Management Accounting and Reporting System for Prime Furniture

Management
Accounting

INTRODUCTION
Management accounting is defined as a procedure of analysing business cost recorded under
the financial statement so as to make reliable and profitable decision for an organisation. For this,
accounting manager need to provide an adequate support to the management in terms of giving
relevant information about current financial position of company. This will encourage managers
to update their current policies with an objective of achieving financial growth in an organisation.
The present assignment report is based on Prime furniture which is engaged in manufacturing
furniture products located in East London, UK. As a junior management accountant, presentation
is made which includes the concept of management accounting along with its benefits. Apart
from this, accounting and reporting system, planning tools, costing methods and role of
management accounting in dealing with financial issues has been also discussed under this report.
P1:
Management accounting is a process of making an effective decision for the betterment of an
organisation by analysing the financial information of company taking books of accounts into
consideration. It is the way of analysing business cost by summarising financial statements of an
organisation (Bryson, Crosby and Bloomberg, 2014).
Prime Furniture is growing East London based company which requires an adequate support
from different management accounting systems in order to maintain books of accounts containing
information about the business cost and transactions happened on daily basis. Using various
kinds of accounting system help managers of Prime Furniture to increase the performance level
by updating policies and plans according to the current financial situation. These management
accounting systems includes:
 Cost accounting system: On the basis of cost accounting report, the managers of the
organisation analyse different cost associated with manufacturing which are related to raw
material, labour, indirect expenses. It will help the management of Prime Furniture to
have a detailed analysis of all the expenses related to the manufacturing of furniture and
other related services. In cost reports all the expenses whether direct or indirect all are
covered and organisation by analysing it tries to minimise these costs (Damodaran, 2012).
 Inventory management system: Inventory management system is generally followed by
those organisations who has to deal with a lot of inventory which help them to manage it
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well. Prime Furniture is required to manage their inventory which in been used in the
process of manufacturing furniture products. The different approaches that are used to
manage the inventory are LIFO, FIFO and AVCO.
LIFO is an approach in which inventory that is received in the last is used first. While in
FIFO, the inventory which is receives first is used first. Whereas in AVOCO, inventory is used
on the basis of average cost of production. In case of Prime Furniture, FIFO method is used as
they are into manufacturing business (Fowzia, 2011).
 Price optimisation system: This system is used by the organisation in order to minimise
the prices of the goods so produced by the organisation. This help Prime Furniture to
determine the cost of the units produced by them. This further help the managers of Prime
Furniture to decide the prices for their customers. Price optimisation system helps the
Prime Furniture to compete their project in the cost that they have quoted to their
customer for the projects (Garrison and et. al., 2010).
 Job order costing system: This system helps an organisation to allocate cost to the
activities or a particular job. For Prime Furniture this system is very important as they can
divide their total cost into different furniture that they have constructed for their clients. It
will help Prime Furniture to advertise their projects with the prices to the customer, which
are complete dependent on the cost provided to them by the manufacturing company. This
also help the companies to manage the cost of different activities in relation to their
performance.
M1:
Management accounting system Benefit
Cost accounting system It is used by the Prime Furniture to analyse the different
costs associated with direct materials, labour and other
direct expenses.
Inventory management system This system is applied in Prime Furniture to manage the
inventory used in manufacturing process by their
managers so that they can monitor the cost.
Price optimisation system Prime Furniture uses this system to determine the prices of
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