Effectiveness of Management Accounting Tools and Techniques in Achieving Success

UCK Furniture's adoption of standard costing, cost variance analysis, and ratio analysis has been effective in achieving success and improving profitability. The use of these tools has enabled the company to analyze deviations from predetermined costs, detect variations, and make informed decisions. This has resulted in reduced financial problems, improved forecasting, and enhanced decision-making capabilities.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Calculating costs using marginal and absorption costing.....................................................3
1.2 Applying range of management accounting techniques ......................................................4
1.3 Interpretation of the data.......................................................................................................4
TASK 2............................................................................................................................................5
2.1 Advantages and Disadvantages of different types of budgetary control...............................5
TASK 3............................................................................................................................................5
3.1 Comparing how organisations are adopting management accounting systems to respond to
financial problems.......................................................................................................................5
3.2 Analysing management accounting can help both the companies to achieve success..........6
3.3 Evaluating the planning tools used by the companies to reduce the financial problems......6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting can be defined as per the Institute of Management Accounting
that it is a profession that deals with management decision-making, expertise in formulation and
implementation of strategies and assist management in planning and performance of
management. UCK Furniture is a well renowned company of UK which is engaged in a business
of manufacturing furniture products that is they manufacture in mainly two sectors which are
tables and drawers. 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
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
Absorption 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
Fixed production overheads 20000 20000
Cost of production 295000 257500
Add: Opening stock 0 53636.36
Less: Closing stock 53636.36 0
cost of goods sold 241363.64 311136.36
Gross margin 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 can be considered as management accounting
techniques for cost analysis. Marginal costing can be defined as the technique of showing the
data related to the costs where variable costs as well as fixed costs are presented seperately for
making better decisions and to find out the overall profitability of a company. If the amount of

sales fall in a given period then the profit will automatically 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(Azizi and et.al, 2010, June.)
Absorption costing considers fixed overheads that is it considers both direct as well as indirect
cost to assess the profitability of the company. All expenses associated with the manufacturing of
a product are included in the absorption costing.
1.3 Interpretation of the data
As per the above data, it can be interpreted that absorption costing includes fixed
overheads unlike marginal costing that's why there is a difference in the profitability of marginal
and absorption costing. Because of the adjustment of the fixed overheads in both the techniques,
there is a difference in the valuation of opening and closing stock of both the months. In
marginal costing s tock is valued at 50000 but in the absorption costing stock is valued at
53636.36 because of the fixed charges of 2000.
TASK 2
2.1 Advantages and Disadvantages of different types of budgetary control
Bottom-up budgeting:
This budget contains the better information as employees themselves set the budget as
well as it enables better communication between the departments. Its disadvantage is that
decision-making is sometimes bad as it is taken by less experienced managers.
Top-down budgeting:
this budgeting has a greater advantage of better control of managers as budget is mainly
set by the senior managers (Managerial Accounting, 2012). Its disadvantage is that there is no
communication between the departments and top managers doesn't listen to the employees
regarding any complaints.
Zero-based budgeting:
Zero based budgeting are considered to be flexible budgets that is whenever we want to
change anything in our budget in future it can be changed. But it has a shortcoming of resource
and time constraint. It takes a lot of time to be prepared which is a major drawback.

TASK 3
3.1 Comparing how organisations are adopting management accounting systems to respond to
financial problems
Return of capital employed(ROCE): Operating profit/ capital employed
UCK Furniture:
Design Division: 5890/23100 *100 = 25.5%
Gear Box Division: 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, UCK woodworks which is a competitor of UCK Furnitures has a
lower return on capital employed. Return on capital employed measures the profitability of the
organisation and helps in better decision making. Design Division of UCK Furniture has the
highest return on capital employed which is 25.5% followed by the Gear Box Division of UCK
Furniture. UCK woodworks has the lowest profitability so they have not adopted management
accounting systems in an efficient manner. But this is opposite in the operating profit margin as
UCK woodworks has the operating profit of 44.64%. Design division of UCK furniture has the
highest operating profit margin of around 45%. Gear Box Division of UCK Furniture has the
lowest operating profit margin. Therefore, Design Division of UCK furnitures has the highest
profitability and measures the highest performance.
3.2 Analysing management accounting can help both the companies to achieve success
Management accounting system helps the companies in achieving success as this system
provides financial expertise, skills and knowledge related to the management in order to ensure
efficiency and effectiveness. It is considered as an effective tool for decision making in the
company which helps the managers of the companies to strive for success. Costs related to each
department, expenditures etc. are estimated and budget is made accordingly which will help both

the companies to survive in the market. Their actual costs should be compared to the standard
costs to maintain profitability(Macintosh and et.al, 2010)
UCK Furnitures and UCK woodworks both the companies adopt management accounting
systems to achieve success in the market. Management accounting system helps the companies
in improving liquidity in the organisation. UCK Furniture deals with two different divisions and
UCK woodwork is the competitor of the UCK furniture and both the companies adopt
management accounting systems then also UCK furniture is more profitable on the basis of the
financial tools used.
Management accounting system used by the companies also increases financial returns as
they are the best tool to be considered for decision making. This helps in achieving success for
the organisation as better decisions ultimately leads to success(Fullerton and et.al, 2013)
3.3 Evaluating the planning tools used by the companies to reduce the financial problems
Budgetary control:
This tool is used by the organisation in order to predict future requirements and these
future needs are arranged in such a manner so as to take decisions effectively. This technique is
used to analyse the performances of the business and all the budgets are prepared in a desired
manner. These standard costs are compared to the actual costs in order to analyse the profitability
of the company to achieve success.
Project Evaluation:
This tool is used by the management to assess the overall project efficiency. Its main
objective is to check the level of effectiveness as well as sustainability. Project should be
properly evaluated and checked by the manager so as to formulate policies and procedures to
achieve success.
Standard costing:
Standard costing is another important tool used by the companies in order to analyse
predetermined cost in the organisation. This cost is then compared with the actual costs incurred
in the manufacturing organisation like material, labour, overhead costs. Standard costing is used
to find out the reasons of the deviations(Cinquini and et.al, 2010.)
Cost Variances:
Cost variances helps the managers to correct and control the variations from the standard
costs. They act as a very useful tool in achieving success by analysing the variations. It helps

financial managers to detect the deviations by considering different types of variances like profit
volume variance, material cost variance, labour cost variance etc(Zimmerman and et.al, 2011.)
Ratio Analysis:
This tool is used by the management in order to carry out different functions of planning,
forecasting, evaluating and analysing the financial statements. It helps the managers in reducing
financial problems by estimating the sales and profit in advance and to meet different targets.
CONCLUSION
As per the current study on management accounting it considers the concept of
management accounting that why it is useful for the managers to achieve success in the
organisation and improve profitability. UCK furnitures has adopted various tools and techniques
for decision making. Standard costing, ratio analysis, cost of variance analysis, budgeting etc.
has been used to improve an efficiency. Management accounting systems have been adopted by
the organisations to reduce various costs, and to increase the financial returns.

REFERENCES
Books and Journals
Ajibolade and et.al, 2010. MANAGEMENT ACCOUNTING SYSTEMS, PERCEIVED
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Azizi and et.al., 2010, June. Energy-performance tradeoffs in processor architecture and circuit
design: a marginal cost analysis. In ACM SIGARCH Computer Architecture News (Vol. 38,
No. 3, pp. 26-36). ACM.
Cinquini and et.al., 2010. Strategic management accounting and business strategy: a loose
coupling?. Journal of Accounting & organizational change, 6(2), pp.228-259.
DRURY and et.al., 2013. Management and cost accounting. Springer.
Fullerton and et.al 2013. Management accounting and control practices in a lean manufacturing
environment.Accounting, Organizations and Society. 38(1), pp.50-71.
Gupta and et.al 2010. The implications of absorption cost accounting and production decisions
for future firm performance and valuation. Contemporary Accounting Research, 27(3),
pp.889-922.
Kaplan and et.al., 2015. Advanced management accounting. PHI Learning.
Macintosh and et.al., 2010. Management accounting and control systems: An organizational and
sociological approach. John Wiley & Sons.
Ward, K., 2012. Strategic management accounting. Routledge.
Zimmerman and et.al., 2011. Accounting for decision making and control. Issues in Accounting
Education, 26(1), pp.258-259.
Online
Managerial Accounting. 2012. [Online]. Available through:
<http://fisher.jsc.vsc.edu/manacct/wk23_ops_budgeting.html>. [Accessed on 9th May
2017].