Management Accounting: Costing Methods, Techniques, and Financial Reports

This project report discusses the importance of management accounting in analyzing positive outcomes for a company. It covers topics such as costing methods for evaluating net profit, various management accounting techniques, and the development of financial reports. It also explores the advantages and disadvantages of planning tools used for budgetary control. The report concludes with an analysis of measures to improve financial performance and an evaluation of planning tools in management accounting.

Management Accounting
(Project 2)

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1: Costing methods uses for evaluating net profit ..............................................................3
1.2: Various range of management accounting techniques....................................................4
1.3: Develop financial report that apply and interpret data for a business ............................5
TASK 2............................................................................................................................................5
2.1: Advantages and disadvantages of various types of planning tools used for budgetary
control.....................................................................................................................................5
2.2: Estimate the expenses for July and August.....................................................................7
2.3: Cash budget ....................................................................................................................7
TASK 3............................................................................................................................................8
3.1: Adoption of accounting system to deal with financial issues.........................................8
3.2: Analyse measures to improve financial performance of both company's.......................8
3.3: Evaluate planning tools use in management accounting.................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting is an essential aspect for every small or large business
organisation. This will assists in better understanding of accounting systems those are being
crucial in analysing positive outcomes for the company. The second part of this project is
focusing various costing methods those are helpful in determining accurate net profitability of an
organisation during the time. Some specific tolls and techniques which is use in planning tools to
control budgets. Understanding of different financial issues and effective measure to resolve
them are discuss under this project reports (Bennett and James, 2017).
TASK 1
1.1: Costing methods uses for evaluating net profit
In every business organisation, they need to make proper evaluation of total costs which
will be related with the production process. The costs are directly or indirectly associated with
the manufacturing of goods and services. This would simply said that the value of money render
for receiving something. This is use to formulate anything and that represent financial evaluation
of material, resources and risk factors or utilities those are associated with a product. The
different types of costs are discuss underneath:
 Fixed and variable cost: This happens to be the utmost important costs which will be
applicable during the time of producing specific products. Variable cost are remain
changing with the production units, whereas fixed costs are unchanged whether
production is going on or stop. These two costs are having direct relationship with
production. Therefore, it kept increasing and decreasing with the level of output.
 Historical and replacement cost: These are said to be sum total of capital which is paid
during the time of buying past and get consider as main base for financial accounts.
Likewise, a replacement costs is a present amount that is to be paid in current time for
replacing the assets (Galliers and Leidner, 2014).
 Absorption costing: It refers as all those costs which is incur by the company on overall
production of products. This includes both variable and fixed costs because of which it is
known as full costing method. The type of costs carry under this costing is direct
material, labour and other overhead cost. Likewise, under this costs a portion of fixed
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overhead cost is allocated to every units of products along with manufacturing variable
costs.
 Marginal costing: It is mostly related with various sources which is being used for the
purpose of making vital decision-making. These are said to be these are said to be those
costs which is been done with additional units produce. It would consider only variable
costs and fixed costs not taken into account. This can be define as total cost of a marginal
or final unit of output produced. This is not determine as process costing rather than it is
more simple techniques for analysing cost details (Haimes, 2015).
PARTICULARS January February
Sales (35 per unit) 315000 402500
less:
Cost of Production (12+8+5) 275000 237500
variable selling overheads (1 per unit) 11000 9500
variable cost 286000 247000
Contribution 29000 155500
less:
fixed manufacturing overheads 20000 20000
Fixed Admin & selling cost 2000 2000
total fixed costs 22000 22000
NET INCOME AS PER MARGINAL COST 7000 133500
NET INCOME AS PER ABSORPTION COSTING:
Sales (35per units) 315000 402500
less:
Cost of Production (12+8+5+1.82) 295020 254790
Gross Profit 19980 147710
LESS:
Fixed and variable cost:
variable sales overheads (1 per unit) 9000 11500
Fixed selling cost 2000 2000
Total costs 11000 13500
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NET INCOME AS PER ABSORPTION COSTING: 8980 134210
1.2: Various range of management accounting techniques
It has been determine that both techniques are helpful in different costing method for
evaluating units cost of a particular product. In case of marginal costing fixed cost has been
remove off to get the contribution whereas absorption costing has utilised every cost during the
computation of per unit costs. There are some other tools and techniques those are being helpful
in management accounting are financial planning which is taken in account as one of the best
tools for attaining aims of an organization. Another one is cost accounting which shows current
cost data in product wise, department and other branch administration (Holsapple, 2013).
1.3: Develop financial report that apply and interpret data for a business
It has been seen that the overall business is at great position to manager their gains and
losses in more effectively. The results generated from incomes statements are indicating more
clear image of the company financial conditions.
Merits of marginal costing: It is said to be more effective techniques where only single
variable costs or direct cost will be taken into consideration. For better decision-making this is
taken by most of the investors (Hoye and et. al., 2015).
Limitation: Such kind of costing takes only variable costs while producing a units of
products.
Advantages of absorption costing: It is use to determine the significance of fixed costs
that is related with manufacturing process. These are always use for preparing financial accounts.
Demerits: This is not that much effective system which is helpful in taking crucial
decision-making.
TASK 2
2.1: Advantages and disadvantages of various types of planning tools used for budgetary control.
Every organization have to perform various types of business activities, These activities
involve expenditure as well as income. The aim of a company is always to make sure that the
expenditure does not override its income and for it, company always make a budget for its
expenditure. This process is called budgetary control and in this a budget is made for various
kinds of expenditures prevailing in an organization like cash expenditure, capital expenditure,
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revenue expenditure etc. A budget may also be prepared for sales, and other expenses. Proper
Budget makes it easy for companies to keep an eye on the workings of workforce and check
whether they are working in line with what is budgeted (Kanellou and Spathis, 2013). For the
purpose of making budget various tools are being frequently used by accountants, These tools
helps in estimation or forecasting of various expenses and incomes. These tools are described as
follows :
Forecasting Tools: Business forecasting helps in achieving efficiency in organizational
performance. A company who can accurately forecast its outcome in terms of sales and
profitability will be able to compete in markets in a better manner than their competitors. It is a
critical step for the purpose of creation of a business plan. Usually forecasting is not completely
accurate however it helps companies to have a macro view as what can happen in a given time
period.
Advantages : It helps in predicting future, it provides a sense of direction to company
where it can expect itself after a particular period. The demand of customers is not steady it is
keep on changing, but if it is properly forecasted before the company will be able to serve
customers well without any delay. It also save on staffing cost as the quality of goods to be
produced is already known (Kouvelis and Yu, 2013).
Disadvantages : Forecasting is based on estimation and therefore it cant be accurate all
the time. If decisions will be made based on a wrong forecast it may lead to disastrous outcomes
for companies. All forecasting tools usually are expensive and small and medium scale business
usually are unable to use the same because of financial constraints.
Scenario Tools : Scenario planning tries to focus on an outlook for future. It is a method
through which a company forms a idea of predictable future scenarios and how those scenarios
may affect strategic objectives framed by the company.
Advantages : Scenario planning is a strategic decision making tool, it is a process that
creates a number of possible future outcomes which are uncertain. With the help of scenario
planning, a manger can asses external environment well and this helps him to match internal
resources with it for the purpose of an optimal allocation of its scarce resources.
Disadvantages: Scenario planning is not always accurate and it is based on assumption.
It is quite costly to implement scenario planning. It is a cumbersome process, the time required
for scenario planning may range from 6 to 12 Months which is quite high.
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Contingencies Tools: A organization faces various Risks of uncertain events, These
events can be any external as well as internal contingencies like a fire occurred at factory, an
uncertain political outcome etc.
Advantages: With the help of proper contingency plans a company can operate the best
possible operations in an event of uncertainty. The responsibilities of staff are well assigned way
before in contingency planning and in an uncertain event they know their duties well and it saves
time and cost (Laudon and Laudon, 2016).
Disadvantages: It is a reactive model of business management. It means it does not plan
to lower the risk of a particular task or a project, it only solves problem if any contingencies
occurs in that task in future. Therefore, it can lead to a lack of skilled personnel to meet a
particular challenge of a project.
2.2: Estimate the expenses for July and August
Calculation of variable cost per unit using identified high and low activity level:
Total cost= (Expenses of high activity- expenses of low activity)/(Highest activity hours spent -
lowest hours spent)
Total expense per units = (9820-7410)/(795-505)=8.31
Total expenses for July:
650*8.31=5401.5
For August:
750*8.31= 6232.5
2.3: Cash budget
Cash budget Amount
Particulars September
Opening balance 9000
Cash sales 39000
Sale on account 5648
Total Cash collected 53648
Purchase -16800
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Selling and administration
expenses -13000
Equipment cost -18000
Dividend paid -4000
1848
Add: minimum cash balance 5000
Expected cash in the end of
September month 6848
TASK 3
3.1: Adoption of accounting system to deal with financial issues
In every business organisation, a major problem found is finance which will leads to
make huge impacts on the productivity of an organisation (Capital Employed, 2016).
Ratios Formula UCK furnitures UCK woodworks
ROCE(Return on
capital employed):
Operating profit/Capital
employed*100
5890+3600/23100+
31930*100
=9490/55030*100
=17.24%
6955/81230*100
=8.56%
Assets turnover Revenue / Net assets 13000+24900/2310
6+31930
=0.68 times
8150/81230
=0.100 times
Operating profit
margin
Operating profit / sales *100 9490/13000+24900
*100
=25.03%
6955/81230*100
=8.56%
UCK furnitures UCK woodworks
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.They are trading its two segment such as table
and drawers division.
They are associated with selling the elements
to UCK furnitures and rest to the globe
According to the return on capital employed
they are having 17.24% of total return from
total investments.
In this company, they are getting very low
return of 8.56%.
Assets turnover of the company is rotating at
0.68 times.
Whereas under this case they are getting 0.10
time of their total assets.
In case of operating profit margin which is
25.03%.
This company is at very low position in
relation to their operating profit.
3.2: Analyse measures to improve financial performance of both company's
After making proper evaluation of the financial condition of both the company's it has
been found that UCK furnitures is having very low market or return they are generating as
compare to UCK woodworks. To improve the total return on capital they need to pay off their
non-current liabilities so that their return would increase. Operating profit would be increase if
woodworks will control their extra expenses (Onyon and et. al., 2014).
3.3: Evaluate planning tools use in management accounting
By proper utilisation of estimated cost and revenue through preparing budget and
measures to control their losses through budgetary-control-accounting. On continuous basis
project appraisal or evaluation requires to be done so that other mistakes can be controlled.
Ratios analysis is an additional techniques which is providing vital information about current
position of the company. Forecasting tools and scenario tools are one of the effective techniques
to deal with any situation that are affecting productivity of an organisation (Nerger and et. al.,
2015).
CONCLUSION
From the above project report, it has been concluded that manager can use various
costing methods to analyse net profitability of the company. Computation of marginal and
absorption costing and labor rates are discuss under this project reports. Use of planning tools to
determine budgetary control of the company. Comparison of UCK group of companies by using
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ratios and other tools. Overall evaluation is done by using effective techniques to maintain
proper balance among their financial situations.
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REFERENCES
Books and Journals:
Online
Capital Employed. 2016.[Online]. Available through:
<https://www.readyratios.com/reference/analysis/capital_employed.html>.
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