Cost Estimation and Analysis of Financial Statements through Marginal and Absorption Process

MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P3. Cost estimation and analysis of financial statements through marginal and absorption
process....................................................................................................................................3
TASK 3............................................................................................................................................7
P4. Limitations and drawbacks of budget management techniques in planning....................7
TASK 4............................................................................................................................................9
P5.MAS use to resolve and overcome financial issues..........................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
The concept MA is described with the aid of non - financial and financial information as a
means of simply making documents. There is a variety of techniques, like absorption,
marginal for making financial statements to define the net profit (Arroyo, 2012). The study
contains extensive details relating to different accounting methods, preparation strategies as well
as MAS to solve monetary problems. Prime Furniture Limited is the company chosen for this
particular report.
TASK 2
P3. Cost estimation and analysis of financial statements through marginal and absorption
process.
Micro economic techniques:
Cost: This could be described as the total sum of expenditures that exist to accomplish various
kinds of companies operations and services. There are various costs to consider like fixed cost
which remains with the changes in the level of input whereas variable costs use to change as per
the changes in level of production. Direct costs are directly related with execution of business
activities and vice versa with indirect cost.
Cost volume analysis: Cost-benefit management is a systematic process to the concept of
strengths and limitations of alternatives used to assess the best strategy for obtaining benefits
while retaining costs, often called cost / benefit evaluation or cost-benefit analysis.
Variance in cost: It can be described as a method of determining the variation amount among
actual cost and expected cost over a specific operation within company during a specific time
frame. It is viewed in ways which are disadvantageous and advantageous for company.
The summary following of these costing methods is defined as follows:
Method of absorption costing: This is a type of costing methodology that determines and
commonly distributes the costs of various management tools and techniques. The object’s value
is viewed as constant and non-fixed expenses (Chenhall and Moers, 2015).
Calculation of net profit as per absorption costing.
Quarter 1
Particulars Amount
Sales 66000
Less: Cost of sales

Production Cost (78000* 0.65) 50700
Semi variable (78000 * 0.20) 15600
Total variable cost 66300
Less: Closing stock 10200 56100
Gross Profit 9900
Less: Expenses 400
9500
Selling and distribution as fixed 5200
Net Profit 4300
Quarter 2
Particular
Amoun
t
Sales 74000
Less: Cost of sales
Opening stock 10200
COGS (66000*.20) 13200
Production cost (66000*0.20) 42900
Total variable cost 66300
Less: Closing stock 3400 62900
Gross Profit 11100
Less: Selling expenses 2800
8300
Fixed expenses 5200
Net profit 3100
Working notes
Fixed costs 16000
Budgeted cost of production
80000 per
unit
Budgeted fixed cost 0.2
Variable cost per unit 0.65
Marginal costing process: This approach can be interpreted as a means of determining
the costs related to various activities. The fixed values are incurred as time costs, as well as
variable costs are regarded unit expenses during an accounting period.
Quarter 1
Particulars
Amoun
t
Sales 66000
Less: Cost of sales
Opening inventory 0
Production cost
(780000*0.65) 50700