Management Accounting System and Performance Tools

This assignment focuses on the importance of management accounting systems in different industries. It evaluates the use of performance management tools to assess the effectiveness of these systems. The assignment provides a comprehensive overview of research studies and publications related to management accounting, highlighting its relevance in various contexts.

MANAGEMENT
ACCOUNTING
[PROJECT-2]

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Calculate cost using appropriate techniques of analysing cost and prepare income
statement.....................................................................................................................................1
1.2 Accurately apply a range of management accounting techniques and financial reporting...2
1.3 Produce financial reports accurately apply and interpret data for a range of business
activities......................................................................................................................................2
TASK 2 ...........................................................................................................................................3
2.1 Advantages and disadvantages of various type of planning tools using in budgetary
control.........................................................................................................................................3
2.2 High low method to determine the expenses if the numbers for July and August is 650 and
750...............................................................................................................................................5
2.3 Purpose of budget and preparing cash budget.......................................................................5
TASK 3............................................................................................................................................6
3.1 Compare how organisations are adapting management accounting system to respond
financial problems.......................................................................................................................6
3.2 how management accounting can help to improve the financial performance of both
companies to attain sustainable success......................................................................................7
3.3 evaluate the planning tools used in management accounting to reduce the financial
problems......................................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Calculating the cost and preparing the budgets are the essential elements of management
accounting (Chiwamit, Modell and Yang, 2014). This report defines the cost calculating
techniques to determine the cost and profit for UCK furnitures. Planning tools are also defined
which are used in budgetary control process. Ways are compared that how business are
implementing management accounting system to respond financial problems. Practical examples
are defined in this context subject to evaluating the cost and budgetary control. Evaluation
methods are also described in respect of financial problems
TASK 1
1.1 Calculate cost using appropriate techniques of analysing cost and prepare income statement
Marginal costing: it is one of the accounting technique which is used by the organisation
to evaluate the cost of product and calculate the profit (Albuand Albu, 2012). All variable cost
such as direct material, direct labour and direct expenses are considered in while calculating the
cost of the project and profitability. Combination of direct material, labour and direct expenses
are considered as prime cost. Some of the part of fixed cost also considered in in marginal
costing while calculating the profit.
Absorption costing: this is one of the costing technique which helps to calculate the cost
of product with the help of considering the all the variable and fixed cost. This costing
techniques is also considered as over all cost evaluating technique (Callahan, Stetz and Brooks,
2011). Direct and indirect cost which are incurred while calculating the cost of product
considered in this costing technique.
Calculation of profit as per marginal costing
Particulars January February
Sales (35 per unit) 315000 402500
less:
Cost of Production (12+8+5) 275000 237500
variable selling overheads (1 per unit) 11000 9500
variable cost 286000 247000
Contribution 29000 155500
less:
fixed manufacturing overheads 20000 20000
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Fixed Admin & selling cost 2000 2000
total fixed costs 22000 22000
NET INCOME AS PER MARGINAL COST 7000 133500
Calculation of profit as per absorption costing
Particulars January February
Sales (35per units) 315000 402500
less:
Cost of Production (12+8+5+1.82) 295020 254790
Gross Profit 19980 147710
LESS:
Fixed and variable cost:
variable sales overheads (1 per unit) 9000 11500
Fixed selling cost 2000 2000
Total costs 11000 13500
NET INCOME AS PER ABSORPTION COSTING: 8980 134210
1.2 Accurately apply a range of management accounting techniques and financial reporting
Cost techniques helps to analyse the cost and profitability of organisation. As per above
discussed scenario of UCK furnitures marginal and absorption costing techniques are analyse to
define the cost of the product and profitability. Apart from the absorption and marginal costing
there various type of accounting techniques are used by the organisations such as
Standard costing: this is considered as a practice of analysing the difference between
actual cost and expected cost (DRURY, 2013). There is an analysis done in respect of budgeted
cost and actual cost.
Batch and Job costing: this is the method which is used to analyse the cost of each and
every job, contract and products or work orders. Cost of material, labour and expenses of
individual job centres are evaluated in this technique.
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Price optimising techniques: this is one of the method which helps to analyse the
behaviour of customer to respond various prices for products and services through various
channels.
1.3 Produce financial reports accurately apply and interpret data for a range of business activities
As per the above analysis there are some essential elements are evaluated. Financial
position is found in positive situation (Fourie and et. al., 2015). With the help of cost techniques
cost of the products evaluated such as marginal costing and absorption costing.
Pros of marginal costing: this costing technique is beneficial in order to determine the
cost of manufacturing products by considering all the variable aspects and cost.
Limitation: Fixed expenses and overheads remain avoided while calculating the
profitability of organisation.
Pros of absorption costing: this is also considered as overall cost measurement and cost
evaluating technique (Quinn, 2014). All the fixed aspects are covered in absorption costing
technique while calculating cost and profit of product.
Demerits: this technique is not considered effective as decision making perspective.
TASK 2
2.1 Advantages and disadvantages of various type of planning tools using in budgetary control
Budget: It is the process of preparing budget through identifying the cost incurred in past
project activities in order to support future business activities (Zaleha Abdul Rasid, Ruhana Isa
and Khairuzzaman Wan Ismail, 2014). The main objective of preparing budget is to ensure
employees to execute business activities well without fearing the shortage situation of funds
which directly encourage them to perform well.
Budgetary control: It is the process of controlling the wastage of funds through guiding
and directing the employees to utilise available funds in an optimum manner that will help in
bringing positive outcome to company (Budgetary control, 2017). It helps manager to find out
the deviation if any, through comparing actual performance with desired performance so that
they can implement corrective measures to eliminate such deviations without wasting time.
Objectives of Budgetary control:
There are many objectives of budgetary control which are as follows:
 It helps in defining the aim or objectives of company clearly to the employees which
enables managers to formulate plans and policies to achieve same objectives.
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 It helps in making proper communication and coordination among different departments
in order to operate business activities in an effective manner.
 It guides and directs employees to utilise resources in an optimum manner that will brings
profitable result to company (Nørreklit, 2014).
 Through budgetary control, the manager can assign roles and responsibility to their
employees.
Budgetary control methods and its advantages and disadvantages:
There are various methods of budgetary control with the help of which the manager can
control and eliminate irrelevant cost incurred in business activities. Such methods includes:
Incremental Budgeting: It is the process of preparing budget through analysing previous
period budget which help them in identifying that how much extra amount required ion
executing future business activities (Melnyk and et. al., 2014). Its main objective is to spend
adequate resources with a hope of getting positive outcome but if results goes wrong then it will
make negative impact on the financial position of company.
Advantages:
 It helps manager to operate their departments consistently in order to achive desired
objective within given time frame.
 The chances of arising conflicts are minimum as the managers treats every department
equally. It is simple to operate and easy to understand.
Disadvantages:
 It will not provide any incentive ton employees for generating new ideas and innovation
and reducing cost.
 It allocate funds at maximum due to which if the result may gone wrong then it will badly
damage the financial position of company. The managers spends huge amount of budget which restricts them to focus on preparing
next year budget.
Zero Based Budgeting: It is the process of allocating funds after identifying and
analysing the programs rather than observing previous period budget which help them in
bringing more efficiency in result (Messner, 2016). The managers can adopt such budgetary
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control methods to nay type of cost such as capital expenditure, operating expenses, marketing
cost etc.
Advantages:
 It ensures to get profitable result in future business activities.
 It helps in improving efficiency level in operation activities through challenging
assumptions. It helps in reducing cost through avoiding automatic budget increases.
Disadvantages:
 It consumes huge cost and time as budget is re-prepared from scratch annually.
 Required specialised training to employees in order to accomplish goals.
 Requires more resources hence the chances of miss-utilisation of resources is more. Activity Based Budgeting: It is a method through which the manager can fixed budget on
each activities in order to get maximum possible outcome to company (Schaltegger and
Burritt, 2017). Each activity are carefully analysed which help in identifying the
requirements needed to achieve desired outcome.
Advantages:
 As planning related with revenue and expenses are formulates ta last level which help in
providing useful information regarding execution of project activities. It helps management to control over the budgeting process and align the budget with
overall company objectives.
Disadvantages:
 It involves huge cost when compared with traditional budgeting.
 It is based on assumption due to which the expected result may fial to ahcive due to
uncertainties.
 It requires more resources in analysing budget variances as compared to other budgeting
techniques.
2.2 High low method to determine the expenses if the numbers for July and August is 650 and
750
Computation of variable cost per unit using calculated as high and low activity level:
Total cost= (Expenses of high activity- expenses of low activity)/(Highest activity hours spent -
lowest hours spent)
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Total expense per units = (9820-7410)/(795-505)=8.31
Total expenses for July:
650*8.31=5401.5
For August:
750*8.31= 6232.5
2.3 Purpose of budget and preparing cash budget
(3) Cash budget of UCK furnitures for the month of September
Particulars September
Opening balance 9000
Cash sales 39000
Sale on account 5648
Total Cash collected 53648
Purchase -16800
Selling and administration expenses -13000
Equipment cost -18000
Dividend paid -4000
1848
Add: minimum cash balance 5000
Expected cash in the end of September
month 6848
TASK 3
3.1 Compare how organisations are adapting management accounting system to respond
financial problems
UCK furniture adapted management accounting technique to respond financial problems
such as preparing cash budget, income statement. With the help of management accounting
system there are some techniques used to evaluate the cost of product such as marginal and
absorption costing. With the help of budgetary control tools mangers and accountants become
eligible to make cash budget and income statement (Mistry, Sharma and Low, 2014). There are
some performance management tools are defined in this context subject to evaluating the
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performance of organisation. Ratio analysis and is one of the technique used to evaluate the
performance of organisation.
Management accounting also helps the managers to find out effective capital investment
for sustainable growth (What is management accounting system. 2018). This is the process which
assist decision making process. To attain core competence in and excellent performance
organisations are adapting management accounting system.
Performance analysis of UCK furniture and UCK woodwork
Ratios Formula UCK furnitures UCK woodworks
ROCE(Return on
capital employed):
Operating profit/Capital
employed*100
5890+3600/23100+
31930*100
=9490/55030*100
=17.24%
6955/81230*100
=8.56%
Assets turnover Revenue / Net assets 13000+24900/2310
6+31930
=0.68 times
8150/81230
=0.100 times
Operating profit
margin
Operating profit / sales *100 9490/13000+24900
*100
=25.03%
6955/81230*100
=8.56%
3.2 how management accounting can help to improve the financial performance of both
companies to attain sustainable success
Management accounting system helps the organisation to detect the financial problems
and provide suitable options to resolve the financial problems (Robalo, 2014). Preparing
financial statements, cash flow statements and preparing income statements are one of the major
financial problems which are faced by the organisations.
Ratio analysis and cost of capital are the methods used to analyse the performance of
organisation and evaluate the profitability of organisation. As per above analysis of UCK
furniture and UCK woodwork turnover ratios and analysing tools are analysed in this context.
Various type of performance management tools such as assets turnover ratio, operating profit
margin and return on capital employed also used to analyse the performance of UCK furniture.
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3.3 evaluate the planning tools used in management accounting to reduce the financial problems
Planning tools are used to interpret financial problems and sort out the complex business
situations (Renz and Herman, Eds., 2016). Various type of planning tools such as budgetary
control, project analysis and evaluation standard costing, analysation of cost variances and ratio
analysis are used to reduce financial risk and uncertainties.
CONCLUSION
This report is prepared to analyse the costing techniques to evaluate the cost and
profitability. Use of planning tools illustrated in this context which are used in budgetary control
process. Ways are compared in respect of adapting management accounting system with in the
organisation. Use of management accounting system to financial problems illustrated in this
context. Budgets are prepared to resolve the financial problems such as cash budget, and sales
budget. Performance of UCK Furnitures and UCK woodwork organisations evaluated with the
use of performance management tools.
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