnitures
Financial problem In recent years, the company's
income has decreased and
therefore reduced its
profitability.
Since all costs go well beyond
budgetary norms, cost
structure of the organization is
disrupted.
Tools and techniques used Key performance metrics –
This has been seen
that primary trigger is
the KPI's benchmarking,
accompanied by recent
pandemic, which revenues
of company's goods have
decreased due to the business
turmoil induced by Brexit (Li,
Financial governance –
Business reviewed and
monitored all its money
transactions. Analysis reveals
that here raw materials have
risen because of pandemic. In
addition, other logistics costs
have risen. Furthermore,

2018). profits declined, undermining
the company´s financial
management.
MAS used to resolve issue The organization shall use its
price management method to
recover its customers. In those
cases, too, differential price
policies would be beneficial.
In addition, businesses must
change their marketing
practices and implement
additional deals such as
discounts, deals etc.
In accordance with the
revision of budgetary
checks, cost accounting system
can be employed by the
organization. With its support
business, the variances can be
calculated and required
adjustments made. Business
should undergo adjustments to
supplier arrangements and
pursue favourable terms, such
as reductions or deferred pays.
M4 Analysis of response of management accounting to financial problems lead to sustainable
success
Often businesses face such issues during business activities which can lead to
the financial planning, processes and administration disruption. Such difficulties may usually be
categorized into two categories – one which raises the company's costs or obligations, and one
which decreases profits or resources. For instance, when there is pandemic lock-down instability
in the industry, consumer orders could fall and profitability of the organization could decrease. In
addition, issues may occur due to poor budgeting, underperformances of standard personnel or
the use of outdated business technologies, etc.
D3 Evaluation of responses of planning tools to appropriately solve financial problems
Planning tools serve a significant role in order to address financial issues faced during
business. In order to define and resolve discussed financial issues, the management applies
different methods and tactics Corporations utilize KPIs, financial governance, the benchmarking,

etc. methods of preparation. Prime Furniture may use these resources to initiate strategies and
enable management to prepare budgets and patterns that lead to strategic decision-making.
CONCLUSION
On the basis of analysis, it is to be conclude that it is very important for business to do
management accounting. For this purpose, transactions related to money are recorded and
financials data of every year are maintained in appropriate manner so that actual financial
performance of the business is to be judged. It is the responsibility of accountant in every
business to make correct entry of transactions and place it in correct head in accounting software.
Chartered Accountant of the company is liable to prepare financial statements such as Balance
sheet, P&L, cash flow statement. And net profitability can be calculated by manufacturing firm
by using various methods of costing. Apportionment of cost is become possible only due to
effective cost accounting techniques. To protect the organisation from financial loses various
suitable tools must be utilising by organisation like bench marking, key performance indication
etc. so that business performance is observing.

REFERENCES
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