Management Accounting Techniques and Planning Tools

This report highlights the range of management accounting techniques and different planning tools used in management accounting. It also discusses budgeting, pricing strategies, costing systems, and financial governance. The report provides insights into the importance of these concepts in organizations.

MANAGERMENT
ACCOUNTING

INTRODUCTION
Management accounting is the process in which the organization used to take help of
different interal information to make different decision in an organization. Prime furniture is
wholesale manufacturer of furniture in United Kingdom. This report highlights the range of
management accounting techniques. After that the report highlights different planning tool used
in management accounting tool. In the last stage of report, report explains the different way
through which organization used to respond the financial problem with the help of management
accounting system.
LO 1
(Covered in PPT)
LO 2
Microeconomic techniques
Cost is the amount of the money which has been invested to produce something or
deliver a services to customer in the market. In the accounting term cost is describe as money
necessary to procure asset and ready for use in the organization. There are many different type of
accounting cost. Some of them are as follows:
Cost volume profit analysis is a type of cost accounting which looks at different impact
that used to varying level of costs and volume which used to have an operating profit (Askarany
and Yazdifar, 2017). Cost volume analysis is based on several assumption that sales price, fixed
and variable cost are constant throughout the production.
Flexible budgeting is type of budget which used to adjust with the change in the volume
or activity of organization. Flexible budget used to show the expenditure appropriate to various
level of output.
Cost variance is define as deviation between what amount of cost which was planned by
the organization and actual amount of cost incurred by an organization.
Absorption cost and marginal cost
Absorption cost is a managerial accounting method which used to look at both variable
and fixed overhead cost in production. Absorption cost used to adopt all the manufacturing cost
by including overhead by adding labour cost in it (Rikhardsson, 2017).
Marginal cost,

Marginal cost is define as a cost of having a extra number of product unit in an Prime
furniture. Also known as change in opportunity cost when one additional unit is added for the
production of the good in an organization.
Product costing
Fixed cost, it is the a cost which not used to change with the change in volume of
production of Prime furniture, within the relevant period of time. This expenses has to paid by
company irrespective of business activity. For example, Depreciation, Interest expenses and
Rent.
Variable cost, variable cost used to vary with the change in volume of production in an
Prime furniture. Variable cost generally used to rise with the rise in the production and used to
fall with fall in production of organization (Alsharari, 2019). For example, Sales commission,
direct labour cost, cost of raw material.
Cost allocation is process in the organization which used to look at identifying,
ascertaining and assigning the different cost to cost object of organization. Cost object is define
as any item for which separate cost need to be measure by an organization.
Normal Costing is the costing in which the Prime furniture uses the actual or original
cost for material and labour components, where as standard cost is define as a costing in which
predetermine cost of all the different aspect of product is consider by an organization.
Activity based costing (ABC) is costing method which generally used to identifies key
activity in the organization before hand itself. On the basis of same the organization used to
assigns the cost of each activity on the basis of actual consumption by each (Pradhan, Swain and
Dash, 2018).
Costing used to play a very crucial role in setting price in the company, as all the
organization used to add the amount of profit margin in the original cost of the company and
offers the product at same rate or prescribed rate in market.
Cost of inventory
Inventory cost are cost which is associated with different type of cost which is associates with
different inventory in Prime furniture. Different type of inventory cost are as follows:

Ordering Cost: Ordering cost are the different type of cost which is incurred by
organization to process an order to a supplier for the purpose of procuring raw material and semi
finished good in an organization.
Carrying cost: Carrying cost is the cost which looks at cost incurred for carrying out or
holding inventory in an organization. This generally includes the warehouse cost and financial
cost such as opportunity cost.
Reducing inventory cost generally help the Prime furniture in maximizing the profit
margin of the organization. Also it helps company in improving the efficiency of production in
Prime furniture (Ahmed, 2019). As this used to help the company in getting better number of
product at the same rate of investment.
Comparable valuable method: It is the type of valuation method in which organization
used to compare the current inventory of organization with other business inventory in an
organization.
Discount cash flow: it is type of valuation method in which analysis used to forecast
future unlevered cash flow and discount it back to today Weighted average cost.
Cost variance is a difference between the actual cost incurred in production of good in an
organization and predetermine cost which is setup be the company in the past. Where as
Overhead cost are cost on income statement for direct material, labour and expenses.

From the above calculation it has been interpreted that it will be better for the Prime furniture to
use absorption costing as the costing tool. As the profit derived by applying absorption costing is
11100. Where as applying marginal costing has shown the profit of 4700. This shows that
absorption costing is better option, the reason behind the same is that it used to consider both
variable and fixed cost as well.
LO 3
Budget for planning and control
Budget is a document which is estimations of different revenue and expenses of Prime furniture
for a specified future period of time. It is generally a financial plan for a defined period of time.
There are many different type of budget such as capital budget and operating budget.
Capital budgeting is the financial plan which used to determine whether organization
long term investment are worth funding or not. Operating budget is the type of budget which
used to specify the annula budget of company in a classification code. This budget used to
estimates the total value of resources require for the performance of operation which used to
includes reimbursable of work or service (Ax, and Greve 2017).
Different type of budgeting

Incremental budgeting: Incremental budgeting is the type of budgeting which used to
take the last year budget as a basis and used to adjust some amount of change by adding a
subtracting amount of percentage to derive current year budget. This is one of the most easiest
budgeting approach as it does not require a complex calculation only few assumption (Different
budgeting method, 2019)
Activity based budgeting: Is the budget which follow top to down way. This budgeting
approach used to determine amount of inputs require to support the target set up by the
organization. This type of budgeting approach used to help the organization in managing the
different operational requirement of organization as it provides better product, process and
decision making basis.
Some of Behavioural implication of budget are as follows:
Dysfunctional Behaviour: As budget is prepare by manager in the organization, when
goal and objective of manager are found conformity with goal or organization. Organization is
able to get good budget but at the time the goal of manager are not on the same line there are
certain chances of having adverse impact on performance of business. Such negative impact are
known as Dysfunctional behaviour.
Participating budgeting: participation of different authority in preparation of budget
also used to play a very crucial role. As in top to down budgeting top management used to
prepare budget for whole organization and down to top budgeting employee are also involved in
the process of making budget. Involving employee in budget making used to help prime furniture
in passing on the good message to the employee (Bawaneh, 2018).
Pricing
Pricing strategies is the strategy which is used by the organization to set the price of company
offering in the organization. Some of the pricing strategy are as follows:
Premium Pricing: This is the pricing strategy in which high price is used by the
organization to sell the product of company. Company generally used to maximize the profit
margin in the market.
Penetration pricing: It is the strategy in which organization used to keep the profit
margin of company at low rate to bring the eye of customer toward the organization. Prime
Furniture also uses the same pricing strategy in the market.

As this industry used to include good amount of competition in the market, organization in this
industry generally uses the penetration pricing as common pricing strategy.
Prime Furniture used to consider the demand and supply in the market to decide the price
of product in the market (Jack, 2019). As demand and supply in the market helps the
organization in finding out the profit margin which can be asked by company and also will help
the company in ascertaining the minimum amount of cost which can be incurred by company to
produce the product.
Common costing systems
Actual costing system is the recording of product cost by looking at variety of different
factor such as cost of material, labour actual overhead and cost of allocation. Normal costing is
used in order to acertain cost by overlooking the overhead cost of the company. At the same time
standard costing is a system which is used to identify the difference or variance between actual
cost of good and already set budget for an organization.
Job costing used to not has that great impact on the Normal costing and Actual costing
system but used to has a impact on standard costing system, as organization used to keep this
cost in mind at the time of setting up of different standard. Batch costing is the costing which
used to take homogeneous product as a cost unit. This activity used to has impact on Actual
costing system more as compare to other two. The reason behind the same Actual costing used to
look at cost of material, labour actual overhead and cost of allocation.
Strategic planning
PEST
Political factor: This factor is favourable as there is good level of political stability in
UK.
Economical factor: This factor is also favourable as interest rate and inflation rate help
the organization in getting capital at lower rate.
Social Factor: As demand of company used to change it is difficult for the company to
manage this sort of factor. (Gray, Adams and Owen, 2017).
Technology Factor: This factor is also not that favourable, as it get difficult for the
company in deciding the best technology which can be used by organization to carry out
business operation.

SWOT
STRENGTH WEAKNESS
 Goodwill
 Financial position of business
 Profit Margin
 Outdated technology
OPPORTUNITY THREAT
 Using new technology to update
performance
 Expansion
 Competition
 Legal Policy
Poter's Five forces
 Competition in industry is very high as number of organization in industry is very high.
 Threat of new entrant in the industry is moderate for Prime Furniture.
 Power of supplier is low in the market.
 Power of customer is high as customer has very option to select from.
 Threat of substitute product is also low in the market
LO 4
Identifying financial problems
Benchmark Techniques: It is the type of analysis in which company used to compare
the performance of company with the performance of other organization in the industry.
Organization used to conduct the test by comparing product quality, efficiency or feature. This
eventually help the company in getting better idea about competitor strategy on the basis of
which organization can plan the different activity in the organization.
KPI: KPI is a measurable value that used to show how effectively a company is
achieving the objective of an organization. In this organization used to define the key objective
of business and on the basis of same used to set the standard to achieve the same. This technique
eventually help the company in focusing on the key performance of business which used to help
the organization in achieving the organizational objective very effectively (McLaren, Appleyard
and Mitchell, 2016).
Variance Analysis: It is the technique in which the organization used to find out the
variance or difference in the actual performance of the company on the basis of comparing it

with the already set standard in the past. This technique used to help the organization in finding
out the area where organization is lacking, on the basis of same used to plan different activity.
Financial governance
Financial Governance refers to different ways which is used by the organization to
collect, manages, monitor and control different type of financial information in the market.
Financial governance used to help Prime Furniture in identifying the different type of risk factor
as it used to monitor and controls different information. Business risk are generally identified by
Finance government.
Financial governance can be used as monitoring system as well, as this governance used
to help the company in getting the knowledge of current situation of business at all the time in
the organization. (Sedevich-Fons, 2018).
Management accounting skill sets
Learner: This is the biggest characteristic which need to be showcase by the
management accountant, as there are many different situation through which accountant has to
go, so they have to make sure that they used are good situational learner.
Honest: It is another characteristic which is require by all management accountant, as
they has to make sure that they do not drive the decision of an organization in the sack of their
personal interest. They has to keep the organizational objective above.
Skills
Decision making: This is one of the biggest skill which is require by all management
accountant as they used to make different decision in Prime Furniture on the basis of going
through the different financial report of an organization.
Organizational skill: This are the another set of skill which need to be possess by all the
accountant to carry out different operation of business.
Effective strategies and systems
It is the responsibility of all the department of organization to present a full disclosure of
financial position of business and also providing timely report of the same to different
department . This help the company in improving the effeciency of company by reducing time of
production.

CONCLUSION
The above report summarized that their are many different type of cost technique such as
cost volume profit analysis, Flexible budgeting and cost variance. After that the report
summarized the concept of budget and different type of budget such as capital budgeting and
operational budgeting. After that the report summarized the different pricing strategy and one
used by selected organization. In the end the report summarized the different way through which
organization uses the management accounting to dealt with financial problem.

REFERENCES
Books and Journals
Ahmed, M.S., 2019. Management accounting control and managerial bullying: economic,
social, and political dynamics in Bangladesh RMG sector (Doctoral dissertation,
University of Essex).
Alsharari, N.M., 2019. Management accounting and organizational change: alternative
perspectives. International Journal of Organizational Analysis.
Askarany, D. and Yazdifar, H., 2017. Management accounting and the shortcomings of current
performance measurement systems. Askarany D, Yazdifar H (2017) Management
Accounting and the Shortcomings of Current Performance Measurement Systems. Int J
Account Res. 5. p.146.
Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational
culture compatibility and perceived outcomes. Management Accounting Research. 34.
pp.59-74.
Bawaneh, S.S., 2018. MANAGEMENT ACCOUNTING PRACTICES: A CASE OF
JORDANIAN MANUFACTURING COMPANIES. Asia-Pacific Management
Accounting Journal. 13(3). pp.25-53.
Gray, R., Adams, C. and Owen, D., 2017. Social and environmental accounting. In The
Routledge Companion to Critical Accounting (pp. 243-259). Routledge.
Jack, L., 2019. From a history of accounting towards a philosophy of accounting
communication: A history of corporate financial reporting in Britain, by John Richard
Edwards, New York, Routledge, 2018, 380 pp.,₤ 115/$140 (hardcover), ISBN 978-1-
138-55318-7. Accounting History Review, pp.1-10.
McLaren, J., Appleyard, T. and Mitchell, F., 2016. The rise and fall of management accounting
systems: A case study investigation of EVA™. The British Accounting Review. 48(3).
pp.341-358.
Pradhan, D., Swain, P.K. and Dash, M., 2018. Effect of management accounting techniques on
supply chain and firm performance: An empirical study. International Journal of
Mechanical Engineering and Technology. 9(5). pp.1049-1057.
Rikhardsson, P.M., 2017. Information systems for corporate environmental management
accounting and performance measurement. In Sustainable Measures (pp. 132-150).
Routledge.
Sedevich-Fons, L., 2018. Linking strategic management accounting and quality management
systems. Business Process Management Journal.
ONLINE
Different budgeting method. 2019. [ONLINE]. Available through
<https://corporatefinanceinstitute.com/resources/knowledge/accounting/types-of-budgets-
budgeting-methods/>.