Table of Contents INTRODUCTION...........................................................................................................................................3 PPT content:............................................................................................................................................3 1.1 Calculate costs using appropriate techniques of cost analysis to prepare an income statement using marginal and absorption costs.....................................................................................................14 1.2 Accurately apply a range of management accounting techniques and produce a financial reporting document..............................................................................................................................................18 1.3 Data interpretation by using costing methods which is used in an organization.............................18 TASK 2........................................................................................................................................................19 2.1: Merits and demerit of using planning tools....................................................................................19 2.2 Calculation of total cost...................................................................................................................20 2.3 Explain the purpose of budget and prepare a cash budget with the given information for coming month....................................................................................................................................................21 TASK 3........................................................................................................................................................22 3: Comparison with other organisation.................................................................................................22 3.2 Analysis of the accounting tools......................................................................................................23 3.3: Evaluation of the financial tools......................................................................................................23 CONCLUSION.............................................................................................................................................24 REFERENCES..............................................................................................................................................25 2
INTRODUCTION Management accounting is one of the crucial part of an organization that can assist in recording of various financial transaction that are done during the period of time. In a competitive environment, the management of an organization is searching for some effective management system that can helpful them to control and manage their financial and non- financial transactions in a systematic or effective manner. The management reports provide important information to the whole departments of an organization and also helpful them in preparing various reports. Evaluation of various kind of planning tools those are used to control budgets are evaluated effectively under this report. PPT content: 3
In this report, UCK Furniture is taken which specially deals in furniture industry. This report is divided into two parts. First part covers various management accounting systems in order to make reports. 4
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In simplest way accounting means recording of financial transactions related to a business. It is the process of summarizing, analysing and reporting these transactions to regulators and tax entities. system that guides management actions, motivates behaviour and supports and creates the cultural values necessary to achieve an organisation's strategic, tactical andoperatingobjectives.Therefore,itmustrequireforUCKFurnitureLtd.Toform management accounting as it helps in formulating policies, decision making and the day to day operations of enterprises. Management accounting is very helpful in taking decisions like, structured, semi structured, strategic or non-strategic decisions 5
Two types of costing which can be used by organisation to estimate accurate cost: Actual Cost: It is said to be actual expenses that are made to acquire an asset which consists of supplier invoiced expenditure included with the cost to deliver and test assets. The actual amount of money a physician or their services provider or supplier charges for a certain medical product. This is one of the cost of an asset when it is initially recorded in the financial statement as a fixed asset. Like, an actual cost can be more or less than the predicated cost. A car shop is an estimation that can repairs will cost $700 but at the same time the actual cost can varies to 800. Standard Cost: It is an estimation of cost of performing an operation or producing a product or services under the normal situation. These are used as target costs and are formed from the historical data evaluation or from time and motion analysis. They are almost varying from the actual cost because every situation has their share of unpredictable aspects those are related with the normal cost. The cost accountant periodically determine variance that can break out various caused by some of the factors like labour rate changes and cost of material. 6
Inventory management system It is known as one of the valuable system that can assist in recording of opening and closing stock information into their respective statements. It will help in planning their business for the coming period of time.By the help of this manager of the company can easily make supervision of the non-capitalized assets and inventory items. It is known as the specific element of supply chain management. It is said to be overall supervision of the goods from production to warehouses and from these facilities to the store.There is various way to manage the inventory, which are as follows - FIFO: FIFO stands for first in first out, which simply assume that first items placed in inventory are the first sold. Taking an example from UCK Furniture point of view, if 100 items were purchased for 10 pound and 100 more items were purchased next for 15 pound, FIFO would assign the cost of first items resold of 10 pound. After 100 items were sold, new cost of item would become 15 pound, regardless of any inventory purchases made. LIFO: In case of LIFO method, the manager use as recent costs of products purchased are the first costs expenses as the cost of goods sold. In case the company sells the products to the retailer and manufacturer it finds the costs of their items increasing. The use of LIFO will result in less taxable income and minimum tax payment than FIFO.As for an example, UCK Furniture manufactured 100 chargers, the first 50 chargers cost 50 pound each and last 50 cost 100 pound each and arrived one day ago. So by using LIFO, last inventory in is the first inventory sold. This means the charger costing 100 pound sold first. And then remaining 50 would be sold at 50 pound each. Just in Time: It is said to be one of the effective systemthat communicaterarematerials that isused by the manager while recording information related with the stocks.As it helps in increasing the competenceandreductionleftoverduring the time of manufacturingprocess, which helps in 7
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reducing inventory cost. As UCK Furniture Ltd, can apply this inventory system, they can directly communicate the supplier for inventory as when they required. It can help in minimizing the cost of warehouse and increasing in the overall profitability of UCK Furniture Ltd. Generally,it is one of the effective costing system that can be used by the production manager for the purpose of analysing the total cost they are incurring on the production of one unit of job.As UCK Furniture Ltd, should be using this system to detect the overall batch of product they are producing during the period of time and for that total amount of expenses is incurred by the company can also be determine at the same point of time. Job costing accounting procedure consist of, receiving enquiry from the customer about the quality and price of material and time to fulfil the order. Basically,it is said to be effective process of assigning the costs by the UKC furniture for a specific product. This term is largely in the construction sector and it refers to allocating costs to individual project that is planned by the company.So UCK Furniture Ltd can use this, can get benefit out of this job costing system. Price Optimising System: It is known as one of the mathematical analysis through which a company used to determine about how customer will respond to their various products and services that are being 8
offered to them during the period of time.As this particular method is more reliable for analysing the overall perception of the customer towards the company performance. Because the brand image can be relying on their overall decision made by the client.The company UCK Furniture Ltd can use this system for tailoring the prices for customer segment by getting their responses to different price levels. This type of systems will help UCK Furniture Ltd to decide pricing structure for initial pricing, discount pricing and promotional pricing. In the context of UCK Furniture are the manufacturer of special charger for mobile telephoneandothercarry-ongadgetsforretailoutlets.UCKFurnitureemphasisonits accounting reports to rectify problems associated with its operations, budgeting and investments. Some of the accounting reports maintained by UCK Furniture are as follows: 9
As cost accounting act as integral part of business strategy it allows to measure information regarding to cost of utilization of resources. Cost accounting allows to gain information about both financial and management accounting. InventoryManagementReport:UCKFurnituremanagesinventorymanagement reports to holds the finished products in the stock and transfer in the market at valuable state. The main purpose to maintain inventory management report is that it allows UCK Furniture when to get orders and in how many units’ order will they get in future. All the inventory cost which includes carrying cost of holding any items, ordering cost of replenishing any item and shortage cost comes under inventory management reports. Financial Accounting:UCK Furniture is hand dryer manufacturer and focused at maintaining financial accounting that helps them to gain historical background information. This historical information provides guidelines for future financial forecasting which includes future investment and budgeting. 10
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Budgets on the basis of time that can be long term budget plans or short term budget plans can be managed well through budget reports. Similarly, on the basis of function, it is easy to manage purchase budget, production budget, sales budget, capital expenditure budget and cash budget. Moreover, budgets reports enable to invest and control research and development budget as per as to requirement Account receivable reports allows establishing and communicating credit policies and setting credit lines. Account receivables reports helps in maintaining credit policy that is related to investment in receivables Account payable reports:UCK Furniture prepare accounts payable reports that helps them to identify those suppliers and vendors who are on credits. If no promissory note is signature by the company, the bill of vendors will be recorded as account payable. With the help account payable reports UCK Furniture is able access money that is owed by them to its creditors. The account payable reports are reviewed by many different documents which includes purchase orders, receiving orders, contracts and other agreements. With the help of payable records UCK Furniture is able record what they ordered and received from vendors. The 11
accuracy of UCK Furniture financial statements is directly depending upon accounts payable process. Operating Reports:Operating records are prepared and managed by UCK Furniture to focus on their inputs and outputs. This reports also help then to improve supply chain management and deliver finished products to customer when there is demand. Operating reports helps in calculating break-even point both for product quantity and sales. This reports helps in determining amount of financial leverages of UCK Furniture. Decision making and controlling the firms finance becomes quite easy.To speed up process and hence save time:Due to proper filing of data and information in the form of reports it is easy to speed up work which saves the precious time of works of UCK Furniture and reduces manpower labour. 12
These reports further assist the company’s top level officers for taking business decisions. Accounting systems are integrated to the management accounting reports for optimizing the resources.However,thiscouldbesimplysaidthatthesereportsarefurtherassistthe management for attaining its pre-set targets. 13
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1.1 Calculate costs using appropriate techniques of cost analysis to prepare an income statement using marginal and absorption costs. In order to earn more positive outcome as a profit, the manager of an organization need to make use of effective and useful costing systems in their business operations. The cost accounting system are basically associated with production of goods and services. A cost accounting system is also known as product costing is a framework which are used by an organization to estimate the products costs for their inventory valuation, profitability analysis and also for cost control (Plank, 2018). The marginal and absorption costing are two appropriate techniques of cost analysis which helps to the manager in finding profits for their products and services (Absorption costing,2012). The difference between marginal and absorption costing are summarized as below: Basis for comparisonAbsorption CostingMarginal Costing MeaningAllotment of total costs to the costcenterinorderto determine the accurate total cost of production is known asAbsorptioncosting (Christian, 2018). A decision-making technique for ascertaining the total cost ofproductionisknownas Marginalcosting(Hague, 2018). Overheads classificationAdministration,Production, selling and distribution Variable and fixed Cost per unitChanges in the opening and closing stock affects the cost per unit. Changes in the opening and closingstockdoesnot influence the cost per unit. Cost dataItispresentedin conventional manner. It is presented to outline total contribution of each product. Recognition of costBoth variable and fixed cost is considered as product cost. The fixed cost is considered as period costs while variable cost is considered as product cost. ProfitabilityFixedcostinclusiongets affected the profitability. Profitability is measured by Profit volume ratio i.e. P/V Ratio. 15
HighlightsNet profit per unitContribution per unit 16
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(a) Prepare a cost card using absorption costing and marginal costing Calculation of net profit as per absorption costing NET INCOME AS PER ABSORPTION COSTING:JanuaryFebruary Sales (35per units)315000402500 Opening inventory054000 Direct material (12*11000)132000 114000 (12*9500) Direct labor (8*11000)88000 76000 (8*9500) Variable OH (5*11000)55000 47500 (5*9500) OH absorbed (2*11000)22000 19000 (2*9500) Under / Over charged-2000-1000 Closing stock (2000*27)-54000- Total cost of production241000309500 Gross profit :7400091000 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:6300077500 Computing net profit by using marginal costing (January) ParticularAmountTotal Sales (35*9000)315000 Variable cost: 17
Opening inventory0 Direct Material (12*11000)132000 Direct labour (8*11000)88000 Variable OH (5*11000)55000 Closing inventory (25*2000)-50000-225000 Variable selling cost-9000-9000 Gross profit81000 Fixed cost: Fixed prod. Cost2000 Fixed selling cost20000 -22000 Net profit59000 PARTICULARSFebruary Sales (35 per unit)402500 less: Opening stock50000 Direct material (12*9500)114000 Direct labor (8*9500)76000 Variable overhead (5*9500)47500 Closing stock0 Variable selling cost-11500 COP287500 Gross profit103500 fixed manufacturing overheads20000 Fixed Admin & selling cost2000 total fixed costs22000 18
NET INCOME AS PER MARGINAL COST81500 1.2 Accurately apply a range of management accounting techniques and produce a financial reporting document. In every organization it is necessary to prepare the financial transaction in an appropriate manner. As on the grounds that administration bookkeeping is one of the expansive and assorted angles. From now on, is difficult to characterize their extension and nature. There are different imperative strategies which is being utilized by administrators, for example, recorded cost bookkeeping which is useful in cost bookkeeping to empower real costs which is acquired by the firm.Standardcostingismorevaluabletechniquesthatcanassistinprovidingspecific information to UCK furniture. Similarly, historical costing is another crucial technique that can help in evaluation cost on the basis of historical values. 1.3 Data interpretation by using costing methods which is used in an organization. To evaluate netincomes of UCK furniture, it is indispensablevalue that is related with utilization of the best costing techniquesthat willgive more exact answerfor an organization. From the above mentioned statements,both minimal and assimilation costing is being utilized for deciding aggregate net gainfulness for the organization. The netrevenueby using absorption estimatethey are getting8,980,131502, whereas by the help of using marginal costing they are getting profit of 9000 and 120000. Advantage of marginal costing: This is basically considered ascritical proceduresthat isjust a single separate direct or variableexpense are taken into account. In case of profitable business financial specialists essentiallyneed to take benefits of costing systemsfor decision making which is related to the future. Disadvantage of marginal costing: The most important part of this bookkeeping methods that they just thought to be variable expenses. That would make essential explanation behind low productivity. Advantages of absorption costing: 19
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It is for the most part accommodating to assess viable perspectives out of fixed costs which is related with creation process. These are for the most part urgent for planning last record. Disadvantage of absorption costing: This costing is not very important for the company for making future decisions. UCK furniture cannot be valuable while making effective decision making during the time. TASK 2 2.1: Merits and demerit of using planning tools Planning is most extreme critical part of each production or manufacturing business endeavors. They have to play out specific kinds of business exercises with the end goal to create most extreme advantages. Each action must close with cost and salaries of UCK gathering of organization. The essential point of the organization is dependably help to ensure that the costs does not turn around its income and for that UCK bunch constantly attempted to make fitting spending plans that will control their ordinary exchanges. The procedure of budgetary control is use by the organization with the end goal to deal with their future estimation about aggregate expenses and costs. As per this, different sorts of costs winning in UCK amass organization, for example, income costs, capital and income consumption or so on. Some significant spending plans are deals, generation and crude material spending plans. A viable budgets or spending plan would likewise help the organization to keep ordinary ignore of aggregate workforce and look at whether work is going right bearing. With the end goal to make spending plans for the organization different arranging instruments are thought about by the records supervisors (Holland and Leslie, 2018). These systems are useful in estimating future development and budgetary strength for the organization. Some of them are listed below with description: Tools of forecasting:It is for the most part found in an association that they generally plan to make estimated with the end goal to accomplish proficiency in inward office execution. An organization can precisely have considered in charge of assessing better outcomes as far as aggregate deals and income. This will prompt make better picture before different contenders. Benefits:It would help administrators to make determining for future through making right course in the manner in which organization can accomplish their points and destinations. 20
As, request of clients continued changing which would assist the organization with making their inventive items to an association. Limitations:As anticipating is done through estimation and from this time forward it can't be precise and dependable for each situation. Situation or scenario tools:This seems to beimportantpreparation tacklesis situation toolsthatattempts toframecenter around standpointas per the coming estimation that are made during the period of time.It is more essential devices by which UCK gathering of organization can shape a positive thought for anticipatingupcomingcircumstances (Holland and Leslie, 2018). Benefits:It is a standout amongst the most innovative arranging which is more suits according to the given circumstance in an association. Limitations:According to this arranging system can't precisely foresee their future since it depends on suspicions. It is too exorbitant to execute this kind of arranging apparatus. Possibility or contingency tools:An association dependably faces specific sorts of dangers which are related with questionable exercises. These exercises can be emerging from outer and additionally inward possibilities, for example, fire happened at the production line and some different viewpoints. Benefits:By the assistance of legitimate arrangement which would be relevant in possibility circumstances in best appropriate way. Since hazard are questionable and can't be resolve early. The job of directors is very much relegated in ideal way before any possibilities emerges. Limitations:This planning tool cannot be effective in some kind of situation because of which chances of controlling the uncertain risk become low. 2.2 Calculation of total cost In order to calculate variable cost per units in order to determine high and low activity stage. 21
2.3 Explain the purpose of budget and prepare a cash budget with the given information for coming month. Purpose of preparing budget:The main objective of formulating budget is to examine total amount of investments UCK furniture is incurred during the coming period of time. 22
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TASK 3 3: Comparison with other organisation Most of the profitable business is working in order to formulate different problems those are helpful to make large impacts by using ratio analysis that are mentioned below: ParticularFormulaUCK furniture’s UCK woodworks ROCE(Return oncapital employed): Operatingprofit/Capital employed*100 5890+3600/23 100+31930*10 0 =9490/55030* 100 =17.24% 6955/81230*1 00 =8.56% Operating profit margin Operating profit / sales *1009490/13000+2 4900*100 =25.03% 6955/81230*1 00 =8.56% Assets turnoverRevenue / Net assets13000+24900/ 23106+31930 =0.68 times 8150/81230 =0.100 times UCK Furniture’sUCK WOODWORKDS 1.Thisisbasicallyassociatedwith manufacturing only single product that is desk. 1.Theprimaryroleofthiscompanyisto provide all sort of raw material that are useful for UCK furniture in preparing the desk. 2.Accordingtothereturnoncapital employed, it has been analysing that they are able to get a net return of 17.24% on their overall investments. 2.In this company, only 8.56% of total return it would be able to generate during the financial periodoftimethatislowascompareto Furniture company. 3. The other ratio which is related with the assets turnover ratio is incurred as 0.68, it means that the stock are rotating this much time during the period of time. 3. In this, stock is rotating only 0.10 times that seems of total sales. 4. Operating profit margin is related with 25.03%. 4.Itisstillincurringwithverylowlevel becauseoftheirhighestexpensesforthe 23
company. 3.2 Analysis of the accounting tools Withtheendgoaltomakelegitimateinvestigation,moneyorfinancialrelated circumstance of UCK Group has been discoveredwhich are having minimum level of market or return ascontrast with UCK furniture’s. With the end goal to determine their budgetaryproblems they have to make utilization of differentmonetarytools and techniquessome of them are mentioned below: Financial Governance:This system is useful in settlingprimary problem that can influencing the execution of UCK Group. Bysubsequentviable guidelineas well ascontrol recommended by nearby specialists are should betrackedin compelling way (Mayangsari, et. al., 2018). Key performance indicators:It happens to be basicmonetary instruments that is useful in settling different money related issues those are emerges in an association. This done by making correlation through utilizing over a wide span of time information (Kibira, et. al., 2018). 3.3: Evaluation of the financial tools There are various financial issues that are faced by UCK furniture during the period of time. Some of the related with the cash flow statement as well as profitability level and some of them are associated with the product quality. With appropriate use of gauge or forecasted expenses and income through planning spending plan and powerful measures to control their misfortunes which is being seen amid ascertaining proportions of the organization. KPI can be considered as one of the primary tool to resolve the financial issues those are arises within the company. Ratio analysis is an important technique which is giving significant data with respect to show position of the organization. 24
CONCLUSION It can be concluded that with the help of various planning tools the manager can prepare the reports for the organization for their future growth and development. Various planning tools helps the manager to controls budget and monitor them in an appropriate manner. With the help of costing systems and its methods the net income for the organization can appropriately determine and measured. The overall report is estimating and finding proper balance among the financial condition of an organization. 25
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REFERENCES Books and Journals: Christian, D., 2018. Building Cost Management: Case Study Using Costing Methods.IJAME. Hague, D., 2018.Pricing in business. Routledge. Holland, J. and Leslie, D., 2018. Financial planning: pricing the package.Tour operators and operations: development, management and responsibility, pp.130-145. Kibira, D., Brundage, M.P., Feng, S. and Morris, K.C., 2018. Procedure for selecting key performance indicators for sustainable manufacturing.Journal of Manufacturing Science and Engineering.140(1). p.011005. Mayangsari, S., Murwaningsari, E. and Lastanti, H.S., 2018. THE ROLE OF FINANCIAL REPORTING QUALITY AND CORPORATE GOVERNANCE ON COMPETITION: EVIDENCEFROMMININGCOMPANIES.MediaRisetAkuntansi,Auditing& Informasi.18(2). pp.187-204. Plank,P.,2018.Introduction.InPriceandProduct-MixDecisionsUnderDifferentCost Systems(pp. 1-5). Springer Gabler, Wiesbaden. Online Absorptioncosting.2012.[Online].Availablethrough: <http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Marginal%20and %20absorption%20costing.aspx>. 26