Management Accounting: Measurement of Income Statements, Accounting Techniques, Planning Tools, and Role of MAS

This document provides an overview of management accounting, focusing on the measurement of income statements, accounting techniques, planning tools, and the role of MAS (Management Accounting Systems). It discusses the benefits and drawbacks of planning tools and how they can solve financial issues. It also explores the role of MAS in addressing monetary problems and highlights the skills required for management accountants.

MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
TASK 2...................................................................................................................................................3
P3. Measurement of income statements...................................................................................................3
M2. Accounting techniques to produce financial statements...................................................................8
D2. Interpretation of prepared financial statements.................................................................................8
TASK 3...................................................................................................................................................8
P4. Benefits and drawbacks of planning tool...........................................................................................8
TASK 4.................................................................................................................................................11
P5. Role of MAS to solve issues............................................................................................................11
M4. MAS to solve financial issue..........................................................................................................13
CONCLUSION.........................................................................................................................................14
REFERENCES..........................................................................................................................................15

INTRODUCTION
Management Accounting involves application of expert insight and skills in the framing
and collecting accounting information and data in a specific way as to facilitate managing
personnel in development of policies, guidelines and also in the scheduling and monitoring of the
procedure of enterprise. It presents the processes and concepts sufficient for efficacious planning
for picking among acceptable business actions and for oversight through appraisal and analysis
of performances (Macintosh and Quattrone, 2010). Prime Furniture ltd, a furniture
manufacturer corporation picked for this study-project. The report offers comprehensive
information about various accounting-systems, reporting-tools and planning tools for addressing
financial issues.
MAIN BODY
TASK 2
P3. Measurement of income statements.
Micro economic techniques:
Cost- In terms of accounting aspect, cost pertains to the money value of spending/expenses on
raw-materials, machine, consumables, goods, labour, services, and so on. This is the sum that is
described as expense in the financial reports.
Cost volume analysis- Cost Volume Analysis describes the behaviors patterns of profit figures in
responding to changes in costs and quantity. In other phrases, this is an evaluation of effect of
costs and volume on earnings. Popularly known as the CVP Analysis, a management team could
consider the threshold of sales at which corporation would be in no-profit-no-loss scenario with
this evaluation. This condition is called point of break-even (Otley and Emmanuel, 2013).
Cost variance- When actual costs are different from standard costs, it is termed cost variances.
When actual costs are lower than standard costs or when actual profit is greater than standard
profits, it is termed the positive variance. Also, on opposite, when actual costs are higher
than standard-costs or profits are lower, this is termed adverse variance.

There's a crucial range of vital approaches to frame financial statements and reports, like
absorption-method and marginal-method. Application of these techniques allow exploring of
different financial and non-financial aspect. These methods are described as follows:
 Absorption costing method- Under this method simply all manufacturing costs are
recognized separately to assess gross profit.
 Marginal costing method- Marginal costing method is mainly utilized for internal
monitoring, with aim of enabling supervisors to monitor and coordinate operational
activities. It is a managerial technique for the determination of the marginal costs and the
impacts on profits of variations in quantity or form of outcome by distinguishing the
overall costs into fixed costs as-well-as variable costs (Scapens and Bromwich, 2010).
Product costing:
 Fixed cost- These costs are costs that generally not shifts over the near term, even though
the corporation experience shifts in its overall sales volumes or other operation.
 Variable cost- These costs are cost which goes up and down in specific ratio to the
quantity of production.
 Standard costing- Standard costing is method of calculating the costs of the
manufacturing method. It is a cost accounting component that the producer uses, for
instance, to forecast its expenditures for the upcoming year on different costs, like direct
materials , direct-labor or overheads.
 Activity based costing- ABC is technique for more accurate assignment of overhead
expenses through attributing them to operations. After overall costs are allocated
to operations, costs which be allocated to costs items that apply activities. The framework
could be used to minimize overhead costs in a specific target manner.
 Role of costing in setting prices- this is worthwhile to perform a part in setting prices as
the business controls the rate in compliance with it. This is because when costs are higher
than estimated than that of values set by the corporations, conversely.
Cost of inventory:

 Inventory cost- Inventory cost isn't just price charged to buy the products, as well
as costs of holding and preserving the product for about as much as necessary to be sold.
This can be split apart into several categories namely ordering costs, carrying costs and
shortage-costs.
 Valuation methods:
FIFO- This methodology presumes that first-time inventories bought or produced are sold
whereas newer inventories are not sold. Thus the cost of the older stock is allocated to the
costs of the goods sold as well as the cost of the newest stock is attributed to the end of
the stock.
LIFO: This method is typically used to put accounting cost on stock. It is premised on the
idea that last product of inventory bought is first product to be released/sold.
Weighted average costing method- Weighed average periodic is undoubtedly the simplest
of all inventory approaches. Because the measurement is made at the ending of the
period, overall costs of the goods purchased for selling is measured and number of
total units is divided. It's beneficial to distinguish transactions from sales (Simons, 2013).
Calculations:

M2. Accounting techniques to produce financial statements.
In the commercial finance field, often income statements are arranged into absorption-method
and marginal-method systems. As with Prime furniture, profits are reported by absorption as well
as marginal-costing methods. A wide array of methodologies, excluding these, cover the
preparation of financial reporting, including traditional cost system, costing incidents, etc. The
estimation of the possible costs considered for contrast can be shown as connected in contrast to
the standard costing. Operational costs are distributed and measured by increasing activity for
various forms of operations (Soin and Collier, 2013).
D2. Interpretation of prepared financial statements.
As far as income statement produced above is concerned, it can be said that net
profits figure is 1900 GBP by absorption cost method. Net profits equate to 4 700 pounds,
form marginal cost system. Profit figure differential with these methods is mainly due to under or
over absorption of fixed-costs.
TASK 3.
P4. Benefits and drawbacks of planning tool.
Budgetary control- Budgetary control is budgetary term for controlling revenues and expenses.
In fact, that involves matching the real income or spending on a daily basis with the expected
revenue or expense to assess whether or not preventive measure is needed. Here are certain
aspects of budgetary control as discussed below:
Operational budget- Operating budget is budget anticipated for one or more prospective cycles of
earnings and expenditures predicted. The executive team usually formulates an operating

budget before the starting of year and indicates expected thresholds of activity throughout the
period. Here are certain major benefit and disadvantage of this budget, as follows:
Benefits- This is advantageous for company to handle their operations effectively by assessing
the actual productivity of different operations as well as forecast them.
Drawbacks- Classification of operations and allocation of costs is time consuming task in this
budget.
Cash budget- The cash budget is report of receipts and cash payment for a set period of time.
This is a report of cash inflows and cash outflows over a certain period. The cash budget shows
the likely revenue and payments of funds. In such cases , effective cash control is applied where
payments are higher than sales. Expenditures is smaller than revenue whenever there's surplus,
so the choice about how to employ surplus is made. Here are several benefit and disadvantages
of this budget, as follows:
Benefits- If cash is scarce and the distance is filled, it is handy in emergencies. A accurate bank
balance lets pay on due dates, which enables managers to reap the incentives of cash-balance.
Drawbacks- This budget only emphasizes on cash aspects and ignores other variables which
decrease the relevancy of this budget in strategic decision making.
Capital budget- It is a kind of budget for the procurement or maintenances of capital assets
like buildings and machinery. This is capital spending strategy for a corporation. Capital
spending is a duration of even more than 1 year of expenditures produced. It is used for
purchasing properties or extending the productive life of established properties; the financing for
a plant is an illustration of capital spending. The capital budgeting of plans concerned must take
care of the possible profitability (Ward, 2012). Two formulas for estimating the capital
expenditure are used for estimating the NPV or the intrinsic return on investment. Here below
are listed certain benefits and disadvantages of this budget, as follows:
Advantages – A comprehensive budget review assesses the budgetary condition
of respective company.

Drawback: Adjustments are challenging to make the biggest obstacle in this form of budget.
Pricing:
Pricing strategies:
• Penetration pricing strategy: This pricing initiative immediately lowers the prices of an item so
that a large part of the market can be readily accessed. The strategy is effective for consumers
cos of new company's cheaper price.
• Skimming technique- Skimming pricing approach is a pricing method in which a selling firm
initially decides the quality of a goods or services and lowers prices over period. The business
reduces the prices to draw another price-responsive group if the competition of first customers is
surpassed.
Companies assess pricing according to market trends and business operations: corporations
assess price rates according to competition. Prices are contingent on the key operations measured
and taken out.
Considerations of supply and demand – Pricing is economic concept in an environment of
supplies and demands. Units' or even other economic goods, such as labor or financial fluid
goods, are priced at a time where the prices sold (at present rates) is same, and that results in fair
financial output and use. The costs of certain goods would be set.
Strategic planning
SWOT Analysis- SWOT analysis can be initiated by an enterprise, company group, person or
team. In reality, analysis reflects a range of project goals. In order to analyses and externalise a
commodity or business, a transaction or a partnership, the SWOT approach may be utilized.
SWOT analysis can also assist to determine a specific point of origin, loop, demands for
products or technology (van der Steen, 2011).
Benefits- The SWOT analysis could influence an organization, a coordination system, a person
or team. In reality, the research will satisfy a variety of project targets. SWOT approach can, for
instance, be utilized to evaluate and externalization of a service or corporation, a mechanism or a

relationship. SWOT evaluation also helps to quantify the precise manufacturing source, sales
cycle, and commodity demands, or technical acceptance.
Drawbacks: The SWOT review is based on four types of assets, weaknesses, prospects and
threats in each area. However, the approach does not provide for a system to assess the
dependent variables over another. The real impact of each aspect on the goal cannot therefore be
measured.
M3. Role of various planning tools.
Companies are using different kinds of budgets to enhance financial choices. Their reports hold a
combination of plans, including the cash prediction, the annual budget and the budget model as
described above (Taschner and Charifzadeh, 2020). Both of these estimates could be used to
properly manage their liquid assets and schedule different tasks. These all expenditures have a
big part to play in the total metric of receipts and expenses. This is likely because the mangers of
this organization, in order to approximate recent operations, assess the measurements taken in
past years. It can thus be argued that the management practices on financial performance
predictive devices are too crucial to precise.
TASK 4
P5. Role of MAS to solve issues.
Monetary issues- Competition is growing and creating monetary problems in the current market
scenario. These challenges are determined by a lack of strategy formulation and management.
Moreover, financial difficulty is created by the lack of business, where companies seek to fulfil
various tasks. These are the few financial problems that most businesses face:
 Errors in accounting records- This may be defined as a deliberate or unintended figural
disturbance financial issue resulting to unacceptable money management. Unable to find
major transfer, investment opportunities, and so much more because of another monetary
problem. They face problems with their financial statements in the previously mentioned
Prime furniture limited.

 Inadequate protection of financial assets- The risk of losing capital expenditure is a sort
of problem. This problem is that investment control has been reduced fixed and unfixed.
As a result, companies face other difficulties, such as staff shortages and more.
MA methods to respond financial problems:
 Benchmarking- This process includes the relevant indicators of a corporation to identify
adverse variances by competing companies. The institution will therefore realise why the
financial crisis has contributed. In the business sector mentioned above, they use this
framework to address their fundamental monetary hurdle. The other companies are linked
to their financial factors.
 Key performance indicator- They can be described as a methodology coherent with the
correct financial and nonfinancial assessment (Doktoralina and Apollo, 2019). The cost
aspect is the productivity, expenses etc. of the corporation, whereas the non-financial
aspects involve employee stress levels, links, etc.
 Financial governance- It can be identified as a method that properly records all monetary
operations of the company for a specific period. This review incorporates current money
problems and utilises methodological concepts to resolve them.
Management accountant skills:
 Better communication skills- The successful accounting firm must be supplied with
greater effective communication so that financial results can be accessed within the
corporation.
 Effective knowledge of accounting concepts- In order to produce financial data, accounts
should also have based systems resources.
Such accounting skills can be used to fix problems with money. It is because, on the basis of this,
companies can fix any kind of scenario and can advisor management consultants to find
solutions.

Comparison-
Basis of
difference
London beer factory Orbit beers
Monetary issue Their financial issue in this corporation
has to do with accounting errors. It
prohibits them from studying actual
company data.
The obstacle affecting the business is
the lack of asset security. As a result,
the price of property cannot be
tracked and evaluated.
Techniques to
solve issues
This firm used benchmarking
technology to identify the monetary
conundrum (Zandi, Khalid and Islam,
2019). They contrasted their financial
statements with yet another corporation
using this research to identify mistakes
and therefore addressed their
conundrum.
The primary efficacy measurement
techniques were also utilised. They
looked at the financial implications of
this approach and mentioned their
problem. By comparing the accurate
cost of the resources with the usual
value, it was facilitated.
M4. MAS to solve financial issue.
Implementing the MAS in lesser cycles is the way to solve money issues. Such as the Prime
furniture previous section, their problem was fixed by direction of a price optimization scheme
(Aureli, Cardoni and Lombardi, 2019). Though its income was insufficient, with the
implementation of the above-mentioned accounting systems, they evaluated their pricing
structure, and the money issue of this business was addressed.
D3. Different planning tools to overcome from issues.

Major outcome measurement techniques were also utilized. They examined the financial
consequences of this approach and addressed their problem. The calculation and comparison of
the true worth of the funds with the usual value aided this.
CONCLUSION
On the grounds from the above proposed project, it can be implied that MA is beneficial to large
companies for managing different facets. The study states with different approaches, like
absorption and marginal costs, for order to prepare the revenue report. The study also explored
the resources for order to prepare, alongside their role in trying to solve money difficulties.

REFERENCES
Books and journal:
Taschner, A. and Charifzadeh, M., 2020. Management accounting in supply chains–what we
know and what we teach. Journal of Accounting & Organizational Change.
Doktoralina, C. and Apollo, A., 2019. The contribution of strategic management accounting in
supply chain outcomes and logistic firm profitability. Uncertain Supply Chain
Management, 7(2), pp.145-156.
Aureli, S., Cardoni, A., Del Baldo, M. and Lombardi, R., 2019. Traditional management
accounting tools in SMEs’ network. Do they foster partner dialogue and business
innovation?. Management Control.
Zandi, G.R., Khalid, N. and Islam, D.M.Z., 2019. Nexus of Knowledge Transfer, Green
Innovation and Environmental Performance: Impact of Environmental Management
Accounting. International Journal of Energy Economics and Policy, 9(5), p.387.
Macintosh, N.B and Quattrone, P., 2010. Management accounting and control systems: An
organizational and sociological approach. John Wiley & Sons.
Otley, D and Emmanuel, K.M.C., 2013. Readings in accounting for management control.
Springer.
Scapens, R.W and Bromwich, M., 2010. Management accounting research: 20 years on.
Simons, R., 2013. Performance Measurement and Control Systems for Implementing Strategy
Text and Cases: Pearson New International Edition. Pearson Higher Ed.
Soin, K and Collier, P., 2013. Risk and risk management in management accounting and
control.
van der Steen, M., 2011. The emergence and change of management accounting routines.
Accounting, Auditing & Accountability Journal. 24(4). pp.502-547.
Ward, K., 2012. Strategic management accounting. Routledge.