Management Accounting Techniques and Planning Tools for Financial Problem Solving

This document provides an overview of management accounting techniques and planning tools used for solving financial problems in business organizations. It discusses the importance of cost analysis, product costing, capital budgeting, and inventory management. It also explores the necessity of planning tools such as budgeting, price strategies, and strategic planning tools like SWOT and PEST analysis. The case study of Prime Furniture is used to illustrate the application of these techniques and tools.

Management Accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 2............................................................................................................................................1
Brief description of of different kinds of management accounting techniques.........................1
Task 3...............................................................................................................................................3
Explanation of necessity of planning tools for managerial accounting......................................3
TASK4.............................................................................................................................................7
Uses of managerial accounting in solving financial problem......................................................7
CONCLUSION................................................................................................................................9
REFRENCES.................................................................................................................................13

INTRODUCTION
Management accounting is essential branch of accounting in which data collect, record,
analysis and interpretive in an effective way through which manger take decision. It is a
systematic process of management which reflected by mangers abilities and skills of mangers to
coordinate accounting information with their business strategies. Business entities use
management accounting to run their day to day business activities in an effective way and
achieve their predetermine goal with proper utilization of their scares resource. In order to
identify importance of management accounting, Prime Furniture has been selected, it is medium
scale enterprises, which provides furniture products to their relevant customers. In this report
different kind of managerial accounting techniques, marginal analysis, inventory cost, etc has
been describe and uses of managerial accounting as planning tool has been clearly describe.
Issues aeries due to lack of monetary resource and how effectively managerial accounting help
in overcome these problem has been describe.
TASK 2
Brief description of of different kinds of management accounting techniques
Management accounting techniques: To manage all the process of business organizations,
mangers use managerial accounting techniques, these techniques includes those methods and
framework which follow systematic procedures and interpreted accounting information in
effective way. Various types of techniques uses by manger of Prime Furniture which are
mention below:
Cost analysis: It is considered all different methods which are used for calculating and
measuring cost incurred during production and distribution process. Various costing
methods are developed for different types of organizations, standard costing, job costing,
and absorption costing all these methods are used for measurement of cost. These techniques
are apply for minimize cost of producing products.
Product costing: It is also part of cost analyasis, it is special type of costing method, in this
process value of costing are determine by calculating overall cost of production, it
considered overall factors of production use for manufacturing process. Main reason of
applying this technique to identify each unit cost and analysis which activity incurred high
cost during production process (Samuel, 2018).
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Capital budgeting: It is a systematic process of determining capital structure of an
company. In this process mangers decided resources in which they invest their capital and
sources of funds from which they take loan, manger of Prime Furniture, can prepares
budget, to determine and built policies for their long term and short term investment process
in order to run their business successfully.
Cost of inventory: This technique is used for identifying cost incurred on managing stock
of raw materials, work in process and finished goods, it is essential part of managerial
accounting as managing the level of stock is necessary for business organization. Manger of
Prime Furniture will uses various inventory management techniques in order to maintain their
stock level, they use EOQ, VED analysis, they also identify , re order level, maximum and
minimum level of stock and built plans through which they can control wastage of inventories
and process of inventory cycle run successfully without taking too much time for selling stock.
It will help in saving cost incurred on maintain stock and proper utilization of resource (Phan,
Baird and Su, 2017).
Marginal costing: This costing technique is used for identifying effect of changing one
extra unit on profit and cost expenditure, it includes calculation of BEP and margin of
safety. This technique helpful indentifying cost and relationship between profit and various
components of income statements.
Income Statement of Prime Furniture (Absorption costing)
Particular Quarter 1 Quarter 2
Revenue 66000 74000
Cost of goods sold:
Opening Stock 10200
Variable overheads 50700 42900
Fixed production overheads 15600 13200
- closing stock 10200 3400
Cost of sales 56100 52700
Gross profit 9900 21300
- Selling & Administration
Costs(fixed)
5200 5200
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Net Profit 4700 16100
Interpretation: From above calculation it has been identified that if the manger use
absorption costing then their gross profit for first quarter will be 9900 and in second quarter
it will be 21300 and they also generate net profit 4700 in first quarter and 16100 in second
quarter of the year.
Income Statement of Prime Furniture (Marginal costing)
Particular Quarter 1 Quarter 2
Sale 66000 74000
Marginal cost
Opening Stock 7800
+ Variable overheads 50700 42900
- Closing stock 7800 2600
Marginal cost of sales 42900 48100
Fixed manufacturing costs 9000 9000
Selling & Administration
Cost
5200
Gross profit 8900 16900
Interpretation: From the above calculation it has been observe that if Prime Furniture use
marginal costing then they will be able to genrate 8900 profit from after all adjustments in first
quarter and 16900 in second quarter (Aouni, McGillis and Abdulkarim, 2017)
Task 3
Explanation of necessity of planning tools for managerial accounting.
Planning tools: These are instruments use for provide guidelines and direction for
formulating plans and actions. These tools are describe complete description of objective of
plan, process of its implementation and outcomes of plans and actions taken by business
organization. Manager of Prime use different types of managerial accounting planning tools
all these are used for their planning purpose. Following are the tools of managerial
accounting:
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1. Budget: It is a numerical plan prepared for fixed period of time to identify future
income and expenses of a particular business organization. Budget is essential tool
for every industry whatever they are small or large each business entity prepared
budget for estimating result of their business outcomes. Various types of budgets
are formulated by business organizations
 Operating budget: These budgets relate to the different activities of a firm. Number
of such budget depends upon the size and nature of business. These budgets
includes, sales, production, material. Labour, and overhead budgets, all these budgets
are prepared for the purpose of identifying estimated revenue from selling units and
cost incurred of using materials in production procedure.
 Financial Budget: It concerned with cash receipts and disbursement, working
capital, capital expenditure, financial position and result of business operations. It
includes, cash budget, capital expenditure budget, income statement budget and
working capital budgets, all these are formulated for the purpose of analysing future
financial position of company.
Master Budget: Various financial budgets are integrated into master budget. This budget
is prepared by the ultimate integration of separate functional budget. This budget is used
to coordinate the activities of various functional departments and also help to control
cost (Cokins, 2016)
Manager of Prime Furniture use to formulate budget for plan strategies for future they
can built strong managerial policies by using sales budget, production budget for their
operational activities.
2. Budgetary technique: Process of preparing financial plan is known as budgeting
technique. There will be various types of methods able for formulate budget
following are mention below:
Zero Base Budget: In this process budgets are prepared from initial level just like
traditional budgeting method in this method mangers does not consider past year
data rather they collect new data from research and prepare budget on the basis of
new information.
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Rolling Budget: In this project short period budgets are formulated over a fixed
period of time, basically these budgets are prepared for 1 year. This is useful for
small enterprises as they can easily change their policies after analysis errors of
proper budgets.
Activity Base Budget: This method is related with activity based costing in this
method financial statement are prepared after allocation of recourses. In this method
budgets are formulated on the basis of allocation of cost. IT is suitable mostly for
manufacturing industry.
Prime Furniture is medium manufacturing business enterprises their manger will be
used activity based budgeting method for prepare budget as it will more beneficial
for them
3. Price strategy: It is also included in planning tools of managerial accounting as
business organizations needs to determine rate of their products at which they sale
so that they can easily earn revenue.
 Cost plus: According to this strategy rate of selling product determine on the
basis of total cost incurred on manufacturing process.
 Competitive strategy: As per strategy price determine on the basis of at
what price their competitor’s sale products.
 Value based: Manager decide their products price on the basis of customers
expectations, they select price which satisfy their customer.
Price skimming: In this strategy companies take high rate price of their selling product then
change it on the basis of market demand(Busco and Quattrone, 2015).

 Penetration pricing: As per this method to enter in market economy
business enterprises take low price of their product at initial level and when
they successfully enter an built their position in market they increases price
rate of their product.
Manager of Prime Furniture choose penetration pricing strategy it will help
them to cover larger market area on initial level and also help in earning
profits.
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4. Cost system: Business organizations needs to use cost system in order to make
plans and strategies related to cost. It is very important for every business entity to
maintain their expenses to maximize their profit.
 Actual costing: This procedure used to calculate actual cost incurred on the
duration of manufacturing products.
 Standard costing: It is mostly used procedure of costing, this method is
used as controlling tool of managerial accounting, in this method difference
among actual and standard cost incurred has been identify and then manger
formulate those policies through which they can reduce he gape between
actual and estimated cost.
 Normal costing: In this process manger of business organization use
standard rate of cost incurred on actual output. Main purpose of this process
to identify normal cost incurred in production process.
Manager of Prime Furniture will be use standard costing in order to minimize their
cost and maximize return.
Strategic planning tools: These planning tools play essential part in managerial
accounting as with the use of these technique manger will be prepare effective plans to
achieve future goal (Elmassri, Harris and Carter, 2016)
 SWOT: It is also considered as environment scanning technique, with the
use of this method, business organizations enable to determine their
opportunities, threat, weakness and strength within and outside the
enterprises.
 PEST: This technique is used to scan external environment factors of
business organization, with the use of this technique manger analysis
political, natural, economical and social factors which positively and
negatively impact in future.
 Balance Scorecard: This technique is used for planning as well as control
process, this tool is implanted to identify result of overall business activites
within a fixed period of time. Manager build policies to overcome gap of
standard and achieved target and reduces errors arising during operations.
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Manager of Prime Furniture will used various scanning tools for better
planning of their business goals.
TASK4
Uses of managerial accounting in solving financial problem
Financial Problem: Conflicts aries in business environment due to lack of financial resource
are known as financial problems. In other words it is a situation in which business enterprises are
not able to pay any liabilities from their capital and they are unable to fulfil day to day
operational activites. These are many causes through which organizations suffers from financial
problem, mismanagement, lack of coordination’s, over expenditures, wastages of stocks, expense
incurred on additional actives, lack of expertise, high cost incurred in training programme., lack
of goodwill etc. Prime Furniture is currently suffering from financial problem this problem arise
due to lack of their managerial skills and unable to sell their product. They can solve their
financial problem by using managerial accounting tools, skilled manger adopt these tools in
order to overcome problems aeries due to financ (Bierma, and en.at. 2017)
Key performance indicators: This tool is used for measurement of performance of a running
business enterprises. By this technique business organizations can identify their department
performance by comparing them with standard indicators. It will help in enhancing
efficiency of business entity. By evolutions performance business organizations built polices
to improve their performance in order to maintain their position with indictor standard.
Prime Furniture use this tool for measuring work performance of heir management
department’s With the use of this they can easily find out their errors and formulate effective
inventory management, debtor collection and investment policies through which they can
increase their cash inflow activites.
Benchmarks: It is a standard decided by business organizations to compare their result with
rivalry ir market industries of global economy. Managers compare their achieved target with
benchmark standard. This technique is useful for Prime furniture to solve their issues
generated due to finance problem, they can set benchmark of their sell and then compare it
with achived sell and target sell units, it will help in increasing selling units and increment in
profit and cash activites. This is most effective tools use in modern organizatios to enhance
their performance. It also used for evaluate performance of employers.
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Financial governance: This policy is used to determine ways an entity follow to monitor their
financial information in order to run their business organization successfully. It includes process
of monitoring, supervising, planning, and controlling business fiancé related activites. Manager
with strong business skills formulate effective financial governance it is essential for enterprise
as with effective policy, it will help in supervising business active and controlling misconduct
and conflicts issue within the organization. Effective finance governance policy will help in
controlling corruption activites thus manger of Prime Furniture needs to implied effective
software and tools through which they can effectively mange their financial resource, it will also
help in decision making process (Papazo and Mihaylova, 2015).
Prime Furniture Sunshine Private Limited
Manager of Prime Furniture use key
performance indicator technique to control
their financial problem. This tool used to
measure qualitative as well as quantitative
measurement.
Manager of Lotus used benchmarking as
measurement of their performance.
Benchmarking only considered quantitative
tools for their measurement process.
Key performance indicator can be used in
service industries for analysing performance.
Benchmarking tool cannot applicable in
service industry for measuring performance
of business activites.
Main objective of this tool to enhance
performance of business organization.
Main purpose of benchmarking is to set
standard target and evaluate performance of
various departments and branch of business
organizations.
CONCLUSION
From the above analysis of this report it has been concluded that to achieve business
objectives mangers needs to use managerial accounting tools and techniques for their
operating business activites. Management accounting help in proper planning and control
and with the use of different costing method they can minimize their cost. Effective use of
accounting information for managerial process shows skills of manger, with the use of this
technique conflicts’ aeries within enterprises due to finical problem can be solved, it is
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essential part of organization as it will help in taking decision and formulating polices to
maintain strong position in market.
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REFRENCES
Books and journals
Samuel, S., 2018. A conceptual framework for teaching management accounting. Journal of
Accounting Education,44. pp.25-34.
Phan, T. N., Baird, K. and Su, S., 2017. The use and effectiveness of environmental management
accounting.Australasian Journal of Environmental Management. 24(4),.pp.355-374.
Aouni, B., McGillis, S. and Abdulkarim, M. E., 2017. Goal programming model for management
accounting and auditing: a new typology. Annals of Operations Research. 251(1-
2).pp.41-54.
Cokins, G., 2016. The top seven trends in management accounting. Edpacs,.53(4). pp.1-7.
Luft, J., 2016. Cooperation and competition among employees: Experimental evidence on the
role of management control systems. Management Accounting Research, 31. pp.75-85.
Busco, C. and Quattrone, P., 2015. Exploring how the balanced scorecard engages and unfolds:
Articulating the visual power of accounting inscriptions. Contemporary Accounting
Research, 32(3). pp.1236-1262.
Elmassri, M .M., Harris, E. P. and Carter, D. B., 2016. Accounting for strategic investment
decision-making under extreme uncertainty. The British Accounting Review. 48(2).
pp.151-168.
Bierma, T. J., Waterstraat, F. L. and Ostrosky, J., 2017. Shared Savings and Environmental
Management Accounting: Innovative Chemical Supply Strategies 1. In The Green
Bottom Line (pp. 258-273). Routledge.
Papazov, E. and Mihaylova, L., 2015. Organization of Management Accounting Information in
the Context of Corporate Strategy. Procedia-Social and Behavioral
Sciences.213.pp.309-313.
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