Management Accounting Report

This report analyzes the use of management accounting principles in UCK Furniture, a leading furniture company in the UK. It examines different costing methods, planning tools, and financial issues, highlighting their impact on the company's profitability and overall performance. The report provides insights into how management accounting can be used to control costs, make informed decisions, and achieve long-term financial sustainability.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1: Calculation of cost by using various methods......................................................................1
1.2 Range of management techniques.........................................................................................2
1.3: Analysis of data collected from income statement...............................................................3
TASK 2............................................................................................................................................3
2.1: Advantage and disadvantage of using planning tools...........................................................3
2.2: Analysis of the expenses for July and August......................................................................4
2.3: Objective and cash budget....................................................................................................5
TASK 3............................................................................................................................................6
3.1: Use of accounting system to determine financial issues.......................................................6
3.2: Evaluating financial issues faced by UCK furniture............................................................6
3.3: Analysis of planning tools that is used in management accounting.....................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting is known as the process of analysing, recording, reporting useful
financial information that help internal manager to make useful decision and improve the
performance and productivity of company (Amoako, 2013). With the help of management
accounting manager of an organisation are able to figure out early problem, that may reduces
their performance and market share. UCK furniture is one of the leading furniture company in
U.K that use to manufacture and supply beautiful interior and exterior furnitures to customer.
In this report uses of different costing method that are useful in determining the actual net
profit for company is discussed. Along with advantages and disadvantage of various planning
tool is shown that aid in controlling budgets. Comparison with other company in regarding to use
of accounting system.
TASK 1
1.1: Calculation of cost by using various methods.
Cost is defined as the value that is use by buyer in order to make purchase of something
offer for sales by seller. It is basically the aspects that is reasoned while the production of
different goods and services within company. Costing is consider to be a reliable procedure of
calculating total cost of UCK furniture in investing in manufacture process with the actual
current present cost of capital. So it is stated that cost id directly or indirectly related to
production of useful goods. There are different types of costing system that are connected with
UKC furniture business operations and are discussed below:
Marginal costing: This system is used to calculate the additional cost involved by
company in order to produce an extra unit of output. It is basically known as incremental cost
that consist of specific variable while calculating total contribution per unit during an accounting
year. In general, marginal cost are based on production expenses that are direct of variable such
as labour material and equipment. It is taken into report for taking useful future decision as
possibilities of mistakes are less in this method.
Absorption costing: This costing system help to calculate cost that is applicable in
producing useful product within an organisation. It consist of both variable and fixed cost as it is
commonly known as full costing system (Absorption costing, 2018.). There are various
importance of using absorption costing system but at the same time it affect the net profitability
1

of company. The manager of UCK does not consider this system while making future important
decision.
Net income as per Marginal costing January February
PARTICULARS
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
NET INCOME AS PER ABSORPTION COSTING: 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 Range of management techniques
In business world, every company such as UCK furniture wants growth and long term
financial sustainability. This can be achieved with the use of effective tools and management
2

techniques that deliver better future result for an organisation. There are different techniques that
help to increase probability of company some of these are discussed below:
Marginal cost: This help in getting best effective result in more faithful manner before
time frame. This basically support to get actual cost incurred by company in order to produce
additional unit of output.
Historical cost: This techniques is also effective for current business activities held by
companies. As it help to record the values of assets and liabilities at their historical cost that are
not updated for changes in term of value.
1.3: Analysis of data collected from income statement
From the above calculated, the result from marginal costing is also follows the overall
contribution of UCK for January month is 29000 and net profit is 7000. Similarly, the
contribution is 155500 and net profit is 133500 for February moths. On the other side absorption
costing help to determine net profit for UCK for both months such as in January the net profit
was 8980 and net profit for February is 134210. So, it is seems that company must consider
marginal costing method as profitability is higher than absorption costing.
TASK 2
2.1: Advantage and disadvantage of using planning tools.
Budgets are consider to be an estimation of total cost and expenses that further help to
increase the performance and profitability (Brewer, Sorensen and Stout, 2014). Manager of
company use to prepare different kind of budgets such as sales, flexible, production budgets etc.
that further support to make effective plans and policies. So it is said that in order to control the
impacts of budget certain planning tools are used by company. Some of these are discussed
below:
Forecasting tool: This tool is used by manager of company in order to estimate and
forecast different risk that can be reason for decreasing profitability of company. It also help
UCK furniture to predict future profit and loss that company is going to earn with available
sources. There are various advantages and disadvantage of these tool that are discussed below:
Advantages:
 It help to estimate actual cost and expenses that company going to incurred in production
process.
3

 This help manager of company to make future plan that help to deal with uncertainties
that can reduce the performance and profitability of UCK furniture.
Disadvantage:
 It is a lengthy process and require more time in order to give the best prediction.
 The main disadvantage is that future result are based on past happing so they might be
wrong in different situation (Zoni, Dossi and Morelli, 2012).
Contingency tool: This planning tool is used to analyse the different business
contingency that are unidentical for company during an accounting year.
Advantages:
 This planning tool is used to analyse and control different connected risk that might affect
the business of company (JOSHI and et. al., 2011).
 With the help to this tool company are able to analyse the actual loss the are going to
receive after formation of valuable budgets.
Disadvantage:
 In many situation these planning fails as many issues are unpredictable that result in
decrease market position of company.
 It is consider to be more time taking activity and manager need to take permission form
higher management.
2.2: Analysis of the expenses for July and August.
So in accordance to calculate variable cost per unit different types of method that are
taken into account. It is critical for the internal director of company to analyse high and low
activity process.
Fixed Cost =
Highest activity cost – (Variable cost per unit x Highest
activity units)
or
Lowest activity cost – (Variable cost per unit x Lowest
activity units)
Fixed Cost = 9820-(8.31*795) £ 3213.55
(Total expenditure of high activity – Expenditure from low activity)
4

Total cost=
(Highest activity per hour spend – Lower hour spend)
Total expenditure (Per units): (9820-7410) / 795-505)=8.31
Total expenses for July:
= 650*8.31= 5401.5
For August:
= 750*8.31= 6232.5
Total Cost = Fixed cost (Step 3) + Variable Cost (Step 4)
Total cost for July (650 Hours) = 3213.55+5401.5 £ 8615
Total cost for August (750 Hours) = 3213.55+6232.5 £ 9446
2.3: Objective and cash budget
(1) Preparation of schedule of expected cash
collections for September
Particulars £ £
Cash Sales 39000
Sales on account:
For July 392
For August 4416
For September 840 5648
Total Expected Cash Collection 44648
(2) Preparation of schedule of expected cash
disbursements in September
Particulars £ £
Inventory Purchase:
For August 15000
For September 4800 19800
5

Selling and administration expenses 13000
Less: Depreciation 4000 9000
Equipment Purchase 18000
Dividend Paid 3000
Total Expected Cash Disbursement 49800
(3) Preparation of cash budget for the month of
September
Particulars £
Opening Cash Balance 9000
Add: Total Expected Cash Collection 44648
Less: Total Expected Cash Disbursement 49800
Expected Closing Cash Balance 3848
Add: Bank Credit 1152
Expected Closing Cash Balance with bank credit 5000
TASK 3
3.1: Use of accounting system to determine financial issues.
Ratios Formula UCK furniture’s UCK woodwork
ROCE (Return on
capital employed):
Operating profit/Capital
employed*100
9490/55030*100
=17.24%
6955/81230*100
=8.56%
Operating profit
margin
Operating profit / sales
*100
9490/37900*100 6955/81230*100
6

=25.03% =8.56%
Assets turnover Revenue 37900/55036
=0.68 times
8150/81230
=0.100 times
KPI: Key performance Indicator are used by company to identify the actual financial
position of company. Thus manager of UCK furniture take financial information form the last
year record and make polices to control and manage money during an accounting year.
Financial Governance: It is consider to be one of the most valuable financial tool that
help to determine the overall performance and profitability of company. These are set of legal
rules and guidelines that are set by government in order to make manager knowledgable to
perform different task. Manager of UCK use this tool to resolve the issue of excess use of
resources. As they guide the production manager to follow government principle while making
use of available resources (Tessier and Otley, 2012). from the above solution it has been
ascertained that assets turnover has been a key financial problem faced by both companies. Thus
manager of UCK furniture apply inventory management system in order to maintain specific
volume of current assets and fixed assets during an accounting year. Where as manager of UCK
woodwork apply cost accounting system in order to maintain appropriate cost of different
product offered by company.
UCK Furniture’s UCK WOODWORKDS
The company mainly is connected in
manufacture of different types of wooden
Desk.
The UCK woodwork is use to supply important
raw woods to UCK furniture in order to
produce Desk.
For year the ROCE ratio is equal to 17.24%,
that means that organisation is getting more
certain result from the overall capital invested
in different operation (Klemstine and Maher,
2014).
The ROCE for company is only 8.6% as it is
observed that company is generating this much
returns.
The Assets turnover ratio for company is 0.68
time rotating in the given year.
It is observed that 0.10 time inventory of UCK
woodwork is revolving in an accounting year.
7

3.2: Evaluating financial issues faced by UCK furniture.
Financial problem are consider to be situation that may reduce the performance of
company. There are various financial problems that needs to be resolved otherwise it may
reduces the performance of company (Lim, 2011). Thus different management accounting
system are useful in order to maintain financial sustainability and financial performance of
company. Such as price optimisation system are helpful in increasing sales for company and
improving net profit and earning during an accounting year. Job costing system are helpful in
controlling different cost that are utilize by company in order to complete different jobs.
3.3: Analysis of planning tools that is used in management accounting.
In order to examine the whole profitability level for an organisation planning tools are
taken into account by the respective internal manager (Van der Stede, 2015). Budgets are
prepared by manager of company in order to get estimate about the future expenses and help in
improving profitability. Standard costing is consider to be important accounting technique that is
used by manager of UCK furniture in order to determine the actual differences between actual
cost of product manufacture during a time frame. And costs that should occurred for these
product.
CONCLUSION
In the conclusion, it has been stated that management accounting is the process of
analysing and calculating overall actual growth of an organisation. With proper total cost
analysis company are able to control cost and attain high profit in upcoming time. Planning tool
are useful to make plan for future so that any risk or contingency can be resolved. Advantages
and disadvantages of using planning tool that help to control budgets that help to accomplish
future growth and sustainability.
8

REFERENCES
Books and journals:
Amoako, G.K., 2013. Accounting practices of SMEs: A case study of Kumasi Metropolis in
Ghana. International Journal of Business and Management. 8(24). p.73.
Brewer, P. C., Sorensen, J. E. and Stout, D. E., 2014. The future of accounting education:
Addressing the competency crisis. Strategic Finance. 96(2). pp.29-38.
JOSHI, P.L. and et. al., 2011. Diffusion of management accounting practices in gulf cooperation
council countries. Accounting Perspectives. 10(1). pp.23-53.
Klemstine, C. F. and Maher, M., 2014. Management Accounting Research (RLE Accounting): A
Review and Annotated Bibliography. Routledge.
Lim, M., 2011. Full cost accounting in solid waste management: the gap in the literature on
newly industrialised countries. Journal of Applied Management Accounting Research.
9(1). p.21.
Tessier, S. and Otley, D., 2012. A conceptual development of Simons’ Levers of Control
framework. Management Accounting Research. 23(3). pp.171-185.
Van der Stede, W. A., 2015. Management accounting: Where from, where now, where to?.
Journal of Management Accounting Research. 27(1). pp.171-176.
Zoni, L., Dossi, A. and Morelli, M., 2012. Management accounting system (MAS) change: field
evidence. Asia-Pacific Journal of Accounting & Economics. 19(1). pp.119-138.
Online
Absorption costing. 2018.[Online]. Available through:
<http://www.businessdictionary.com/definition/absorption-costing.html>.
9