Management Accounting: Techniques, Budgeting, and Pricing Strategies

Unit 5 - Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
LO2..................................................................................................................................................3
Techniques of Management Accounting.....................................................................................3
LO3................................................................................................................................................10
Budget and its types...................................................................................................................10
Pricing strategies........................................................................................................................11
LO 4...............................................................................................................................................14
Compare different management accounting tools.....................................................................14
CONCLUSION..............................................................................................................................16
REFERENCES................................................................................................................................1

INTRODUCTION
Management Accounting is that branch of accounting that deals with the evaluation of
the financial data that is associated with the company and the financial statements are interpreted
so as to evaluate and forecast the business performance. In the current report, different aspects
related to management accounting will be evaluated and distinction between management and
financial accounting will be discussed. The report will also identify the different product costing
techniques and the inventory costing techniques along with development of proper budgets that
are associated with the company. Further, financial data of Prime Furniture will be evaluated and
appropriate interpretation will be made in the report.
LO2
Techniques of Management Accounting
Microeconomics techniques
Cost is the value that is spent by the organization in producing and delivery of product.
There are different types of cost such as fixed and variable cost, direct and indirect cost etc. Cost
analysis is a measure of determining the cost incurred and how well it can be organized which
can help in increasing the productivity (Weetman, 2019). Different types of cost analysis
techniques that can be used by Prime Furniture's are stated below.
Cost Allocation: It refers to process of identifying and assigning cost to different cost objects,
products or departments. The cost is allocated because it is not possible to directly trace te cost
for the specific object.
Cost effectiveness analysis: It is the technique that is used to analyze and compare the relative
cost to the outcome (Holopainen, Niskanen and Rissanen, 2019). It considers both monetary and
non-monetary aspects for comparison.
Cost benefit analysis: It is a process that is used by the organization in analyzing decisions
regarding systems, processes. This method provides evidence based view which is not influenced
by any politics or partiality.
Cost-volume profit
This method helps in determining how variation in cost and volume can affect the
operating profit of the organization. This analysis requires company's all cost to be divided into
fixed and variable which includes manufacturing, selling and administration (Burney and

Malina, 2019). This method is based on several assumptions such as sales price per unit and
variable price per unit is constant, total fixed cost are constant, everything produced is sold.
Flexible budgeting
Flexible budget is a budget that adjusts with the change in volume and activity. As
flexible budget includes variable rate per unit of activity instead of total fixed amount. It uses
revenue and expenses based on current production and estimates how it will change with the
change in output (Bogt and Scapens, 2019). This helps management in comparing the figures to
know the area of improvement and areas improved.
Cost variances
It is a way of showing financial performance of a project. It is the difference between the
actual performance and the standard performance. These variances are bifurcated into different
types of cost such as direct material price variance, labor rate variance, variable overhead
spending variance, fixed overhead spending variance and purchase price variance.
Absorption and Marginal Costing
Absorption Costing helps in ascertaining the costs that are incurred by the organization by
incorporating both direct and indirect expenses in an economy.