Management Accounting Techniques and Planning Tools

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: