Management Accounting Techniques and Tools for Prime Furniture

Management accounting
report

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
Task 2.........................................................................................................................................3
LO2............................................................................................................................................3
Microeconomic techniques....................................................................................................3
Product costing.......................................................................................................................5
Cost of inventory....................................................................................................................6
LO3............................................................................................................................................6
Using budgets for planning and control.................................................................................6
Pricing....................................................................................................................................7
Common costing systems.......................................................................................................7
Strategic planning...................................................................................................................8
LO4............................................................................................................................................8
Identifying financial problems...............................................................................................8
Financial governance.............................................................................................................8
Management accounting skill sets.........................................................................................9
Effective strategies and systems.............................................................................................9
CONCLUSION..........................................................................................................................9
REFERENCES.........................................................................................................................10

INTRODUCTION
Management accounting is the accounting system which is used by the organization
for taking business related decisions. In this information is collected by the internal
management team from the finance department which is analysed further for taking strategic
business decisions. In this report, Prime Furniture is taken as an organization which is based
in London. This report provides the insight about various types of management accounting
techniques and tools. It also states about that way’s organization can use management
accounting for dealing with financial problems.
Task 2
LO2
Microeconomic techniques
Cost: It is the value that is spent by the business of producing a product or a service.
It can also be said that the amount spent on procuring machines and equipment’s of the
organization.
Cost analysis: It is the relationship between cost and output. It helps in identifying
the optimum level of production by arranging the cost and the output in such a manner in
order to increase the productivity of the organization.
Cost-volume profit: It is the method of accounting that looks at the impact of cost at
different levels of volume (Punniyamoorthy, 2017). It helps in determining the break-even
point which helps in taking short term economic decisions.
Flexible budgeting: These budgets are those which can be adjusted the change in the
volume or level of activity (Lees, 2017). This budget is a very useful tool as it helps in
measuring managers efficiency.
Cost variances: It refers to the difference in the performance level when the actual
outcome defers from the standard performance set by the organization (Scott, 2019).
Absorption and marginal costing
Absorption costing: It is the method of costing in which the full cost related to
manufacturing of the product is considered. It involves not only direct material and labour
but also manufacturing overheads while calculating profits (Tabitha and Oluyinka, 2016).
This method is used for external financial and income tax reporting. In this method, fixed
overhead cost is allocated to the products irrespective to the fact whether the product is sold
or not.
Marginal costing: It refers to the costing method which shows the additional cost
involved while producing an extra unit of the product. This method eliminates fixed
overhead cost from the cost of production (Yadav and Avhad, 2020). It is used by the
management for decision making process which is mainly used in business expansion as it
helps in determining break-even point for different levels of activities.
Absorption costing
Cost per unit
assessment

Particulars Figures
in £
Variable cost of
production
0.65
Fixed cost of
production
0.2
Total cost per unit 0.85
Calculating
COGS
Quarter
1
Quarter
2
Particulars Figures
in £
Figures
in £
Opening stock 0 (12000*0.85) 10200
Add:
purchases
(78000*0.85) 66300 (66000*0.85) 56100
Less: Closing
stock
(12000*0.85) 10200 (4000*0.85) 3400
COGS 56100 62900
Income statement
Quarter 1 Quarter 2
Particulars Figures in
£
Figures in
£
Sales 66000 74000
Less: COGS 56100 62900
Gross profit 9900 11100
Less: Selling and
administrative
expenses
5200 5200
Net profit 4700 5900
Marginal costing
Calculating
COGS
Quarter
1
Quarter
2
Particulars Figures
in £
Figures
in £
Opening stock 0 (12000*0.65) 7800
Add: purchases (78000*0.65) 50700 (66000*0.65) 42900
Less: Closing
stock
(12000*0.65) 7800 (4000*0.65) 2600
COGS 42900 48100