Management Accounting and Cost Analysis in Prime Furniture

This report discusses the use of management accounting and cost analysis in Prime Furniture. It covers microeconomic techniques, budgeting for planning and control, and ways in which organizations can use management accounting. The report also explores different costing methods, inventory costs, and pricing strategies. It concludes with a comparison of how organizations can use management accounting.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
LO 1.................................................................................................................................................3
LO 2.................................................................................................................................................3
Microeconomic techniques.........................................................................................................3
LO 3.................................................................................................................................................9
Budgets for planning and control................................................................................................9
LO 4...............................................................................................................................................11
Compare ways in which organisations could use management accounting.............................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14
REFERENCES..............................................................................................................................17

INTRODUCTION
Management Accounting is the process in which manager uses the different provision of
accounting information in organization in order to have better information about the current
position of business and making different decision in an organization. Prime furniture is
wholesale manufacturer of furniture in United Kingdom. This report highlights different
microeconomics technique, product costing and cost of inventory. After that report highlights
different planning tool in the organization. In the end the report highlights different way in which
organization used to use different accounting system.
LO 1
(Covered in ppt)
LO 2
Microeconomic techniques
Cost is the value of the money which is incurred by an organization to deliver or to produce
something in an organization. There are many different type of cost incurred in the organization
to produce something in the market (Goddard and Simm 2017).
Cost-volume Profit: Cost-volume profit is a method of cost accounting that looks at
impact which used to be created by many different level of varying cost and volume on the
operating profit for an organization. There are many different type of assumption are made under
this regarding sales price, fixed cost and variable cost per unity are constant.
Flexible Budget: Flexible Budget is the type of budget that used to adjust or flexes with
change in volume or activity in the organization. Flexible budget used to also shows the
appropriate expenditure for different level of output.
Cost Variance: Cost Variance is define as a difference between actually cost incurred
and planned amount of cost that organization has set up in the past (Bromwich and Scapens,
2016).
Absorption cost, is a managerial accounting method which used to looks at both variable
as well as fixed overhead costs of producing a particular product in an organization. In simple
words it not only includes the material or labour, it also used to includes the manufacturing
overhead in the organization.

Marginal cost is the incremented cost which has been paid by prime furniture due to
producing of one extra level of product in the organization.
Fixed cost is the cost which is fixed in nature and do not use to change with change in
amount of production in the organization. Rent, insurance premium are some example of fixed
cost.
Variable cost at the same time is the cost which used to change with change in the
quantity of good and service produce in the organization. Raw material, packaging and labour
cost are some example of variable cost.
Cost Allocation is the process in the organization in which different cost are being
assigned to different cost object in an organization (Lada, Kozarkiewicz and Haslam, 2020).
Normal Costing is the method of costing, which is used by organization to derive cost of
an organization. In Normal costing actual data is generally used by organization to derive the
cost of product product with the exception of manufacturing overhead. Standard Costing on the
other hand is the costing method in which predetermine cost of all the different aspect of product
is generally consider by organization.
Activity Based Costing is the type of costing method in which organization used to
identify different activity & Services in the organization on the basis of actual consumption by
each in the organization.
Different type of costing in the organization used to provide a good hand of support in
setting price in the organization. As after ascertaining different type of cost in the organization,
Prime furniture used to plan different pricing strategy in the organization. Prime furniture
generally used to add profit margin with the cost of company to ascertain price of company
product (Al-Sayed and Dugdale, 2016).
Inventory cost are the different type of cost which is looks at procurement, storage and
management of inventory in an organization. Different type of inventory cost are as follows:
Ordering Cost: It is the type of cost which is incurred by an organization at the time of
ordering raw material or semi finished good. Cost of procurement and inbound logistic are two
type of ordering cost.

Carrying Cost: It is the type of cost which is incurred by organization for carrying or
holding the inventory in an organization. This cost includes warehousing cost such as rent,
utilities and financial cost.
All the organization used to perform variety of different activity in the organization to reduce
inventory cost in the organization. As it used to bring variety of benefit for an organization.
Some are as follows:
Strategic Management: Reducing inventory cost help organization in making different
strategy in the organization which used to support decision making in the organization. As with
the help of reducing inventory cost in the organization, organization is left with better resources
to make different future strategy.
Profit Margin: Reducing inventory cost in the organization will help company in
maximizing the profit margin in an organization (Leigh and Yazdifar, 2018).
Different type of valuation method:
Comparable valuation method: It is the type of valuation method in which the
organization used to compare the current inventory of an organization with the inventory of
different business organization.
Discount cash flow valuation method: It is the type of valuation method in which
organization used to estimate value of different investment on the basis of different type of future
cash flow.
Cost Variance and operating overhead
Cost variance is the mathematical difference between the budgeted cost of work perform
in the organization and actual cost of work performed in an organization. Overhead cost are
different type of overhead expenses in the organization which is related to the different ongoing
expenses of operating in the business.

Interpretation: From the above calculation it has been interpreted that it will be better for the
Prime furniture to use absorption costing as the costing tool. As the profit derived by applying
absorption costing is 11100. Where as applying marginal costing has shown the profit of 4700.
Reason behind the used to consider both variable and fixed cost as well.

LO 3
Budgets for planning and control
Budget is a financial plan for a defined period of time in the organization. It generally
used to includes data about planned sales volume and revenues and resource quantities. Budget
helps organization in forecasting different future activity which can take place in the market
(Schaltegger, Burritt and Petersen, 2017). This eventually help manager at Prime Furniture in
making different decision to plan different activity to overcome future uncertainty. Different type
of budgets are as follows:
Capital Budget: Capital Budget is the type of budget which looks at allocating different
sort of money in the organization for the purpose of acquisition and maintenance of fixed asset in
organization.
Operating Budget: Operating budget at the same time is a budget which used to forecast
revenue and expenditure expected for coming one or more future period (Different budgeting
method, 2019)
Alternative budgeting method
Budgeting Method
There are many different type of budgeting method, which is used by Prime furniture to
carry out different operation of business. Some of the budgeting method are as follows:
Incremental Budgeting: It is the type of budgeting method in which organization used
to take last year actual figure into consideration and used to make some fluctuation to obtain
current year budget.
Activity-Based Budgeting: Activity-Based Budgeting approach is the approach which
used to determine the amount of inputs requires for organization to support the different output
which is set up by the company (Shil, and Das, 2018).
Behavioural Implication of Budgeting
Dysfunctional Behavioural: Any unrealistic management expectation or any negative
reaction from subordinate manager in the organization can create the situation in the organization
may have a negative impact on budget. This negative behaviour is known as Dysfunctional
Behaviour of manager.

Participative budgeting: Participation by employees in the budget preparation can
provide them the feeling that “this is our budget,” rather than the feeling generally noticed
among employees that “this is the budget imposed by the top on us.
Pricing strategy
Premium Pricing: Premium pricing is the pricing strategy in which organization used to
keep the price of the product high in the market (ter Bogt and Scapens, 2019).
Penetration pricing strategy: It is the type of pricing strategy in the organization, in
which organization used to keep the price of the product at lower rate for attracting the eye of
different consumer. After certain period company used to increase the price of company product.
Generally competitor operating in retail or wholesale furniture industry used to use
penetration pricing strategy as a pricing strategy in the organization. Reason behind the same is
heavy competition in the organization.
Prime Furniture in the organization also used to consider supply and demand of the
product in the market. As demand and supply of product will help company in knowing amount
of profit margin which can be asked by the company from the consumer in the market. At the
same time it will also help organization in having better idea about cost which can be incurred by
organization in producing the product (Malina, 2018).
Actual costing is the system that uses the actual cost and actual qualities used in the
production to determine the cost of the specific product in the organization. This system
generally traces the direct cost which is invested to a cost object in the organization. Normal
costing is the costing system which also used to take actual cost into consideration to derive the
cost of the product in the organization but at the same time used to not consider the
manufacturing overhead in the organization. Standard costing at the same time used to look at
the variance between actual cost and already set budgetary cost of the company.
Job costing system in the organization do not has a grater impact on the Actual or Normal
costing, it used to has a impact on the standard costing as organization has to look at this cost at
the time of setting standard. Batch costing is the costing which used to take homogeneous
product as a cost unit. This costing has impact on Actual costing system more as compare to

other two because Actual costing used to look at cost of material, labour actual overhead and
cost of allocation (Schaltegger, Burritt and Petersen, 2017).
PEST
 Political: It is favourable as there is good political stability.
 Economic: It is also favourable as inflation and interest rate in UK is at good side.
 Social: Changing trend and preference of company in the market used to has negative
impact.
 Technology: Organization has to adopt different technology to carry out operation of
business in the market.
SWOT
Strength Weakness
 Goodwill
 Financial Position
 Profit Margin
 Outdated technology
Opportunity Threat
 Expansion
 Procurement of new technology
 Competition
 Law Policy
Porters Five
 Threat of competitor is high in the market
 Threat of new entrant is moderate in the market
 Threat of Substitute product is Low in the market
 Threat of Supplier is low in the market
 Threat of Buyer is moderate in the market.
LO 4
Compare ways in which organisations could use management accounting
Benchmarking is the process in the organization, in which organization used to compare
own performance with other entities including competitor or industry practice in the
organization. This tool help organization in overcoming different competition issue which is
faced by company in the market. Also, help organization in identifying difference between
competitor policy and company policy (Leigh and Yazdifar, 2018).

KPI at the same time help organization in comparing and measuring how well individual,
business unit and company perform against their goal. This tool help organization in identifying
different type of non financial problem such as performance gape of employee or used to
promote key area to be focused by company.
Prime Furniture Dream Furniture
Prime furniture used to use Benchmarking in
the organization. In which they used to
compare their performance with the other
competitor in the market by seeing
performance of other company with own
company.
Dream Furniture used to use KPI as the system
in the organization. In this system organization
used to set KPI and used to follow the same to
achieve goal of the business.
Financial Governance refers to different ways which is used by organization in to collect,
monitor and control different type of financial information in market. This tool can be used as a
monitoring system as it used to help organization in understanding the current position of the
business. This will improve level of decision making in the organization (Lada, Kozarkiewicz
and Haslam, 2020).
Management Skill
Some of the skill set which is require by management accountant in the organization are as
follows:
Learner: Management accountant need to be good learner as they have to go through
variety of report and has to learn best out of them to make decision.
Decision maker: Management accountant also need to have good decision making skill
as they have to make different decision in the organization.
Importance of full Discloser of financial Position
It is primary responsibility of all the organization to provide a full discloser of different
financial position of the business to interested party and also providing the same to different
department in the organization as well. This will eventually help company in improving level of
efficiency in the organization (Al-Sayed and Dugdale, 2016).

CONCLUSION
The above report summarized that there are many different type of cost and cost analysis tool
which is used by organization. After that the report summarized that budget is a very important
financial report of business which help company in forecasting future. After that the report
summarized that there are many different type of planning tool which is used by organization in
preparing budget. In the end the report summarized the different measuring tool and required
skill by management accountant.

REFERENCES
Books and Journal
Goddard, A. and Simm, A., 2017. Management accounting, performance measurement and
strategy in English local authorities. Public Money & Management. 37(4). pp.261-268.
Bromwich, M. and Scapens, R. W., 2016. Management accounting research: 25 years
on. Management Accounting Research. 31. pp.1-9.
Lada, M., Kozarkiewicz, A. and Haslam, J., 2020. Contending institutional logics, illegitimacy
risk and management accounting: a case study of study programme calculations in a
Polish public university. Accounting, Auditing and Accountability Journal.
Al-Sayed, M. and Dugdale, D., 2016. Activity-based innovations in the UK manufacturing
sector: Extent, adoption process patterns and contingency factors. The British
Accounting Review. 48(1). pp.38-58.
Leigh, B. and Yazdifar, H., 2018. Applying change management models to the revalidation of an
undergraduate Accounting & Finance programme–a study in the UK higher
education. International Journal of Finance & Managerial Accounting. 2(8). pp.1-7.
Schaltegger, S., Burritt, R. and Petersen, H., 2017. An introduction to corporate environmental
management: Striving for sustainability. Routledge.
Shil, N. C. and Das, B., 2018. Application of Management Accounting Techniques in
Manufacturing Firms in Bangladesh.
ter Bogt, H. J. and Scapens, R. W., 2019. Institutions, situated rationality and agency in
management accounting. Accounting, Auditing & Accountability Journal.
Malina, M. A., 2018. Advances in Management Accounting.
Different budgeting method. 2019. [ONLINE]. Available through
<https://corporatefinanceinstitute.com/resources/knowledge/accounting/types-of-budgets-
budgeting-methods/>.