Management Accounting: Types, Techniques, and Planning Tools

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
P1 Different types of MA system................................................................................................1
P2 Different types of MA budgeting tools..................................................................................1
P3 Absorption and variable costing techniques...........................................................................1
P 4 Comparing three different planning tools..............................................................................3
Presenting advantages and disadvantages of planning tools.......................................................6
P5 Assessing how management accounting tools can be used for responding monetary
problems......................................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting (MA) is used to make decision by considering all the important
aspects such that manager uses this method to analyze the area of cost control and make
improvement actions as well. In the same way, current study is based upon a scenario of Prime
Furniture who is planning to start a training course for new interns. In this, study will shed a
light on need of MA and assess how absorption and marginal costing assist quoted firm in
ascertaining cost. Further, study will provide different tools used for planning and analyze the
way in which it assist to minimize the financial issues.
P1 Different types of MA system
Covered in PPT
P2 Different types of MA budgeting tools
Covered in PPT
P3 Absorption and variable costing techniques
The calculation of the cost and the profit is very essential for the company as this assist
company in managing the profitability of the company. Thus, for the calculation of the cost there
are two major types of costing method that is marginal and absorption costing.
Marginal costing- the marginal costing is referred to as the ascertaining of cost in order
to measure the impact of profits over the change in the volume of production or the output. This
can also be referred to as the change in the aggregate cost because of the change in the
production quantity. Under this the variable cost is being charged to the per unit cost and the
fixed cost is written off in against of the contribution. Under marginal costing only the
manufacturing cost which is variable is included as product cost.
Absorption costing- this is a type of costing which reflects that all cost associated with
manufacturing of product is included at single time. Further all the indirect expenses that is non-
manufacturing expenses are treated after the calculation of gross profit.
Marginal Costing
Particulars Quarter 1 Quarter 2
Sales (66000*1) 66000 (74000*1) 74000
Less: VC
Variable cost (78000*0.65) 50700 (66000*0.65) 42900
Add: OP Stock 0 7800
1

CL Stock (12000*0.65) 7800 (4000*0.65) 2600
42900 48100
Contribution 23100 25900
Less: FC
Fixed cost 16000 16000
Selling And Administration 5200 21200 5200 21200
Net Profit 1900 4700
Absorption Costing
Particulars Quarter 1 Quarter 2
Sales (66000*1) 66000 (74000*1) 74000
Less: Direct Expenses
Variable Cost (78000*0.65) 50700 (66000*0.65) 42900
Add: OP Stock 0 10261.54
Less: CL Stock 10261.54 3569.70
Fixed Cost 16000 16000
56438.46 65591.84
Gross Profit 9561.54 8408.16
Less: Indirect Expenses
Selling And Administration 5200 5200
Net Profit 4361.54 3208.16
Reconciliation statement
Quarter
1 Quarter 2
Profit as per Absorption costing 4361.54 3208.16
+ op stock @ FOH rate at op. date 2461.54
- Cl stock @ FOH rate at cl. date 2461.54 970.00
Profit as per marginal costing 1900.00 4700
Interpretation- from the above table it is clearly evident that profit under the marginal costing
for quarter 1 and 2 are 1900 and 4700 respectively. Furthermore, in case of the absorption
costing the profit were 4361.54 and 3208.16 for quarter 1 & 2 respectively. With help of above
calculation, it is clear that with help of absorption costing the profits are more as compared to
marginal costing. The reason behind this is that under absorption costing all the direct expenses
2