Management Accounting Techniques and Planning Tools

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
L.O.2: Apply a range of management accounting techniques.........................................................3
P3. Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................3
M2. Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents.........................................................................................................8
L.O.3: Explain the use of planning tools used in management accounting using budgets for
planning and control........................................................................................................................9
P4. Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.........................................................................................................................9
M3. Use of different planning tools and their application for preparing and forecasting budgets10
L.O.4: Compare ways in which organizations could use management accounting to respond to
financial problems.........................................................................................................................11
P5. Compare how organizations are adapting management accounting systems to respond to
financial problems.....................................................................................................................11
M4. Analyze how in responding to financial problems, management accounting can lead
organizations to sustainable success..........................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
For the internal purpose of the company - hence the name. Facts and figures are confidential o
management team and other decision-making individuals. There is not a set pattern or format or
reporting. Statistics are communicated according to the target audience, and therefore may or
may not include information as per their requirement. Reports can include both financial and
non-financial data as required. No formal audit structure is required for such reporting. Reporting
is done more than a year since information is used to improve decisions made for forecasting
schemes. In this project report management accounting techniques with advantages and
disadvantages of each has discussed. How management accounting methods can solve financial
problems of the company with effective tools and attain sustainable success for the company.
L.O.2: Apply a range of management accounting techniques
P3. Calculate costs using appropriate techniques of cost analysis to prepare an
income statement using marginal and absorption costs
Cost: During the production of any item, the total amount spent on it is called cost. There are
many prices like expenditure on raw materials, expenses on running the machine, salary of
employees, etc. The sum that is combined with all these expenses is called the cost of production
(Quinn and Oliveira, 2018).
Different costs and cost analysis:
Based on production; costs are of two types; direct and indirect. Where direct costs directly
associated with production process; while indirect costs are not directly associated with
production process. On the basis of occurrence two further types of costs; variable and fixed
costs calculated to identify standard cost of the product. Cost can be identified through two
methods discussed below:
Marginal costing: Marginal cost includes costs that vary with the level of production, while
other costs that do not vary with production are considered fixed. For example, the direct cost of
producing an automobile usually includes the cost of labor and parts required for the additional
automobile.

Absorption costing: In this cost technique all costs, whether fixed or variable produced, are
absorbed by total units. It is used for reporting purposes, that is, for financial and tax reporting.
Quarter 1 & 2
Calculation of product cost per unit:
Quarter
1
Quarter
2
Variable Cost (78000 ×
0.65) £50,700 £42,900
+ Fixed Cost £16,000 £16,000
Total Product cost £66,700 £58,900
÷ Total Units Produced £78,000 £66,000
product cost per unit £0.86 £0.89
Income Statement (Absorption)
Quarter 1 Quarter 2
Sales (66000 × £1/
unit) £66,000
Sales (74000 ×
£1/ unit) £74,000
COGS (66000 ×
0.85) -£56,100
COGS (74000 ×
0.89)
-
£65,860
Gross
Profit £9,900 Gross Profit £8,140
Less: Operating
Expenses:
Less: Operating
Expenses:
Selling & administ.
Expenses £5,200
Selling &
administ.
Expenses £5,200