Management Accounting: Concepts, Tools, and Strategies

Management Accounting
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Table of Contents
Introduction......................................................................................................................................3
Task 1 ..............................................................................................................................................3
Task 2...............................................................................................................................................3
P3 Cost analysis to prepare an income statement using marginal and absorption costs.............3
Task 3...............................................................................................................................................5
P4 different types of planning tools............................................................................................5
Task 4...............................................................................................................................................8
P5 Comparison between organisations to evaluate how they adapt to different management
accounting systems to respond to financial problems.................................................................8
Conclusion.....................................................................................................................................10
References......................................................................................................................................12
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Introduction
Management accounting is that branch of accounting which is primarily concerned with
providing information to the internal stakeholder of an organisation (Cockcroft and Russell,
2018). This report aims at exploring various concepts related to management accounting in
context of Prime Furniture, a growing East London based company. In this report, various
planning tools related to budgetary control are discussed with a mention of their advantages and
disadvantages. Further, a comparative analysis has been drawn up between Prime Furniture and
East London Furniture to understand the different management accounting systems used by two
firms to face different kinds of problems related to its financial planning. A practical illustration
has been provided to demonstrate cost analysis under different management accounting systems.
Task 1
(covered in PPT)
Task 2
P3 Cost analysis to prepare an income statement using marginal and absorption costs
Cost is that amount which has to be incurred by company in order to produce goods and
services. Prime Furniture can bifurcate their cost into two parts - fixed cost and variable cost.
Fixed cost is that cost which company has to pay irrespective of any unit produced while variable
cost is that cost which company has to produce for every additional unit produced. Company can
undertake cost-accounting on two basis:
Marginal costing
It is a costing technique that is concerned with identifying only that part of cost which has
been incurred in producing one extra unit of cost. Therefore, it takes into account only variable
manufacturing cost. It will enable Prime Furniture to identified the cost incurred to it for
producing one extra unit.
Absorption costing
It is a costing techniques which undertakes both fixed and variable manufacturing cost
into consideration (Kenyon and Kenyon, 2016). Therefore, it is taken as costing technique that
absorbs all types of cost while assigning cost to the product. It shows better picture than marginal
costing. It will enable Prime Furniture to better assign total cost incurred in production to all the
units produced.
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