Management Accounting: Costing Techniques, Budgetary Control, and Financial Analysis

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
P3 Costing Techniques................................................................................................................3
Planning tools used by company to combat financial problems..................................................7
P4 Budgetary Control and merits and Demerits..........................................................................8
P5 Comparison of companies to financial problems...................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting is all about preparing reports and budgets for improving future
performance in terms of profitability and sustainability. It is a matter of internal management
where the accountant is concerned about improving processes that is internal to the organization.
Such accounting system is meant for managerial decision-making which includes, cost analysis,
budgeting, forecasting and obtaining break-even point. The present report is based on the
concept and usefulness of management accounting. The report will highlight the utility of
management accounting for Prime furniture, which is UK based organization making and selling
furnitures. This report will indicate how Prime Furniture has integrated management accounting
in their operations to improve their performance and ensure sustainability for long term. The
systems under management accounting are very useful in addressing various financial issues to
lead on the path of success.
P3 Costing Techniques
Cost: It refers to the amount paid by an organization towards obtaining raw materials for
initiating production activities, payment for machinery and technology, expenses incurred for
selling and administration activities, etc. Cost analysis is an important aspect of management
accounting as a minor variation in cost leads to a greater impact on profitability of a concern. By
obtaining cost data, managers can decide upon the requirement of external borrowings and
arranges the same in advance at the best possible terms. Costs under management accounting are
defined under the following heads:
Absorption costing: Under the method of absorption costing, all cost related to the production of
a particular product are accounted for ascertaining the cost per unit of product manufactured. The
main purpose of adopting this technique of costing is to facilitate inventory valuation. It is also
called as full costing method. It takes into consideration both direct cost of manufacturing and
fixed and variable overhead costs (Oyewo and AJIBOLADE, 2019).
Variable costing: This particular method of costing provide useful insight to management
accountant regarding the changes occurred in the profit figures due to the small changes in the
level of output. This technique bifurcates the total cost associated with the production into fixed
and variable cost. Fixed cost remains constant at different level of output while the variable cost
goes on increasing and decreasing continuously with the corresponding increasing and

decreasing of output level. There exist direct relationship between variable cost and volume of
production.
In the question, Selling price=1
Variable Cost=52000/80000=0.65
Fixed cost=16000/80000=0.2
Total cost per unit=0.65+0.2=0.85
Income statement for Quarter 1 and Quarter 2 using absorption costing
Particulars Q1 Q2
Sales 66000 74000
Less: Variable costs 50700(0.65*78000) 42900
Fixed costs 15600 13200
Cost of Goods available for
sales
66300(50700+15600) 56100(42900+13200)
Add: Opening stock 0 10200
Less: Closing stock 10200(0.85*12000) 3400(0.85*4000)
COGS 66300-10200=56100 56100+10200-3400=62900
Gross profit 9900(66000-56100) 11100(74000-62900)
Less: Selling and
administration costs
5200 5200
Net Profit 4700 5900
Income statement for Quarter 1 and Quarter 2 using variable costing
Particulars Q1 Q2
Sales 66000 74000
Less: Variable costs 50700 42900
Add: Opening stock 0 7800
Less: Closing stock 7800(0.65*12000) 2600(0.65*4000)