Management Accounting: Cost Analysis, Budgeting, Pricing, and Financial Problem Identification

This document provides an overview of management accounting, including cost analysis, budgeting, pricing strategies, and financial problem identification. It discusses the use of different planning tools and the application of financial governance. It also highlights the characteristics of an effective management accountant. The content is relevant for students studying management accounting in various courses and colleges/universities.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Covered in PPT.......................................................................................................................1
TASK 2............................................................................................................................................1
Microeconomic Techniques...................................................................................................1
TASK 3............................................................................................................................................6
Using budgets for planning and control.................................................................................6
Pricing.....................................................................................................................................8
Strategic planning...................................................................................................................9
TASK 4..........................................................................................................................................10
Identifying financial problem...............................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is the presentation of system information in order to execute the
strategies to be selected by the administration and assistance its day to day activities. It supports
the management to formulate all the action like planning, organising, staffing, directing and
controlling (Culasso and et.al., 2016). To follow these activities by business and collect all the
relevant information and present in front of top authority to take right decision on time. To better
understand of the conception of MA chosen structure Prime Furniture which is a growing East
London based organisation. The company is planning to start training course for new interns in
November. For this prepare as report in which contains of accounting system with benefits,
different in financial and management accounting. Along with understand different reports,
range of accounting techniques in which contains cost, volume profit, cost variance, flexible
budgeting, different types of costing and many others. In addition, produce a budget with
alternative methods and compare to respond to financial problems.
TASK 1
Covered in PPT
TASK 2
Microeconomic Techniques
Cost: It is an expending required to make or exchange commodity or acquire an asset
prompt for average activity. It consist of all cost that is required for business entity. It has been
categorised into two manner like: Direct cost: These types of cost directly link with the development of buildings that are
called as direct cost. Such as, depreciation, insurance etc.
 Indirect cost: Those expenditure which are not direct connected with the construction
activities are define as the indirect cost. It consist of wages, agency substitute etc.
Cost analysis: It is outlined as comparison between actual and standard cost with the
reason of reporting and discovering all the costs with the improvement (Damayanti and Pentiana,
2018).
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Cost volume profit: It is a method of cost accounting that influence on the different
levels of costs as well as volume have an operating profit. Thus, it supports to carry out the
relationship among revenue and cost.
Flexible budgeting: It is a budgeting method that mainly applied in the budgets for
applicable modification and adjustments could be done as per the changes in organisation
operation. This method applied by the Prime furniture to analysing of varying volume as well as
cost (Datar and Rajan, 2018).
Cost Variance: This tool is utilised in business in order to evaluation of actual or
standard budget with value of building. It is mainly applied by Prime furniture to apply strategic
decision effectively.
Marginal costing: This is a kind of costing technique that is determined of marginal cost
and impact on changeable profitability. Marginal costing is helping to separate between non-
moving and changeable cost. In the context of Prime furniture manager use this method to
calculate net profit for the year in reference to each and every unit.
Calculation of profit using marginal costing
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Absorption Costing: It is another method of costing technique in which define profit of
business after determining the cost. This method are linked with the production or cost unit of
different products. In this method no classification of expenditure of fixed as well as variable
cost (Feng and Ho, 2016).
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Fixed cost: When all the cost remain same and does not change due to changes into
production units called as fixed cost.
Variable cost: These types of cost are modified with the increase or decrease amount of
conception buildings is called as variable cost (Ismail, Isa and Mia, 2018).
TASK 3
Using budgets for planning and control
Budget: It is a predication of the sources and utilise funds which is necessary for
business entity. Budget is designed through a business to approximation the future income and
expenditure to analysis the actualized execution of an enterprise in potential period of time. The
Prime Furniture prepare of budget to planning for strategies and know actual position of
business.
To prepare of budget for Prime Furniture require to analysis past budget and understand
all the changes that impact on the business performance. There is collecting information from the
different departments and record in the books. The manager uses assorted kind of planning tool
to control over budget and maintain the profits. There are discussed various types of planning
tools with advantages and disadvantage such as:
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Operating budget: This budget is produced by the business entities in order to identify
operating expenditure and income. There are focusing on the predication of income as well as
expenditure that origin in company due to observing the expenditure. Such as, Prime Furniture is
manufacturing company where required to produce sales, production and purchase budget to
analysis all department effectively (Khosiev and et.al.).
Advantages Disadvantages
It supports business entity to assure
about all the financial resources which
are used for proper utilisation.
To prepare of this budget require to mote
time and need expertise.
This budget helps to analysis the past as
well as future expenditure can be
deducted.
At the time preparation of this budget
manipulate of of statements of figures.
Capital Budget: It is a type of planning tool in which is prepared by the organisation to
analysis different activities with purpose of large investment of capital. Through this budget
analysis the financial performance of business. Primary Furniture produce this budget to develop
a financial plan for certain period of time.
Advantages Disadvantages
This budget supports business to
maintain all records properly after that
invest capital in monetary resources.
There is identified lack of specification
due to include collective information
about each section.
The capital budget keep eye on every
business activities in which analysis of
financial performance of a business
(Mkrtychev, Ochepovsky and Enik,
2018).
This budget is not easy to analysis and
examine the high level in collective
manner.
Alternative method of budgeting
Zero based budgeting: To prepare of this budget take base as Zero where require to
analysis all the expenses and income from the starting for new financial year. This method apply
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by the Prime furniture to decrease the cost of operations through proper justification in
accounting books. Merit: The main advantage of this budget to start from the starting for new financial year
that helps to establish accuracy.
 Demerit: The drawback of this method that it is not working for fewer period and need
expertise to complete work on time.
Cash only or traditional budgeting: In this budget consist of inflows and outflows
information about cash in particular period of time. This budget produce by the Prime Furniture
to analysis the performance of business and know liquidity position. Advantage: It is beneficial budget that helps to recognise the loss in the Prime Furniture's
financial statements (Murthy and Rooney, 2018).
 Disadvantage: There is set limit for the ability of business to tackle the all the credit
transactions.
Behavioural implication of budget:
 The budget results are based on the different resources where focus on the actual data
rather than of budgeted figures.
 With the help of budget set goof relation in between staff members and coordinate with
each department.
 To prepare budget require to highly skilled staff members who have knowledge how to
categorise of income and expenditure (Ng and et.al., 2017).
Pricing
Pricing strategies: There are identifying different pricing strategies which is utilised by
business as per the situation such as: Penetration: According to this strategy keep price low at starting point that are active to
sale out the customer.
 Premium: As per the this type of pricing the company set price for particular products
which are based on the good quality.
Supply and demand consideration: It is based on different demand and provision
fomentation that are essential to analysis by the Prime Furniture to achieve success. There are
identifying different situation, changes in social factors and economic condition etc (Szychta and
Dobroszek, 2016).
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Strategic planning
PEST analysis
Political Economic
Changes in the political condition can impact
on the Prime furniture because it can result in
changes in governmental legislation which is
important for business.
Due to increase inflation rate and exchange rate
impact on the business activities of Prime
furniture in direct manner.
Social Technological
Different customer preference, changing
trends, beliefs etc. If company ignore these
factors so it impact on the Prime result in
decreased profit.
Advanced technology, smart tricks are part of
technology that take place in the market. To
obtain growth & success require to concentrate
on the business (Nitzl, 2018).
SWOT analysis:
Strengths Weaknesses
 Effective marketing image of Prime
Furniture
 Application of effective strategies for
generating profits.
 Invest low amount for research &
development.
 Do not collect proper information about
customer.
Opportunities Threats
 Enhance the business activities at broad
level as per the marketing trends.
 Sustainability growth
 Threat of competitors
 Lack of market share.
Balance scorecard: It is defined as performance management tool that is applied by the
Prime Furniture with the reason of determining the activities that are presented by employees to
control the different business activities. This strategy mainly applied by the business to observe
the adverse effect that take place for the efficient functions (Rizza and Ruggeri, 2018).
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TASK 4
Identifying financial problem
Financial problem can be defined as a situation that face by the business due to lack of
financial resources. To sort out these problems require to recognise the reason of origin such
variety of difficulty. After that prepare effectual plan of action to get the better of from them
(Nørreklit, Raffnsøe-Møller and Mitchell, 2016). Such as Prime furniture face the problem which
are mention below: Late payments by customers: Every organisation conduct activities in credit manner and
Prime Furniture also provide goods on credit. Many times customer does not payment on
time that impact on the business operational activities.
 Unplanned expenses: this problem face by the many organisation that occur in the
business any time and impact in negative manner on the performance of Prime furniture.
This problem face by manager due to lack of fund in the business.
To identify the these problems required to apply effective management tool that provide
the solution to resolved them:
Key Performance indicator: It is a activity creature which is applied by enterprise to
measure the action. It has been classified into two different manner like financial and non
financial KPI. In financial KPI contains all the unnecessary expenditure that are made by the
business and in Non financial KPI, determine the problems of business. The Prime furniture
apply this method to identify the problem of Unplanned expenses that occur in the business in
particular financial year (Pavlatos and Kostakis, 2018).
Benchmarking: It is defined as measuring instrument that is utilised by enterprise to
analyse the performance with other rival. The Prime furniture apply this tool to compare the
strategies with same sector leading organisation to apply improvements. With the help of this
tool identify the problem of late payment from the customer that impact on liquidity position of
business.
Budgetary targets: There are estimation of money for certain period of time and applied
by the Prime Furniture with the reason of recognising the discrepancy between real and modular
amount of business to tackle these problems.
Financial governance: It is a financial principle that applied by the business to find out
appropriate solutions of financial problems. Such as Prime Furniture are faced many financial
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problem, for this observe strategy and find out effective solutions with the help of financial
principles.
Characteristics of and effective management accountant:
 To manage all the activities in the business require to take effective decision so an
accountant have decision making skill to sort out these problems that faced by the
organisation.
 An effective accountant predict the figures and accordingly prepare plans for the critical
situation that should be analysed and plans could be executed to deal with them
(Piontkewicz and et.al., 2016).
Comparison:
Prime Furniture Mega Furniture Ltd
The company use cost accounting system to
determine the cost of business and reduce the
problem of unplanned expenditure.
Inventory management system is applied by the
business to maintain records of inventory and
neglect the problem of low availability of
material for the products.
Price optimisation system is applied by the
Prime Furniture to set effective price structure
for the different products & services. This
system helps to reduce the problem of late
payments from customer.
Cost accounting system is applied by business
to analysis cost of different products & services
to sort out the problem of keeping track record
them in detail.
Financial governance is applied in the Prime
Furniture with the reason of timely reporting.
In Mega Furniture Ltd financial governance
strategy is applied to open out the position of
stakeholders in business (Quinn and Hiebl,
2018).
CONCLUSION
As per the report it has been analysed that MA is procedure of analysing, evaluation and
interpreting the execution to prepare strategy for decision making. To better understand that
defined different system that helps to business and reports are provided all the detailed
information in appropriate manner. On the basis of these system and report company make right
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decision and increase performance. There is analysing different cost that set by the business to
track the actual status of business. Along with apply different planning tools like Operating,
capital, zero based to forecast and formulate the results. Company face many financial problem
that identify through management tool like KPI & benchmarking and apply accounting system to
deal with them.
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