Management Accounting Techniques and Financial Success

This report discusses the significance of management accounting in analyzing organizational information to formulate business strategies and drive sustainable success. It highlights various management accounting techniques used by manufacturers to minimize costs and ensure profit increments. The report also mentions the importance of performance management, leadership construction in family firms, and the use of shop-floor involvement in advanced management accounting practices.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
1.1 Preparation of income statement and calculating the costs by using appropriate techniques
of costs analysis ..........................................................................................................................1
1.2 Range of management accounting techniques......................................................................4
1.3 Interpretation of costing techniques and financial reports ...................................................4
TASK 2............................................................................................................................................4
2.1 Describing advantages and disadvantages of disadvantages of planning tools used for
budgetary control ......................................................................................................................4
2.2 Estimation of the expenses if the number of hours required for July and August by
adapting the high-low method.....................................................................................................6
2.3 Explanation of purposes of budget and preparation of cash budget ....................................7
TASK 3............................................................................................................................................7
3.1 Comparison between the performances of UCK Woodworks and UCK Furniture on the
basis of three performance measures..........................................................................................7
3.2 Describing how management accounting helps in improving the financial performance of
organisation ................................................................................................................................9
3.3 Evaluating planning tools helps in reducing the financial problem for accomplishing the
success ........................................................................................................................................9
CONCLUSION..............................................................................................................................10
RFERENCES.................................................................................................................................11
.......................................................................................................................................................11

INTRODUCTION
It is true that the present business life-cycle of each and every organisation requires for
some crucial purposes, the management accounting and its tools for budget controlling and for
effective decision making, devising planning and performance management systems and
rendering expertise financial reporting and controlling in order to ascertain the management
formulation and implementation of an organisation' strategy (Alyousef and Alnasser, 2015).
These all tasks performed by the managers of the organisation with the help of management
accounting systems, techniques and its tools. Therefore, the management accounting commonly
known as the managerial accounting. This report pertain the information about the management
accounting system, its techniques and its tools with the illustrative example of UCK furnitures
operational data, for the proper understanding of the effectiveness of management accounting in
business.
TASK 1
1.1 Preparation of income statement and calculating the costs by using appropriate techniques of
costs analysis
Income Statement by using absorption and marginal costing techniques of management
accounting are below.
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The above calculation shows the net profit quantified by the techniques of absorption comprises
in management accounting criteria and after this, the calculation of net profit by adapting
marginal costing is presented below.
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The above calculations or charts shows the net income from the both the methods of
costing that are mainly two namely, absorption costing and marginal costing. By using the
absorption costing the profit of two months are 63000(January) and 77500(February) and by
adapting the marginal costing method the profits for two months are 59000 (January) and 81500
(February). Both the methods are appropriate for the calculation of net profits.
1.2 Range of management accounting techniques
There are mainly two techniques of the management accounting for the calculation of the
net printability of the business. These two techniques are as follows.
Absorption costing:It refers to the techniques that pertain absorption of the all
manufacturing costs incurred in the production of goods(Morden, 2016). These costs includes the
material, labour and all direct expenses. The costs involves fixed or variable nature.
Marginal costing: it refers to the techniques where the classification is made between
the fixed and variable costs, under which the variable costs is charged to unit of costs, while the
fixed costs charged against the contribution(Leotta, Rizza and Ruggeri, 2017).
1.3 Interpretation of costing techniques and financial reports
Management accounting pertain several techniques for various analysis purposes of
accounting or operational information in order to present the accurate or true value of each and
every aspects of business operation. Besides this, the management accounting pertain two
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techniques for the calculation of the net income from the production or operational activities as
these both techniques are effective in calculating the net income. As
TASK 2
2.1 Describing advantages and disadvantages of disadvantages of planning tools used for
budgetary control
Management accounting system pertain three types of budgetary controlling tool for
effective budgeting of business projects. These budgetary tools are Forecasting planning,
Scenario planning, and contingency planning tool for the purpose of effective budgeting. There
are some advantages and disadvantages of these three budgetary controlling tools are as follows.
Forecasting planning tool: This planning tool helps in forecasting the business of the
organisation like UCK furnitures and its management while formulating the budgetary plans(Van
Dooren, Bouckaert and Halligan, 2015). Forecasting is not accurately but it ensures the
organisation to estimate the future business era and forecasting is of two types qualitative and
quantitative forecasting.
There are some advantages and disadvantages of forecasting planning tool are as follows.
Advantages:
 The forecasting techniques helps the organisation like UCK furniture, in their survival
among the high competition environment. The organisation which does not use the
forecasting techniques will likely to succumb to their competition in a short time.
 It ensures the organisation like UCK furnitures to forecasts the production limits, it
means how much products will need to produce to meet the customer needs or demand as
well as helps in determining number of employees required for that amount of
production.
Disadvantages:
 The forecasting technique mainly used for predicting and predictions regarding future are
the assumptions of someone which may be correct or wrong and future is also uncertain,
so there is no surety of the predictions made with the help of this technique.
 Sometimes it leads to unexpected occurrence, as the market can be influenced by the
unexpected occurrence which can affects the forecasting planning of the business.
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Scenario planning tool: This planning tool helps the manager for strategic planning,
scenario planning stands tool uses by the manager to seizure all ranges of future possibilities in
rich detail(Abdel-Maksoud, Cheffi and Ghoudi, 2016). By identifying future trends and
uncertainties, a manager becomes able to construct a series of future scenarios for the
rectification of the usual errors in decision making the errors mainly arises due to overconfidence
and tunnel vision.
Advantages:
 Scenario planning helps in ascertaining the organisations performance and change
through effective conversation, quality and engagement. Besides this, it helps in decision
making, mental models, leadership support which are essential for t he healthy working
environment of the business.
 Under this tool, the future planning gives the rise to innovative business ideas and helps
to acquire diverging views across a business.
Disadvantages:
 Scenario or strategic planning may be time consuming and expensive.
 It becomes difficult or planning becomes ineffective in case of rapidly changing markets.
Contingency planning tool: This planning tool ensures the organisation like UCK
furnitures to get back on its feet and begin rendering the products or services without taking
much time. It is concerned with developing the extensive plan in order to meet the conditions
arises due future uncertainties or contingencies(Cooper, 2017). The contingency plan involves
three components namely, Recognizing the contingency, responding the contingency and
planning for recovery.
Advantages:
 Contingency planning tool befitting in avoiding the risks of certain crisis, which can
influence the operations or functioning of the business.
 This planing tool ensures fast reactions in crisis event minimise the damage. Besides this,
it also promotes safety to businesses also improves the communication and encourages
forward thinking.
Disadvantages:
 Formulating the contingent plan requires a lot of time and efforts. Hence, it is time and
efforts consuming process.
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 Contingency plans becomes fail sometimes, as not all crisis are foreseeable.
2.2 Estimation of the expenses if the number of hours required for July and August by adapting
the high-low method
(Total expenditure of high activity – Expenditure from low activity)
Total cost=
(Highest activity per hour spend – Lower hour spend)
Total expenditure (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 Explanation of purposes of budget and preparation of cash budget
Some of the objectives or purposes for the preparation of cash budget are as follows.
Objectives or purposes:
 All effective planning and controlling are based on accurate budget.
 Cash budget is crucial to estimate the amount of cash inflow and cash outflow during the
budget period.
 On the basis of cash budget, the management decides to operate the business, service
debt, purchase of new equipment etc. only if the budget shows the availability of cash. If
the cash budget shows unavailability of adequate cash then it depicts the need to borrow
funds to operate the business(Boiral, 2016).
 Cash budget is crucial for predicting the future cash position as well as cash surplus or
deficit for ensuing period.
On the basis of given information the cash budget for the month of September s below.
Cash budget Amount
Particulars September
Opening balance 9000
Cash sales 39000
Sale on account 5648
Total Cash collected 53648
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Less:
Purchase -16800
Selling and administration
expenses -13000
Equipment cost -18000
Dividend paid -4000
1848
Add: minimum cash balance 5000
Expected cash at the end of
September month 6848
TASK 3
3.1 Comparison between the performances of UCK Woodworks and UCK Furniture on the basis
of three performance measures
Comparison is made on the basis of three measures or accounting ratios of above two
organisations, that are as follows.
(i) Return on capital employed (ROCE) (ii) Asset turnover (iii) Operating profit margin
Ratios Formula UCK furniture’s UCK woodwork
ROCE (Return on
capital employed):
Operating profit/Capital
employed*100
5890+3600/23100+31
930*100
=9490/55030*100
=17.24%
6955/81230*100
=8.56%
Operating profit
margin
Operating profit / sales
*100
9490/13000+24900*1
00
=25.03%
6955/81230*100
=8.56%
Assets turnover Revenue / Net assets 13000+24900/23106+
31930
=0.68 times
8150/81230
=0.100 times
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On the basis of above information the comparative presentation between both of the
organisations are as follows.
UCK furniture UCK woodwork
The ROE of UCK furniture is much higher
than the UCK Woodwork. It means, the return
on the capital invested by UCK furniture is
higher than UCK Woodwork. It gives more
interest or dividend to their shareholders in
comparison of other one(Spraakman, 2015).
The ROE of UCK Woodwork is very less than
than the UCK furniture. It indicates that return
on the capital invested higher than UCK
Woodwork. UCK furnitures can renders high
interest or dividend to their shareholders.
The profit occurs from the operating activities
is three times higher than UCK woodworks as
it shows the high profitability of organisation
in comparison of other organisation.
The profitability from operational activities is
too lower in comparison of other organisation.
In depicts less probability.
Besides this, the in context of efficiency the
assets turnover is lower in comparison of UCK
woodworks, as it indicates the inability of
organisation to utilize the assets effectively.
The Efficiency ratio or assets turnover ratio of
organisation is higher, as it depicts that the
organisation is capable in utilizing the assets
effectively (Falkner and Hiebl, 2015).
3.2 Describing how management accounting helps in improving the financial performance of
organisation
The management accounting comprises with several techniques used for the purpose of
betterment in analysing of operational information of the organisation like UCK furnitures, the
techniques of management accounting for solving the financial performance of business entity.
KPI: Key performance indicator use to evaluate the performance as well as the success
of the organisational like UCK furnitures by evaluating the past performances of the
organisation(Ojra, 2014). It acts as the motivational force that promotes the business as well as
the profitability of business. By making improvement in performances the KPI helps in
maximising the profit as well as improving the financial performances of the entity.
Benchmarking: It is the special techniques used for the measurement of the quality of
organisation's policies, products, strategies etc. and make comparison with measuring standards
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in order to identify the improvement and quantify the strategies by which the organisation like
UCK furnitures can achieve the high performance levels(Oldroyd, 2017). Although it is also
concerned with betterment in operational performance so that it can avoid the financial
performance.
Financial Governance: It refers to the manner by which the company can collects,
manages and controls the financial information of the business entity like UCK furnitures. It
comprises with the process by which the company can lead the financial transactions,
performance management and controlling the data, compliance and operations(Brierley and
Gwilliam, 2017). It helps in improvement of financial as well as operational performance of the
business entity.
3.3 Evaluating planning tools helps in reducing the financial problem for accomplishing the
success
There are several planning tools which are very effective in solving the financial
performance of the organisation like UCK furnitures such as ratio analysis and standard costing.
Ratio analysis: It is the analysis of the accounting ratios which involves several ratios
like profitability ratios, efficiency ratios and liquidity ratios etc. these ratios helps in indicating
the financial as well as the operational performance of the organisation(Ward and Calabrese
2018). And are effective in reducing the financial problems by ascertaining the business
performance.
Standard costing: It is the accounting techniques used by the manufacturers in order to
locate the deviations between the actual costs of goods produced and the costs that should have
incurred for that production of goods. This techniques helps in minimising the costs of the
production and ensures increment in profits of the organisation like UCK furnitures, which can
avoid the financial problems.
CONCLUSION
From the above report it has been concluded that the management accounting is the
system used for analysing the organisational information to formulate business strategies and
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drive sustainable success of the business. Besides this, the management accounting pertain
several techniques for various analysis purposes of accounting or operational information in
order to present the accurate or true value of each and every aspects of business operation.
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