Management Accounting at UCK Furniture

This assignment analyzes the implementation of management accounting systems at UCK Furniture. It examines how the company utilizes financial ratios, standard costing, variance analysis, and budgeting techniques to enhance efficiency, reduce costs, and improve profitability across its divisions.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION................................................................................................................................4
TASK 1.................................................................................................................................................4
1.1 Calculating costs using marginal and absorption costing..........................................................4
1.2 Applying range of management accounting techniques ...........................................................5
1.3 Interpretation of the data............................................................................................................5
TASK 2.................................................................................................................................................5
2.1 Advantages and Disadvantages of different types of budgetary control....................................5
TASK 3.................................................................................................................................................6
3.1 Comparing management accounting techniques to respond to financial problems...................6
3.2 Analysing management accounting can help to improve the financial performance to achieve
success.............................................................................................................................................7
3.3 Evaluating the planning tools to reduce financial problems......................................................7
CONCLUSION....................................................................................................................................8
REFERENCES...................................................................................................................................10
Books and journals:............................................................................................................................10

Index of Tables
Table 1: Net profit as per marginal costing..........................................................................................4
Table 2: Net profit as per absorption costing........................................................................................4

INTRODUCTION
Management accounting is defined as per the Institute of Management Accounting that it is
a process of accounting that identifies, analyse, interpret and evaluates information in order to take
timely decisions and to achieve organisational goals. UCK Furniture is a well renowned and
established company of UK which manufactures furniture products. This company is a well
established firm having a huge turnover and popular in the sector of satisfying customer to a great
extent. This report specifies that UCK Furniture is planning to start a training programme for new
interns in September 2016.
TASK 1
1.1 Calculating costs using marginal and absorption costing
Table 1: Net profit as per marginal costing
Marginal costing
particulars January February
sales 315000 402500
Less: Cost of goods sold
Variable costs
Material 132000 114000
Labour 88000 76000
Variable production overheads 55000 47500
Cost of production 275000 237500
Add: Opening stock 0 50000
Less: Closing stock 50000 0
cost of goods sold 225000 287500
Gross profit 90000 115000
Less: variable selling
expenditures 9000 11500
Contribution 81000 103500
Less: Fixed production
overheads 20000 20000
Fixed selling expenses 2000 2000
Total fixed costs 22000 22000
Net profitability 59000 81500

Table 2: Net profit as per absorption costing
Absorption costing
particulars January February
sales 315000 402500
Less: COGS
Variable costs
Direct Material 132000 114000
Direct Labour 88000 76000
Variable overheads 55000 47500
Fixed overheads 20000 20000
Cost of production 295000 257500
Add: Opening stock 0 53636.36
Less: Closing stock 53636.36 0
cost of goods sold(COGS) 241363.64 311136.36
Gross profit 73636.36 91363.64
Less: variable selling expenses 9000 11500
Less; Fixed selling expenses 2000 2000
Total selling expense 11000 13500
Net profit 62636.36 77863.64
1.2 Applying range of management accounting techniques
Marginal costing and Absorption costing are regarded as management accounting tools for
analysing and evaluating cost for a particular period. Marginal costing can be defined as the
technique which presents the data in order to determine the net profitability. Marginal costing
considers the variable costs which is charged as per the cost units whereas fixed costs are written off
in that period. If the amount of sales decline in a given period then the profit will also fall by the
same amount. Fixed production overheads are not considered in marginal costing so as to avoid the
effect of varying charges on each unit(Kaplan, 2015)
Absorption costing is a method which considers full product cost and takes into account
both direct as well as indirect costs. All the costs are absorbed by the total units produced. All the
manufacturing expenses whether variable or fixed are included in absorption costing.

1.3 Interpretation of the data
As per the data of marginal and absorption costing, it has been analysed that marginal and
absorption costing are considered to be different due to only one factor which is fixed overheads.
Marginal costing helps the organisation in decision-making by calculating net profitability, selling
price etc. But in this, all costs are classified as fixed and variable costs and it does not takes into
account semi-variable costs. There is a difference in the valuation of opening and closing stocks
when calculated as per marginal as well as absorption costing therefore affecting the net
profitability of UCK Furniture. UCK Furniture should adopt the technique which gives higher
profitability in the given period. Absorption costing helps in preparing financial accounts but
profitability gets affected in case of Absorption costing due to inclusion of fixed overheads.
TASK 2
2.1 Advantages and Disadvantages of different types of budgetary control
Top- down approach:
Advantages:
Top-down budgeting helps in increasing financial control towards managers at lower level.
Workload is also reduced as top managers plans the objectives and managers implement the budget.
Top- down budgeting sets the policies regarding the budget and monitors it regularly.
Disadvantages:
Sometimes top management do not have accurate information about the organisation which
ultimately affects the efficiency of the organisation(Dunk, 2011)
Bottom- up approach:
Advantages:
Bottom-up approach offers motivation to the lower level managers as ownership of
preparing budget lies with them and this technique further helps managers to be committed towards
achieving organisational goals. In this, low level managers are given an opportunity to come up
with innovative ideas to reduce costs.
Disadvantages:
Its disadvantage is managers can set easy targets for themselves which they can easily
complete but this will affect the profitability of the firm. Lack of experience in lower level
managers can lead to bad decision-making(Garrison, 2010)
Zero-based budgeting:
Advantages:

It allows the managers to set the priority of the activities that is which needs to be completed
first. Management resets the entire budget thereby reducing the financial problems in the
organisation.
Disadvantages:
It is difficult for the organisation to formulate the budget and also to implement it therefore,
it takes lot of time to be prepared. Zero based budgeting requires high manpower as every cost is to
be evaluated. Every cost is to be explained which is considered very difficult for the managers so it
requires to train the managers in regular intervals(Ray, S., 2012)
TASK 3
3.1 Comparing management accounting techniques to respond to financial problems
Return of capital employed: Net operating profit/ capital employed
UCK Furniture:
Design department: 5890/23100*100 = 25.50%
Gear box department: 3600/31930*100 = 11.27%
UCK woodworks: 6955/81230*100 = 8.56%
Operating profit margin: Operating income/ net sales
UCK Furniture:
Design Division: 5890/13000*100= 45.31%
Gear Box Division: 3600/24900*100= 14.46%
UCK Woodworks: 6955/15580*100= 44.64%
Interpretation:
As per the above calculations of the financial ratios, operating profit margin of UCK Group
of companies which includes both the companies namely UCK Furniture and UCK woodworks is
higher as compared to the return on capital employed. UCK woodworks has the lowest return of
capital employed which affects the overall profitability of the company. But on the other hand it has
higher operating profit margin of 44% which means company is earning higher operating profit.
Whereas, it can be analysed that UCK furniture's gear box department is not more profitable
division of the company as compared to design division. Design division is earning 45.31%
operating profit margin which means this particular department of the company is able to recover its
fixed costs and satisfy its creditors. Higher return on capital employed means company is efficiently
using its capital.

3.2 Analysing management accounting can help to improve the financial performance to achieve
success
Management accounting helps business to achieve success and to survive in the market. This
system helps the management to take accurate and timely decisions in an organisation. It involves
current and forward looking approach which assists management to survive in the market and make
a better image in the eyes of customers. It is considered as an effective tool for making decisions
and to gain expertise in every department. Costs which are related to each division or department
are estimated in advance so as to prepare the budget accordingly.
Management accounting system is also detailed which helps management to infer any
information or data any time. It is future oriented hence, if managers wants to refer any information
in future they can access management accounting. It further helps the companies to improve
liquidity in the market.(Gupta, 2010)
UCK furniture and UCK woodworks both are adopting management accounting system in
order to make decisions accurately and efficiently. They use financial tools in order to take better
decisions of buying or selling which ultimately help the company to survive in the market.
3.3 Evaluating the planning tools to reduce financial problems
Budgetary control:
This tool is used by the organisation in order to establish coordination between different
departments. It integrates management efforts to achieve common objectives. It predicts future
requirements and accordingly budget is prepared by taking effective decisions by the management.
It also helps the top managers to identify areas which require due attention(Weißenberger, 2011)
Budgeting:
Budgeting is another technique which is used by the organisation to achieve success. It helps
the managers to control spending by looking at the key areas which requires investment. It also
assists the organisation in enhancing wealth in order to survive among its competitors. It is futuristic
so costs must be forecasted to reduce any uncertainity and to achieve success.
Project Appraisal or evaluation:
Project evaluation is a technique which is used to evaluate the efficiency and effectiveness
of the projects whether they are on- going or completed. Its main aim is to achieve level of
effectiveness, efficiency and sustainability. Projects must be properly evaluated to enhance
development in the organisation. This helps in reducing the financial problems to achieve success in
the market.
Standard costing and Analysis of cost variances:
Standard costing is a tool which helps the managers in controlling various costs related to
the manufacturing activities. Thes costs are predetermined and then the actual costs are compared

with the standard costs. Standard costing is used by the organisation to reduce financial problems
and to know what are the reasons of deviations. Deviations are analysed to improve efficiency in
the organisation(Ajibolade, 2010)
Cost variances are properly analysed by comparing actual costs with budgeted or standard
costs. Variations are evaluated to correct them by taking appropriate measures. They are considered
a very important tool for analysing deviations in different divisions. It helps managers to detect
variations by considering different types of variances like material cost variance, labour cost
variance etc.
Ratio analysis:
Ratio analysis helps is a tool which helps in evaluating company's financial performance.
Ratios helps in estimating sales and profit which ultimately helps the managers to take decisions.
Ratios analyse the financial statements of the company which helps to evaluate performance,
profitability, efficiency and liquidity.
CONCLUSION
As per the report, it clearly mentions that management accounting is very much important
for the managers to improve the productivity and profitability of the organisation. It explains that
why management accounting is essential for the organisation to achieve success and to survive in
the competitive environment. UCK furniture also considers management accounting techniques in
order to evaluate the profitability of entire organisation. Marginal as well as absorption costing
techniques are used for decision-making and for analysing the overall efficiency and profitability.
Management accounting systems are also adopted for identifying, evaluating, and disseminating
information to reduce financial problems. UCK furniture also considered financial ratios like return
on capital employed, operating profit margin ratio etc. which helps in analysing the profitability of
each division based on financial statements. Various other planning tools and methods of
management accounting have been adopted by the organisation like standard costing, analysis of
cost variance, budgeting techniques in order to reduce the overall costs and increase financial
returns of company.

REFERENCES
Books and journals:
Kaplan, R.S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
Zimmerman, J. L. and Yahya-Zadeh, M ., 2011. Accounting for decision making and control. Issues
in Accounting Education, 26(1). pp.258-259.
Baldvinsdottir, G ., Mitchell, F. and et.al., 2010. Issues in the relationship between theory and
practice in management accounting. Management Accounting Research, 21(2). pp.79-82.
Garrison, R. H., Noreen, E. W., and et.al., 2010. Managerial accounting. Issues in Accounting
Education, 25(4). pp.792-793.
Weißenberger, B.E. and Angelkort, H., 2011. Integration of financial and management accounting
systems: The mediating influence of a consistent financial language on controllership effectiveness.
Management Accounting Research. 22(3). pp.160-180.
Ajibolade, S.O., Arowomole, S.S.A. and et.al., 2010. MANAGEMENT ACCOUNTING
SYSTEMS, PERCEIVED ENVIRONMENTAL UNCERTAINTY AND
COMPANIES'PERFORMANCE IN NIGERIA. International Journal of Academic Research. 2(1).
Popesko, B., 2010. Activity-based costing application methodology for manufacturing industries.
E+ M Ekonomie a management. (1). p.103.

Ray, S., 2012. Relevance and Applicability of Activity Based Costing: An Appraisal. Journal of
Expert Systems. 1(3). pp.71-78.
Gupta, M., Pevzner, M. and Seethamraju, C., 2010. The implications of absorption cost accounting
and production decisions for future firm performance and valuation. Contemporary Accounting
Research. 27(3) .pp.889-922.
Dunk, A. S., 2011. Product innovation, budgetary control, and the financial performance of firms.
The British Accounting Review. 43(2). pp.102-111.
Online references
Jan, I., 2013. Managerial Accounting. [Online]. Available through:
<http://accountingexplained.com/managerial/introduction/> [accessed on 15th May 2017].