Management Accounting Techniques for Financial Statements

This report discusses various management accounting techniques used to prepare financial statements and resolve monetary issues. It covers topics such as marginal and absorption costing methods, calculation of costs, interpretation of financial statements, limitations and benefits of budgetary control, and use of planning tools. The report also explores pricing strategies, supply-demand considerations, and ways to respond to financial problems for sustainable success. The case study focuses on Prime Furniture Limited.

MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
TASK 1.......................................................................................................................................................3
Covered in PPT.......................................................................................................................................3
TASK 2...................................................................................................................................................3
P3. Calculation of costs as well as preparation of financial statements under marginal & absorption
costing method........................................................................................................................................3
M2. Accounting techniques which are used to produce financial statements..........................................7
D2. Interpretation of the developed financial statements.........................................................................8
TASK 3...................................................................................................................................................8
P4. Limitations as well as benefits of planning techniques of budgetary control.....................................8
M3. Use of various planning tools as well as their application for preparing & forecasting budgets....10
TASK 4.................................................................................................................................................10
P5. Examination of ways which help organisation in order to respond their financial problems that will
have sustainable success........................................................................................................................10
M4. MAS used to resolve all financial issue..........................................................................................11
D3. Significance of financial plans for the planning as well as managing monetary resources which can
contribute in order to overcome from problems related to finance........................................................11
CONCLUSION.........................................................................................................................................12
REFERENCES..........................................................................................................................................13

INTRODUCTION
The term management accounting refers to the method of making an effective internal
reports with the help of both financial as well as non financial data. It has been said that there is a
wide range of tools used by finance department which includes marginal, absorption and so on
for preparing financial statements in a systematic manner. The present report is based on Prime
furniture which is an East London organization decided to start a training session in November
2019. For this, they are going to prepare a report which includes different aspects. The current
report consist of detailed information associated with different types of accounting techniques,
use of different management system, planning tools so that they will be able to resolve monetary
issues.
MAIN BODY
TASK 1
Covered in PPT
TASK 2
P3. Calculation of costs as well as preparation of financial statements under marginal &
absorption costing method.
Micro economic techniques:
Cost- This is the element which define as the whole amount of expenses which arise for
completing different sort of activities in an effective manner. These cost consists of variable
cost, fixed cost, direct and indirect cost.
Cost volume analysis- It is said that the cost-benefit analysis define as a strategic approach
which consist of the weaknesses as well as strengths of the selection which is used to identify the
most suitable method. This is used in order to gain benefits at the time of maintaining costs
which is define as the cost / benefit study.

Cost variance- This is the another most essential element which is defined as the procedure of
calculating variance among actual as well as estimated cost. It has also been said that cost
variance shows in both adverse and in favorable aspects.
In addition to this, it has also been said that there are ample number of approaches which
consist of absorption as well as marginal methods within financial reports. All these cost are used
in order to develop financial statements. In this context, some of these costing techniques are
going to be discussed as follows:
 Absorption costing method- This type of costing technique defines as the allocation of all
the cost in order to conduct different activities in an effective manner. The overall cost or
expenses of the product and item is usually considered as fixed as well as non-fixed costs.
 Marginal costing method- This method can effectively be understood as the approach of
examining the whole cost which is involved in order to perform various operations. In
this context, fixed costs are mainly considered as time cost whereas unit costs as variable
costs.
Product costing:
Fixed cost- This type of cost is said to be the cost which cannot be modify or change due to any
kind of modifications in the manufacturing volume.
Variable cost- If talking about this type of cost it is said that this is changeable or can easily be
affected due to modifications in their production volume.
Standard costing- This is the factor which combines the overall expected expense with the actual
expenses in the accounting records. Apart from this, the difference among planned as well as in
the actual costs needs to be reported as indication.
Activity based costing- This type of costing method defines as the operational tasks which is
usually calculates the costs related to each and every operation as per the actual use of product as
well as service.

Role of costing in order to set prices- It has been analyzed that costing plays very essential role
in order to effectively set the prices. It is said that higher cost of the product if the product consist
high quality then company set high prices and vice versa.
Cost of inventory:
Inventory cost- Inventory costs define as the expenses of buying, acquisition, transportation
along with the better cost management. Different sort of inventory cost are going to be discussed
as follows:
 Ordering cost
 Purchasing cost
 Carrying cost
 Hiring cost
Valuation methods: There are different sort of valuation methods from which two main
elements are going to be discussed in a detail manner:
 First in first out method- This one is the method linked with talking out the stock in the
sequence which is first come first out.
 Last in first out method- If talking about this type of method it is said that this is linked
with taking all the stock for their manufacturing which comes in the last within the
warehouses.
Calculations:
Quarter 1
Particulars
Amount (in
￡)
Sales 66000

Less: Cost of sales
Opening inventory 0
… ….production cost (78000*0.65) 50700
Less: Closing stock (12000*0.65) 7800
42900 42900
Contribution 23100
Less:
… ….Fixed overhead 16000
…. ….Fixed & selling expenses 5200
21200
Net profit 1900
Quarter- 2
Particulars
Amount (in
￡)
…. ….Sales 74000
Less: Cost of sales
Opening inventory (12000*0.65) 7800
….. ….production cost (66000*0.65) 42900

Less: Closing stock (4000*0.65) 2600
48100
Contribution 25900
Less:
…. ….Fixed overhead 16000
…. ….Fixed & selling expenses 5200
21200
Net profit 4700
… ...Reconciliation
… ...Working note Q1 Q2
… ...Variable costing profit 1900 4700
… ...Opening inventory 0 7800
… ...Closing stock 7800 2600
Absorption costing profit 4300 3100
… …Opening inventory 0 10200
…. …Closing stock 10200 3400

M2. Accounting techniques which are used to produce financial statements.
Most of the income statements are mainly structured as well as designed as per the
marginal and absorption costing system within the field of financial accounting. If talking about
Prime furniture limited, profits statements of the company are developed by using absorption
along with incremental costing methods and strategies. It has also been said that most of the
financial techniques includes preparation of financial statements which consist of standard,
activity based costing approaches and so on. In relation to the standard costing system it has been
identified that this technique is related with the estimated future costs whereas costing based
approach is associated with the operation which is distributed as well as evaluated by enhancing
the behavior of different types of activities.
D2. Interpretation of the developed financial statements.
In relation with the above developed income statements, it can easily be concluded that
the overall value of the net profit is around 1900 pounds which is under the absorption costing.
Whereas in context of marginal costing the net profit is 4700 pounds. The main reason of this
variation in the whole profit is the consideration of given cost in various ways under both the
approaches.
TASK 3.
P4. Limitations as well as benefits of planning techniques of budgetary control.
Budgetary control- This define as the sort of approach which tries to regulate all the monetary as
well as non-monetary outcomes with the assistance of lots of various budget. In this context,
budgeting position is essential as it help in managing all the financial strategies of the business
organizations. Different types of budgets are going to be discussed as follows:
 Operational budget- This type of budget help in making it possible for the top
management team of the company in order to estimate the required quantity of raw
materials which is used to complete the operation in an effective manner. Managers of
Prime furniture limited. take all the corrective measures by using this method which leads
them towards the development of effective results.
Benefits- This type of budget is beneficial for business entity so that they can effectively
track the consumption of available resources.

Drawbacks- The major drawback related to this budget is that it requires lot of time and
cost which affect the overall performance of the company.
 Cash budget- This is the type of budget which is related with all cash sales as well as
expenses along with the emphasis on expectations for specific accounting duration. Cash
budget is a document which is usually developed for all the external factors which cannot
be modified easily. In relation to Prime Furniture limited, this type of budget is prepared
by the accounting managers.
Benefits- Benefits of this budget for the companies is that it will aid in managing day to
day income and cash expenses.
Drawbacks- This type of budget have a drawback which id that it is based on the
assumptions which is not accurate and rely on further financial plans.
Pricing:
Pricing strategies:
 Penetration pricing strategy- This is the type of pricing strategy which initially lower
down the cost of product in order to reach at the top position of the market. This strategy
works for those consumers who easily move forward to the companies due to their cheap
prices.
 Skimming pricing strategy- Another pricing tactic says that marketer initially fix high
cost for their products and then reduce after a limited time period.
How competitors determine prices- It has been said that business organization set their product
price as per the market trends as well as according to the competitors. This will aid them in order
to set their price in an effective manner.
Supply-demand consideration: Supply- demand define as a price-determination economic
concept which says that price of a commodity like labor as well as liquid financial assets, needs
to be differ until the whole quantity needed is settled down in a particular situation. This needs
to be equal to the current prices which help in a balanced economic demand and supply.
Strategic planning:

SWOT Analysis- This type of method is associated with examining the strength, weakness,
threat as well as opportunities of a business entity which also includes some benefits and
drawbacks.
Benefits: SWOT analysis help in understanding the internal as well as external situation of the
company which have the capability to influence their overall performance. It has also been said
that SWOT analysis aid in order to determine specific source of their supply, product demand,
business cycle along with technology implementation.
Drawbacks: SWOT analysis define as the four sets of vulnerability, strong points, possibilities
as well as risks but does not provide effective system in order to list the value of a single element
over another.
M3. Use of various planning tools as well as their application for preparing & forecasting
budgets.
There are different sort of budgets which consist of Cash budget, operational budget as
well as capital budget within Prime furniture limited. All these elements can effectively be used
in order to manage their money and assets and plan all the activities in an effective manner. It
has also been said that budgetary management is a forecasting devices which is essential to
effectively and reliably complete the project.
TASK 4
P5. Examination of ways which help organisation in order to respond their financial problems
that will have sustainable success.
Monetary issues- The competition in current business scenario is enhancing which leads towards
monetary problems. In simple terms, all the financial problems develop from the shortage of
revenue outlets which affect the overall business functioning in an adverse manner.
 Issues in accounting records- This define as a kind of financial problem associated with
the accidental distortion of facts and figures, which leads towards the incorrect
development of accounts. In relation to Prime furniture limited, it is said that they face
the negative influence of preparation of financial statements.

 Inadequate protection of all the financial assets- It has been said that the risk of losing
investments comes under investment issue which arise due to loss of all the fixed as well
as non fixed assets.
MA methods in order to respond financial problems:
 Benchmarking- This is the strategy which is used by business entities in order to
compete with the targets of examining negative variance. As a result, business entities
can identify the elements which affect the overall financial factors. Prime furniture
limited use this method in order to identify their monetary issues.
 Key performance indicator- It is described as an effective method associated with the
accurate analysis of financial as well as non-financial aspects. The financial factors
covers the manufacturing or productivity of a business entity whereas non-financial
aspect includes stress of employees, relation and many more.
Comparison of two companies in order to resolve their financial issues with the help of MAS:
Basis of
difference
London beer factory Orbit beers
Monetary issue Their biggest financial issue is
associated with the errors in their
accounting. This as a result prohibits
them in order to learn actual business
details in an effective manner.
The main issue confronting the
business entities is related with the
absence of asset protection. This as a
result, affect the valuation of
properties which cannot be monitored
as well as assessed.
Techniques to
solve issues
This is the business entity which is
using benchmarking technology in
order to solve their financial problem.
They contrasted all their financial
records with another business entities
in order to resolve their mistakes.
They are the one who adopt key
indicator technology for the best and
most suitable results. They examine
the financial implications and then
addressed their issue.

M4. MAS used to resolve all financial issue.
It has been analysed that the only method is to resolve all the monetary issues within
limited time period, MAS is used by finance manager. In relation to the Prime furniture limited,
it has been concluded that the issues resolved in an effective manner, price optimisation system
is an approach which is used by managers in a well defined manner. It has also been said that the
income of the company was not sufficient which is checked by them with the help of costing
method they take effective decisions which increases the overall performance of the company in
an effective manner.
D3. Significance of financial plans for the planning as well as managing monetary resources
which can contribute in order to overcome from problems related to finance.
The budgets is one of the most essential element which define as the financial plans
which are associated with the accurate financial appraisal procedure. It has also been identified
that there are ample number of budget used by finance such as cash budget and operational
budget. These techniques are used by Prime furniture limited in order to prepare their financial
statements in an effective manner. In addition to this, it has been said that all these resources are
quite essential in order to measure the variance which will aid in solving all the issues.
CONCLUSION
With the assistance of above mentioned it has been said that Management Accounting is
one of the most effective approach used by business entities for managing different aspects. It
has also been identified that the report concludes that there are different sort of techniques which
aid in preparing all the income statements in an accurate manner with the help of absorption as
well as marginal costing. Along with this planning tools are the most effective method used by
finance manager in order to resolve all the financial resources in an effective manner.

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