Management Accounting: Calculation of Costs and Budgetary Control

Management Accounting
(Task-2)

Contents
INTRODUCTION.................................................................................................................................3
TASK 2.................................................................................................................................................3
P3: Calculation of costs by using different costing methods..............................................................3
P4: Advantages and disadvantages of different planning tool used for budgetary control...............9
P5 Comparison of the way in which organisations are adapting management accounting systems
.........................................................................................................................................................13
CONCLUSION...................................................................................................................................14
REFERENCES....................................................................................................................................15

INTRODUCTION
Management accounting is the process of managing and maintaining books of
accounts with the purpose of making an effective decision and plans for the betterment of an
organisation (Bromwich and Scapens, 2016). For this, finance manager need to provide a
sufficient support by preparing final accounts such as profit and loss account, balance sheet,
cash flow statement etc. on timely basis. The present assignment report is based on Prime
furniture which is a growing East London based company now plans to start training course
for their new interns in November 2019. In this regards, different costing methods are studied
along with the planning tools to control budget. Along with this, role of management
accounting system in resolving financial issues are also discussed under this report.
TASK 2
P3: Calculation of costs by using different costing methods
Cost: It is defined as the amount measured in monetary terms consisting of different
factors such as efforts, time, resources utilised etc. to produce or manufacture something that
brings valuate outcome to an organisation in future period of time. It comprises of two types
which includes direct and indirect cost (Bryson, Crosby and Bloomberg, 2014). Direct cost
refers to the amount which is directly allocated to production activity whereas indirect cost
includes amount which is indirectly invested for the completed for particular project activity.
In the context of Prime furniture, huge amount is invested by production team to make their
desired project activities more successful by spending on purchasing raw materials, hiring
labour etc.
Marginal costing: It is a costing technique which focuses about just variable cost and
overlook fixed expense because of which it has other name i.e. variable costing technique.
Adopting such technique expands the figures of net benefit under the financial report
because of considering just variable cost because of which it is generally used by small and
medium sized manufacturing company such as Prime furniture.
Absorption costing: It is a method which considers both fixed and variable cost due to
which the net profit recorded under the financial statement are low in comparison with the net
profit comes under marginal costing method. It is used by large businesses who wants to

show actual financial position towards its shareholders with a motive to retain them with
company for longer duration (Englund and Gerdin, 2014).
Cost analysis: It is the procedure which is done to analyse the outcomes received after
investing amount in business activities. This will help manager of Prime furniture to make
decision regarding making further investment according to the possible outcomes.
Cost volume profit: It is a technique of cost accounting adopted by managers of Prime
furniture with a motive of evaluating the impact of variations in cost and volume on
organisational profit.
Flexible budgeting: It is kind of budget in which pre-determined amount may vary
according to the situations arises during future business activities. It reduces wastage of
resources utilised by Prime furniture by fluctuating the budget according to the possibilities
of receiving better outcomes (Honggowati and et.al., 2017).
Activity based costing: It is termed as technique which is adopted by Prime furniture
in order to allocate costs to different business activities on the basis of actual expenses taken
place during execution.
Role of costing in setting price: Costing plays an important role in manufacturing
furniture products by Prime furniture as it help them in determining the actual cost which is
incurred while conducting several business activities. Through thus, the manager can set a
price for its furniture after adding margin on it.
Inventory cost: It is the cost which is incurred to store and maintain the level of stock
in warehouses in order to meet clients requirements on time. It consists of two types which
includes:
Ordering cost: This is the cost which is incurred while creating and ordering raw
material for manufacturing furniture products from suppliers is called as ordering cost (Linoff
and Berry, 2011).
Carrying cost: It is another cost which also known as holding cost due to maintaining
adequate level of inventory in warehouses just to meet client’ s requirements.
Shortage cost: In this, cost take place when Prime furniture have faced shortage of
inventory with them.