(Doc) Application Of Management Accounting Principles And Theories

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
Project 1...........................................................................................................................................1
Covered in PPT...........................................................................................................................1
Project part 2....................................................................................................................................1
P3 Calculation of net profit by using various costing methods..................................................1
M2 Various types of management accounting techniques..........................................................2
D2 Data interpretation by using costing method.........................................................................2
P4 Advantage and disadvantage of various types of planning tools...........................................2
M3 Analysis of every expenditure for the month of July and August........................................3
P5 Calculation of accounting system to analyse financial problems .........................................4
M4 Analysing the measures to reduce financial problems in order to lead towards sustainable
success.........................................................................................................................................4
D3 Analysis of planning tools used in company.........................................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Management accounting is the branch of accounting which deals with providing the
internal management with the information regarding the financial health of the business and
outside economic condition of market. The preparation of managerial reports utilise the financial
information of the company from the financial statements and it also includes the future
economic and non economic activities of market which assists the internal managers in
formulation of policies and objectives. This project discusses about the management accounting
reports and application of various techniques of management accounting. Finally , the use of
planning tools and how management accounting assists in responding to financial problems.
Project 1
Covered in PPT
Project part 2
P3 Calculation of net profit by using various costing methods
Calculation of net profit using 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 cost expenses
Production overheads 20000 20000
Administration & selling cost 2000 2000
Total fixed costs 22000 22000
NET INCOME 7000 133500
Calculation of net profit using absorption costing:
Particular January February
Sales (35per units) 315000 402500
Deduct:
Cost of Production 295020 254790
Gross Profit 19980 147710
LESS:
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Fixed and variable expenses:
Variable sales overheads (@1 per unit) 9000 11500
Fixed selling expenses 2000 2000
Total costs 11000 13500
NET INCOME 8980 134210
M2 Various types of management accounting techniques
Management accounting techniques are tools which helps an organisation to calculate
their net profit after dedducting all the cost which are incurred in that period. For a furniture
retailer like UCK uses these techniques in order to get benefitted by the merits of optimum
utilisation of resources and overall growth and development. To be more specific UCK usually
uses marginal costing method as it is considered to be the most efficient and effective method
because it reflects more profitability and charges only variable costs against sales revenue, other
techniques of management accounting are standard costing, absorption costing, historical costing
etc ( Gond, 2012 ).
The main purpose of these techniques is to determine net profit ability from the
information provided in managerial accounts and reports, they include calculation of various
profits like gross and net profit and also the contributed amount which is contributed by the
organisation after charging all variable costs ( Christ, 2014).
D2 Data interpretation by using costing method
Two of the costing techniques are used to calculate the profit of UCK furniture.
According to marginal costing contributed amount of the month January is way lower than the
amount of month Febrarury and that is 29000 and 155500 and so as net profit which is
determined after charging fixed costs and that is 7000 and 133500.
According to absorption costing net income is higher than the profit in marginal costing
technique, that is 8980 and 134210 as it only absorbs cost of goods sold and all selling expenses.
P4 Advantage and disadvantage of various types of planning tools
Planning is the most significant part of the business by which the organisation can make
certain decisions of the company. This will help the business ascertaining and analysing the
procedures of decision making which assists the companies in attaining determined objectives.
The budgets that are prepared by the companies assist the managers in planning. Some of these
tools are discussed below:
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Forecasting tool: It is a planning tool which forecasts future events, this tool helps an
organisation in predicting future from trend analyses and evaluating past experiences ( JOSHI,
2011).
 Advantages – Forecasting includes ascertaining of future needs of market which
benefits an organisation with customer satisfaction and it also helps to predict demand
which provides framework to production department.
 Disadvantages – Forecasting is based on predictions and it does not serve any accurate
figures.
Contingency tool: Contingency is a planning tool which allows an organisation to be
prepared for future uncertainties like natural disasters such as flood, fire etc. And general
emergencies like strike, lock outs etc ( Melnyk, 2014).
 Advantages – This tool provides a back up plan for future events, which can be used
when an event of emergency occurs. This technique helps in the situations of panic,
where situations can result in loss.
 Disadvantages – Contingency planning involves a lot of cost and time, and if none of the
emergency events occur than the all efforts go in vain.
M3 Analysis of every expenditure for the month of July and August
Total cost = (Highest activity per hour spend – Lower hour spend)
Total expenses (Per units): (9820-7410) / 795-505) = 8.31
Month Calculation expense
July = 650*8.31= 5401.5
August = 750*8.31= 6232.5
Calculation of cash budget
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P5 Calculation of accounting system to analyse financial problems
Financial ratios
UCK Furniture UCK Woodworks
ROCE
Operating profit/Capital
employed*100 3198890.156 8.562107596
17.24513902 0.0856
0.1724
Operating profit margin
Operating profit / sales
*100 2490000.73 8.562107596
0.2503 0.0856
Assets turnover Revenue / Net assets 44931.07764 0.10033239
=0.68 times =0.100 times
M4 Analysing the measures to reduce financial problems in order to lead towards sustainable
success
From the above ratios, it can be analysed that due to financial downfall of UCK
Woodworks, share prices of UCK furniture is getting affected. UCK furniture is earning high
returns over capital employed, whereas UCK woodworks are earning severe low earning returns.
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Unlike Return on capital employed and operating profit margin, assets turnover is the
only analyses which is interpreting high results of UCK woodwork than UCK furniture. Few
measures which can resolve financial issues are:
 Key performance indicators (KPI): This technique is considered to be an effective tool
while analysing and interpreting overall performance of every employee and every
activity ( Shields, 2015).
 Financial governance: This provides a code of conduct by goverment which gives rules
for performing various business activities ( Suomala, 2012).
D3 Analysis of planning tools used in company
There are several planning tools used in a company that are forecasting tool, contingency
tool and scenerio tool which are used to estimate and predict future events. These tools helps an
organisation to manage risk and deliver number of possibilities that can occur in future, so that
prevention measures can be develop (Viere, 2011).
CONCLUSION
According to the above report, it has been concluded that management accounting plays
an significant role in the functioning of business by utilising the techniques of management. MA
is considered as process which ultimately assists the organisation in gaining better planning and
control towards the firm. There are different systems in the accounting for the analysis of
profitability valuation of inventory and control. The company uses various management
accounting techniques such as the profitability analysis , controlling the cost and valuation of
inventory. Finally, the evaluation of management accounting in overcoming the financial issues
of the company.
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REFERENCES
Books and Journals:
A. Hammad, S., Jusoh, R. and Ghozali, I., 2013. Decentralization, perceived environmental
uncertainty, managerial performance and management accounting system information
in Egyptian hospitals. International Journal of Accounting and Information
Management, 21(4). pp.314-330.
Abdel-Kader, M. G. ed., 2011. Review of management accounting research. Springer.
Bennett, M., Schaltegger, S. and Zvezdov, D., 2011. Environmental management accounting. In
Review of management accounting research (pp. 53-84). Palgrave Macmillan, London.
Callahan, K. R., Stetz, G. S. and Brooks, L. M., 2011. Project Management Accounting, with
Website: Budgeting, Tracking, and Reporting Costs and Profitability (Vol. 565). John
Wiley & Sons.
Christ, K. L., 2014. Water management accounting and the wine supply chain: Empirical
evidence from Australia. The British Accounting Review, 46(4). pp.379-396.
Gond, J. P., and et. al., 2012. Configuring management control systems: Theorizing the
integration of strategy and sustainability. Management Accounting Research, 23(3).
pp.205-223.
JOSHI, P. L., BREMSER, and et. al., 2011. Diffusion of management accounting practices in
gulf cooperation council countries. Accounting Perspectives, 10(1). pp.23-53.
Melnyk, S. A., and et. al., 2014. Is performance measurement and management fit for the
future?. Management Accounting Research, 25(2). pp.173-186.
Shields, M. D., 2015. Established management accounting knowledge. Journal of Management
Accounting Research, 27(1). pp.123-132.
Suomala, P. and Lyly-Yrjänäinen, J., 2012. Management accounting research in practice:
Lessons learned from an interventionist approach. Routledge.
Viere, T., von Enden, J. and Schaltegger, S., 2011. Life cycle and supply chain information in
environmental management accounting: a coffee case study. In Environmental
management accounting and supply chain management (pp. 23-40). Springer,
Dordrecht.
Zaleha Abdul Rasid, S., Rahim Abdul Rahman, A. and Khairuzzaman Wan Ismail, W., 2011.
Management accounting and risk management in Malaysian financial institutions: An
exploratory study. Managerial Auditing Journal, 26(7). pp.566-585.
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