Management Accounting Techniques and Planning Tools

This document discusses the cost calculation, range of management accounting techniques, advantages and disadvantages of planning tools, and the adaptation of management accounting systems. It covers topics such as margin analysis, constraint analysis, capital budgeting, operating budget, standard costing, and activity-based costing. The document also explores the importance of budgeting and the application of management accounting systems for better financial performance.

Report

Table of Contents
Task 2...............................................................................................................................................3
P3 Cost calculation......................................................................................................................3
M2 Range of management accounting techniques......................................................................6
P4 Advantages and disadvantages of planning tools...................................................................7
P5. Adaption of management accounting systems......................................................................8
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

Task 2
P3 Cost calculation
Quarter 1 & 2
First we need to calculate product cost per unit:
Quarter 1 Quarter 2
Variable Cost
(78000 × 0.65) 50700 42900
+ Fixed Cost 16000 16000
= Total Product
Cost 66700 58900
÷ Total Units
Produced 78000 66000
= Product Cost Per
Unit 0.85 0.89
The assimilation wage is then calculated using the unit cost. The cost of bids, products sold, and
other costs during that period are calculated using units sold through paid advertising (not
produced units).
Income Statement (Absorption)
Quarter 1 Quarter 2
Sales (66000 × £1/ unit)
6600
0 Sales (74000 × £1/ unit)
7400
0
- COGS (66000 × 0.85)
5610
0 - COGS (74000 × 0.89)
6586
0
Gross Profit
990
0 Gross Profit
814
0
Less: Operating Expenses: Less: Operating Expenses:
Selling & administer.
Expenses 5200 Selling & administer. Expenses 5200
Net Operating Income 470 294

0 0
Note: 1. Selling cost / unit is assumed to be £1/unit.
2. Variable cost/ Unit = Total variable cost/ No. of units produced
= 52000/80000 = £0.65/ unit
3. COGS = Cost of goods sold
Income statement through Variable costing technique:
Quarter 1 Quarter 2
Sales (66000 × £1/unit) 66000 Sales (74000 × £1/unit) 74000
Less: Variable Cost Less: Variable Cost
Cost of Goods Manufacturing
(78000 × 0.65)
50700
Cost of Goods Manufacturing
(66000 × 0.65)
42900
Less: Closing Stock (12000 ×
0.65) 7800
Add: Opening stock (12000 ×
0.65) 7800
Less; Closing Stock (4000 ×
0.65) 2600
Contribution Margin 23100 Contribution Margin 25900
Less Period Expenses Less Period Expenses
Fixed Manufacturing cost 16000 Fixed Manufacturing cost 16000
Fixed Selling and Admin.
Expenses 5200
Fixed Selling and Admin.
Expenses 5200
Net Operating income 1900 Net Operating income 4700
Interpretation:Total production is multiplied by variable cost per unit (£0.65/Unit) to get the cost
of products manufactured. Manufacturing costs are an expense, thus they must be deducted from
sales revenue. Closing stock, on the other hand, is deducted from total variable cost because it
has not been sold and should not be deducted from revenue.
Difference between absorption and variable approaches for computing profit and loss or income
statement:

Absorption costing Variable Costing
Quarter 1 Quarter 1
Sales (66000 × £1/ unit) 66000 Sales (66000 × £1/unit)
6600
0
- COGS (66000 × 0.85) 56100 Less: Variable Cost
Cost of Goods
Manufacturing (78000 ×
0.65) 50700
Less: Closing Stock (12000
× 0.65) 7800
Gross Profit 9900 Contribution Margin
2310
0
Less Period Expenses
Less: Operating Expenses: Fixed Manufacturing cost 16000
Selling & administer.
Expenses 5200
Fixed Selling and Admin.
Expenses 5200
Net Operating Income 4700 Net Operating income 1900
Interpretation:The clear disparity between Net operating earnings from both methods is evident
in the above figure. The main reason for this disparity is that in absorption costing, only those
items that have been sold are costed, but in variable costing, total cost is determined for all
products created.
Absorption costing Quarter 2 Variable Costing Quarter 2
Sales (74000 × £1/ unit) 74000 Sales (74000 × £1/unit) 74000
- COGS (74000 × 0.89) 65860 Less: Variable Cost
Cost of Goods
Manufacturing (66000 ×
0.65) 42900
Add: Opening stock (12000
× 0.65) 7800
Less; Closing Stock (4000
× 0.65) 2600
Gross Loss 8140 Contribution Margin 25900
Less Period Expenses
Less: Operating Expenses: Fixed Manufacturing cost 16000
Selling & administer.
Expenses 5200
Fixed Selling and Admin.
Expenses 5200

Net Operating income 2940 Net Operating income 4700
BEP (Breakeven point analysis) is a powerful technique for identifying the units at which a firm
may achieve a position of no profit and no loss in addition to the income statement. The BEP in
the above example is computed as follows:
Breakeven point (In Units) = Fixed costs / (revenue per unit – variable costs per unit)
= £16000 / (£ 1/unit - £0.65/ unit)
= £16000 / £ 0.35/unit
= 45714 units
The entire output necessary by a company to achieve a no profit, no loss position is 45,714 units.
BEP also has the ability to express itself in pounds:
Break-even point (Sales in £) = Sales price per unit × BEP in units
= £1/unit × 45714 units
= £45714
Hence, to achieve a no profit, no loss position, the company must produce 45714 pounds in sales
revenue.
M2 Range of management accounting techniques
Key furniture uses some board accounting methods to achieve desired goals and business point;
these methods are examined below:
Margin analysis: This equipment is firmly rooted in monitoring the overproduction condition and
also needs to cooperate with the organization in evaluating the outdoor unit in order to regain
condition from the original storage point (Drury, 2018).
Constraint analysis: This approach helps the company explore the barriers that prevent a
connection from achieving unique creation and extended pay. It likewise communicates clarity
for this barrier and provides meaningful action.

Capital budgeting: This is a valuable tool or method that helps the company make key decisions
regarding the use of capital. At this point (routine net assessment) of each effort is adjusted to
understand which use will produce the most.
Inventory Valuation: This approach allows movement managers to see what the actual cost of an
action is. At the moment and the cost of the unrealized creation is decoupled to get the total
number that will directly affect the stock formation.
Model analysis: this approach disappears in the accounting stages; in which a predetermined
procedure follows. Evaluate information from previous years to measure future revenue
generated by an organization. The breeding method is the best practical tool used to get next
year's contracts with the help of a breeding state (Tappura et al 2015).
P4 Advantages and disadvantages of planning tools
A budget is a forecast of income and expenses that is usually compiled and updated on a regular
basis. Budgets can be created for individuals, groups of people, companies, authorities, or
anything that money is made and spent on.
1. Master budget
The master budget is the total number of low-level spending plans created by various practical
areas of an organization, in addition to which there are budget reports, a cash figure, and a
financing plan. The financial plan of the experts is usually presented on a monthly or quarterly
basis and usually covers the entire financial year of the organization (Abdusalomova, 2019).
Advantages
Staff motivation
Expert spending is organized as a motivational tool on the basis of which allows operators to
differentiate the actual and programmed presentation. The Central Budget assists employees in
achieving their bedtime position just as an honorable commitment to business development.
Summary of the Divisional Budget

Expert spending is presented as a summary financial plan for the profile of the entrepreneur and
the administration. The experts' financial plan shows what the society provides and what the total
costs are.
Planning in Advance
An expert spending plan differentiates different problems in advance and solves something very
similar. For example, none of the organization's divisions are performing well and the costs they
incur exceed the expected line of expenditure. This will bring less benefit to the organization
(Amara and Benelifa, 2017).
Disadvantage
Eccentrics: The essence of budget control can be undermined by the fact that it is virtually
impossible to expect specific results, such as changes in consumer demand affecting marketing
projections and deficits affecting the cost of basic materials. The expansion can affect both
income and spending levels. Budgetary control can mislead certainty and control in situations
where it would be much more valuable to acknowledge the problem of forecasting results and
rather not maintain maximum flexibility (Yalcin, 2012).
Accounting costs: To quickly audit spending, your organization should share resources and staff.
On the off chance that you don't have a dedicated accounting department, this may not be an
issue, but if you have a few employees who share responsibilities.
2. Capital Budget:
Capital planning revolves around capital measures that include large inflows and cash flows to
bring back profitable projects. It is the circle through which an organization chooses whether or
not to commit resources.
Advantages of Capital Budgeting:
Capital planning helps an organization understand the various risks associated with the
opportunity to make a profit and what those risks mean for the company's bottom line.
Help the organization determine the most profitable option.

An organization can choose an approach / strategy from a variety of capital planning
strategies to determine whether or not it is worthwhile to run a business.
Help the body make long overdue speculations.
Helps decide on an informed choice about a campaign that transcends all imaginable options
(Azudin and Mansor, 2018).
Disadvantages of Capital Budgeting:
There are capital design options for long and largely unalterable trips.
More often than not, these methods are subject to evaluation and suspicion because the future
would be constantly uncertain.
Capital design, of course, remains as weighted as the risk factor and the changing
components that remain abstract for the understanding of the garment.
3. Operating budget
Advantages of Operating Budgets
Business budgets can be seen as a very useful tool for all organizations, regardless of size or
height. In particular, for SMEs, Operating Budgets are usually very valuable, particularly for the
way in which it helps them to organize their costs and implement situation-focused approaches,
which is reflected in the operating expenditure plan.
It also helps to make assessments over time, particularly as it helps organizations to understand
whether the KPIs they need have been adequately met, as they have been expressed in the
spending plan.
Disadvantages
In fact, like many different financial plans, we tend to find that operating budgets are not always
very accurate. This is a direct result of the definition that the organization will not generally
achieve its objectives.

Therefore, these financial plans should be established by an appropriate procedure, otherwise
they may not work to the extent of staff redundancies if targets or expenditure plans are not met
during the financial year.
4. Standard costing
Advantages
Work on cost control: Businesses can achieve more explicit cost control by setting standards for
each type of cost incurred and then highlighting specific problems or differences - examples
where things did not go as planned.
More valuable data for administrative and dynamic setup: When the board creates appropriate
cost norms in terms of creating cost control, the actual future costs should be close to normal.
Disadvantage
Limitation of sensitivity to differences: it is possible to determine the appropriateness of further
changes. It is the responsibility of each company's management to determine what constitutes a
substantial or dramatic difference.
Low solution for some experts: Administration with a difference-based liberation method is
amazing. The board of directors regularly fixes negative variances while ignoring appropriate
changes.
5. Activity based costing
Advantages
Direct cost of product:
ABC achieves unmatched accuracy and quality assurance of item costs by focusing on the
position and logical relationship of the results in collecting the cost. He believes that it is the
exercises that cause the costs, not the elements and it is the element that consumes the exercises.
Cost Behavior Data:

ABC differentiates the true concept of cost behavior and helps reduce costs and identify
businesses that do not increase the value of assets.
Disadvantage
Expensive and complex:
ABC has several cost pools and different cost drivers, and as a result, it can be more predictable
than the cost patterns of typical items. It can be overwhelming to monitor an ABC frame.
Driver decision:
There are some problems in implementing the ABC framework, such as cost driver
authentication, normal cost operation, and different levels of cost drivers and so on.
P5. Adaption of management accounting systems
Money matters are the norm in running a business; these cases arise due to the lack of a previous
review of the report, the use of unused accounting instructions, insufficient funds left by the
organization and the non-advisory reimbursement of the cost of the various garments (Malina,
2017). Economic performance is a term associated with maintaining better performance for a
withdrawal program. Some of the accounting tools are discussed below:
1. Application Management: This is the path to comparative affirmation as a study of the
expectation of potential happiness for a subsequent object or company. This figure depends on
past studies and the current planning approach. From now on it is difficult to think about the
future interest but the potential and the right interest are evaluated. By studying the association of
demand, discover the latest examples of the market and do the right thing to make price possible
(Jones et.al., 2018).
Answer for money problem:
Expecting an application association to be able to tackle money problems such as lack of
resources, underperformance, benefit evaluation and wage reduction by providing timely
information.
Report:

These orchestral mechanical assemblies are typically used in report collection to avoid excessive
reproductive conditions. Links for sale are not used.
2. Purchasing or Purchasing Options: Purchasing or purchasing decisions are usually made when
a company that has developed an item or part of it or has modified an item or part significantly
has problems with conventional suppliers, or has a discount limit or agreements going on. Far
from being simple to make routine decisions, the association needs many assessments such as
preparing a zero-based organization, seeing future relationships with suppliers, and examining
the potential of the society expressed something more or less. In addition to this, it is also
necessary to determine whether what the association needs or buys affects the business of the
company if so, at that point it should go and make that title somehow else he should buy or
acquire a particular business (Mc-Lellan and Sherine, 2013).
Answer to money problem:
Financial problems such as overuse, delays in preparing times, etc. They can be managed by
valuing the costs at which something should be done or bought, the association has achieved the
interests on time and also increased its net pay by limiting total costs.
Relationship:
It usually makes sense for the collective relationship because they have to decide whether to
make or buy the item. Organizational links do not use this tool as it only offers types of help such
as trading, customer support, friendly positioning, etc.
3. Activity Based Costing: Activity Based Costing (ABC) is a costing system that manages
overhead and fraudulent costs for related items and connections. This cost accounting strategy
sees the link between costs, different cost practices, and deliverables, dividing negative costs into
less important than normal cost schemes. Despite some miscellaneous expenses, for example
paid by bosses and office workers, they find it difficult to pay off for everything that has been
done. Through this tool, the link separates each of the exercises or frames on a cost basis (Nuhu,
Baird and Appuhami, 2016). It provides cheaper development on the top and high cost activity
on the foundation to focus on each activity on your own.
Answer for money problem:

Activity-based accounting assists leaders in dealing with financial matters; for example, need-
based accounting and object-specific accounting.
Revision:
This tool is useful for all types of connections, especially component connections. Fake affiliates
use this approach to know which crafting unit is their average stock, on the other hand
organizational parties use this strategy to see that items are half sold.
4. Discipline and details: A typical commitment of a money-bound employee is to inspect a
series of advertisements, such as a payment explanation, an accounting report, and grade testing
before a report is prepared considering how critical decisions for the purpose of the management
report will be made. Cost control and various components to maintain relationship validity are
also essential for young employees. Real or much needed cost testing for correct decisions
(Alawattage, Wickramasinghe and Uddin, 2017).
Answer for money problem:
Helps develop a strong link between membership procedures and emergency membership
decisions. It ensures that business ethics evaluation is followed appropriately, that a set of
recognized principles make sense for employees. Advanced guidance among staff; as well as
assisting leaders in controlling representatives through execution assessments (Prakash, 2013).
Revision:
This mind tool is also great for the breadth of relationships; through the discovery of regularly
gathering links obtaining information on costs that should be reduced to reduce costs, of course,
organizational links apply this tool to recognize which extensions work amazingly and which do
not and which control their costs equally (Tuan Mat and Smith, 2014).
Conclusion
A link with a beneficial accounting framework is important in choosing the right authority for
any connection. As the management accounting structure would have encouraged the
opportunity to offer a connection with hard and accurate data, managers need to ensure that the
right design is selected for their business model. The society's accountancy firm helps students to

introduce themselves; educators cannot keep up. The basic explanation is that accounting is seen
as the foundation of any business and therefore requires precision. Providing reasonable records
and tables of money-related accounting is the fundamental problem that the experience of
accounting experts has documented as a printed variant of activity.

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