The Process of Analysing Business Operation

MANAGEMENT
ACCOUNTING
PART-2

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Using techniques of cost analysis prepare income statements using absorption and
marginal cost .........................................................................................................................3
1.2 Apply different range of techniques of management accounting and produce financial
report.......................................................................................................................................4
1.3 Produce financial report that help in interpreting complex business activities...............5
2.1 Advantages and Disadvantages of different planning tool used in budgetary control ....6
2.2 Estimate cost using high low method...............................................................................7
2.3 The purpose of budget and prepare a cash budget...........................................................8
TASK 3............................................................................................................................................8
3.1 Compare how organisations are adapting management accounting system to respond
financial problem....................................................................................................................8
3.2 How management accounting aid in improving company's performance........................9
3.3 Evaluate different types of planning tool in order to reduce financial problem ..............9
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting refers to the process of analysing business operation and cost so
as to prepare internal financial records, statements and account that help manager in decision-
making process and accomplishing organizational goal in an effective manner (Chiwamit,
Modell, and Yang, 2014). The given report is based on UCK Furniture and it covers various
techniques of management accounting, positive and negative of different types of planning tools
and preparation of income statement using absorption and marginal cost.
TASK 1
1.1 Using techniques of cost analysis prepare income statements using absorption and marginal
cost
Evaluating cost and profit of the company is considered as one of the most challenging task for
accountants and manager. They thoroughly measures day to day activities of business that
involves monetary values. There are different types of cost accounting techniques that help in
measuring the profitability of the firm. Profit and cost evaluation process becomes easy and
convenient with the help of these techniques.
Fixed and Variable Cost: Fixed Cost is the one that doesn't vary with the change in volume of
production i.e. it does not change with the amount of product & services produced by company
over a period of time. Even it remains same if there is no production in the company. It often
includes machinery, building, rent etc.
On the other hand, Variable Cost refers to that cost of company that is associated with
produced goods and services over a period of time. It either increases or decreases due to any
change that occurs in production volume. It include: wages, material used in production, utilities
etc.
Absorption Costing: It refers to the cost that is concerned with manufacturing overall products
and services. Basically this costing method covers everything that is directly related with
producing a goods or services such as overheads, labour, material etc.
Marginal Costing: Cost related with any change in total production cost either increase or
decrease for producing one additional unit of an item is known as marginal costing (Albu, and
Albu, 2012). It is normally calculated in cases where company has attain its break-even point
and its fixed cost has already been absorbed by produced item. It includes variable cost such as

material or labour cost plus some proportion of fixed cost such as selling expenses,
administration overheads etc.
Calculation of profit as per marginal costing
PARTICULARS January February
Sales (35 per unit) 315000 402500
less:
Cost of Production (12+8+5) 275000 237500
variable selling overheads (1 per unit) 11000 9500
variable cost 286000 247000
Contribution 29000 155500
less:
fixed manufacturing overheads 20000 20000
Fixed Admin & selling cost 2000 2000
total fixed costs 22000 22000
NET INCOME AS PER MARGINAL COST 7000 133500
Calculation of profit as per absorption costing
Particular January February
Sales (35per units) 315000 402500
less:
Cost of Production (12+8+5+1.82) 295020 254790
Gross Profit 19980 147710
LESS:
Fixed and variable cost:
variable sales overheads (1 per unit) 9000 11500
Fixed selling cost 2000 2000
Total costs 11000 13500
NET INCOME AS PER ABSORPTION COSTING: 8980 134210
1.2 Apply different range of techniques of management accounting and produce financial report
As per the above mentioned situation, there are different range of management
accounting techniques that can be used by company's manager in order to identify the final cost