Management Accounting Techniques and Planning Tools

Management accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
L O 2................................................................................................................................................3
Application of techniques of management accounting................................................................3
L O 3................................................................................................................................................6
Use of planning tools that are applied in management accounting.............................................6
L O 4................................................................................................................................................9
Compare ways in which organizations use management accounting..........................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting is defined as the process of determining the cost of business and
operations to prepare financial records and reports that supports decision-making of management
in achieving the goals of company (Childress and et.al, 2015). The Report is based on Prime
Furniture. The Report will outline various management accounting techniques, use of various
planning tools in management accounting. Further, it will also describe ways in which different
organizations are using management accounting to respond to financial problems etc.
L O 2
Application of techniques of management accounting.
Overview of management accounting-
The term management accounting refers to the presentation of information with the aim
of developing policies that are to be adopted by the management and supports in day-to-day
activities. It uses the details related with operations of business to prepare reports that offer
consistent insight into profit margin, labour utilization of the business that acts as an input to take
routine decisions (Christian, 2018).
Microeconomic techniques :
Cost- It means the amount that has to be paid in order to get something . In business, cost refers
to monetary valuation of material, labour, time, resources etc.
Types of cost-
On the basis of nature of costs-
Fixed cost : It refers to the cost of fixed inputs that are used in the process of production. These
cost does not change with change in production volume.
Variable cost: It means the cost variable inputs that are used by business in production of goods.
It changes with the change in volume of production.
Semi variable cost: It means the cost which is partly variable and partly fixed. It does not
directly influence the production but may change with production facilities.
On the basis of expense-
Material cost:
It means the cost of purchasing raw material used in production of goods.
Labour cost:
It refers to the payment made to temporary and permanent workers for their services.

Overhead:
It is the cost which changes with the level of production like cost of indirect labour etc.
Cost volume profit analysis-
It refers to the method of cost accounting that focuses at the impact that different levels of
volume and cost have on operating profit. It is also known as break even analysis that helps to
determine break even point for various levels of cost structure and sales volume that are useful
for managers to make short term economic decisions.
Flexible budgeting-
Flexible budget is a type of budget that helps to recognize the variation in difference
between variable and fixed cost to fluctuations in turnover, output etc. It is developed to change
in the relation to the level of activity attained by firm actually (Duan and et.al, 2016). This type
of budget is also called multi-volume budget. Major advantage is that it helps Prime Furniture to
forecast its performance. Major limitation is that fixed cost is generally fixed only over a
significant output range.
Absorption costing-
It refers to the approach of accumulating cost related with the process of production and
dividing them to individual products. The indirect and direct cost like direct labour, direct
material and insurance etc. are accounted for using this method.
cost per unit (absorption costing)
Figures (in
£)
Production cost(variable) 0.65
Production cost (fixed) 0.2
Cost of production per unit 0.85
Profitability statement as per absorption costing
Quarter 1
Particulars Units
per
unit
price
(in £)
Figures
(in £)
Net
figure
(in £)