Management Accounting: Techniques, Tools, and Solutions for Financial Problems

This report provides an overview of management accounting techniques and tools used to solve financial problems. It covers topics such as cost calculation, planning tools, and comparison of organizations. The report focuses on Prime Furniture, a London-based entity, and discusses the application of various systems and techniques in the organization.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Covered in PPT............................................................................................................................1
TASK 2............................................................................................................................................1
P3: Calculation of costs...............................................................................................................1
TASK 3............................................................................................................................................7
P4: Advantages and Disadvantages of planning tools for budgetary control..............................7
TASK 4............................................................................................................................................9
P5: Comparison of organizations and the way they use management accounting to respond to
financial problems........................................................................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is an accounting technique in which the different provisions are
used so that the managers are able to take short-term and long-term decisions which can be
highly beneficial for the future time period for the organization (Yi-zhen, 2019). For using it the
managers are required to use their skills to analyse and interpret in a much better manner by
deriving out conclusions and recommendations from the given financial data in a highly effective
manner. This report will focus on Prime Furniture which is a a growing London based entity that
is planning for initiating training course for newly joined interns. In this assignment, there will
be specific focus on demonstration of understanding of various systems, application of different
techniques. Additionally, use of planning tools and comparison of ways in which the firms can
make use of the available techniques to solve financial problems will be discussed as a part of
this project.
TASK 1
Covered in PPT
TASK 2
P3: Calculation of costs for preparing income statement
Cost: It can be delineated as totality of money that is spent on aspects including goods or
services. There are various types of cost including fixed cost, sunk cost, product and period cost,
etc. In Prime Furniture, managers apply absorption costing together with marginal costing. In
relevance to absorption costing, it is applied in the venture for determining profitable selling
price of commodities and stock valuation purposes (Canh, 2018). At same time, marginal costing
is applied for making buy or manufacture decision, choosing suitable product mix and fixing
selling prices.
Product costing: There are two kinds of product costing techniques, one is fixed cost and
another is variable cost. Fixed costing involves cost which do not alter or change with changes in
amount of products or services (Hansen, Mowen and Heitger, 2021). Likewise, variable costing
comprises occurrence of manufacturing overhead over a period on which product is
manufactured. In Prime Furnitures, other costing such as standard costing, activity based costing
and many more plays significant role in preparation of financial statements.
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Calculation of costs through costing techniques in Prime Furnitures:
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In Management Accounting, Different techniques can be used so as to facilitate the
calculation of costs. These are explained below in relevance to Prime Furnitures:
Marginal Costing-
There are usage of different types of techniques so that the organizations are able to
determine the profitability level and target its maximization(Nørreklit, 2017). Through it, Break-
Even point can be calculated which is the level where an organization neither earns profit and
does not incurs a loss. Prime Furniture can make sure that its use so that it assesses the level of
profits.
Advantages-
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 Classification of costs- With this technique, financial analysis can ensure to company
that they can assort costs in a much better manner. Thus in this way Prime Furniture can
ensure that they can classify and segregate the costs effectively.
 Assessment of profits- The use of this method allows the managers to be able to assess
the overall profits effectively. In Prime Furniture, this will be helpful in ensuring that
profits are appropriately assessed.
Disadvantages-
 Use of assumptions- In this technique, the different assumptions can be made for
ascertainment of profits. The management of Prime Furniture is therefore in disadvantage
here because if the assumptions prove out to be wrong it can lead to inaccurate results for
the organization.
 Not useful for cost control- This method is not useful from the point of view of
controlling costs in the organization (Van der Stede, 2017). For consultants of Prime
Furniture, this can create a disadvantage.
Absorption costing-
This method is very useful as it considers all costs for the determination of profits. Also it
considers the overheads in the organization and ensures that their proper apportionment can be
done (Kaur and Lodhia, 2018). In Prime Furniture, it can be a very useful method so that the
managers are able to attain goals and objectives related to profits.
Advantages-
 Treatment of fixed costs- In this method, there is a much better treatment of fixed costs
as compared to marginal costing method. Thus for Prime Furniture this creates an
advantage.
 Acceptable method- This method is acceptable for the organizations as it conforms with
the various accounting concepts. Thus an advantage can be created for Prime Furniture.
Disadvantages-
 Does not helps in decision-making- This technique does not helps the management to
be able to take decisions effectively (Baehaqi, Birton and Hudaefi, 2020). In Prime
Furniture, this can lead towards a disadvantage.
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 Inaccuracy in product costs- If the overhead costs are apportioned in a wrong manner in
the firms this can result in a high-level of inaccuracy. Thus, for business such as Prime
Furniture, a disadvantage can be created.
Justification- Both of these techniques are very useful for the managers of any
organization so that they are able to effectively determine the profits. Thus for the administration
of Prime Furniture it is recommended that they make use of both of these techniques to assess
the profitability level. This is so because they can consider the suitable techniques through which
the profits can be increased (Kato and Charoenrat, 2018).
TASK 3
P4: Advantages addition to Disadvantages concerned with various planning tools that are used in
budgetary control
The term budget is aforesaid to an computation about expenses along with revenues for
particular future time period. In an organization, the usage of diverse types of planning tools can
be facilitated. The tools which can be used by Prime Furniture are as follows-
Production budget-
It could be said to a budget which is generally used by the manufacturing organizations to
ensure that proper production of goods can be ensured. Its use can be made by the managers of
Prime Furniture so that they properly ascertain their production requirements.
Advantages-
 When this budget is prepared the proper utilization of various assets can be made within
the organizations (Alewine and Stone, 2017). Thus this is an advantage for Prime
Furniture.
 With this budget, the firms can make sure that they are able to properly estimate the
production requirements using the forecasting technique. Thus this can create a benefit
for the management of Prime Furniture.
Disadvantages-
 The preparation of this budget requires a lot of time on the part of the managers (Gerged,
Al-Haddad and Al-Hajri, 2020). Thus for the management of Prime Furniture this creates
a disadvantage.
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 It is prepared on the basis of certain assumptions and estimations. Thus in Prime
Furniture, a disadvantage can be created due to it and thus this can create difficulties.
Sales budget-
A Sales budget is prepared to ascertain the expenses which are required to be made to ensure that
the sales are achieved. In Prime Furniture, its preparation can help the management a lot to make
sure that targeted revenues are achieved.
Advantages-
 This budget is helpful for the organizations to ensure that they are able to ascertain the
sales in the future time period (Oesterreich and Teuteberg, 2019). Thus in this way it can
help the management of Prime Furniture.
 For the firms, it is useful to prepare this budget so that they are able to make sure that the
required comparisons can be done with the data of previous year. Thus the required help
can be provided to the managers of Prime Furniture in this manner.
Disadvantages-
 In the companies, the preparation of this budget is dependent on various forecasts (Loft,
2020). Thus for the management of Prime Furniture a disadvantage can be created due to
it.
 It is not useful for those firms in which fluctuations are very frequent in the sales figures.
Thus for the managers of Prime Furniture this can lead towards creation of a
disadvantage.
Personnel budget-
In it, there are details regarding the expenses which are to be incurred for the personnel in
the organization. With its preparation, the managers can make sure that they are able to
effectively achieve the goals and objectives related to the personnel department which they have
set for the future time period (Stoykova, Paskaleva and Stoykov, 2020).
Advantages-
 By preparing this budget the organizations will be able to identify the expenses which
they will incur for the development of their various employees. In Prime Furniture this
can create an advantage.
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 This budget is very crucial from the point of view of the management to properly manage
its funds for personnel development. In the context of Prime Furniture, it is quite
beneficial.
Disadvantages-
 It is a costly process to prepare this budget (Nguyen, Tran and Dang, 2020). Thus for
Prime Furniture this can create a disadvantage.
 The preparation of this budget demands the use of various sort of skills. In the context of
Prime Furniture, this can lead towards a disadvantage.
Justification- In Prime Furniture, the use of all of these budgets should be made so that
the managers are able to create short-term and long-term plans to be applied in the future time
period.
TASK 4
P5: Comparison about how two organizations and the way they use management accounting to
respond to problems of finance
Financial problem- A financial problem is a situation which the organizations face in
which there is an impact on the position of funds. This type of situation is not good for the
purpose of financial health of the organization (Toumeh, Yahya and Siam, 2018). Like other
companies, Prime Furniture also faces certain financial problems. These have been explained as
follows-
 Untoward absorption of overheads- In Prime Furniture, the overheads are not being
absorbed in a proper manner. This is leading towards an increase in the overall level of
expenses and is thus causing difficulties for the management as it is creating a direct
impact on profits by increasing the overall expenses.
 Wrong valuation of inventory- Inventory is being valued in a wrong manner in Prime
Furniture. This is creating difficulties for the management as it is decreasing the level of
profits (Margerison, Fan and Birkin, 2019).
Techniques that help in solving financial problems-
 KPIs- KPIs is mentioned to Key Performance Indicators. These are put-upon as metrics
by the management so that they are able to ensure that the performance is properly
evaluated in an effective manner. Its use can be made by Prime Furniture to solve the
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problem related to overheads as by setting standards for absorption of overheads the
organization can make sure that they are able to properly manage the overall expenses.
 Benchmarking- It is a process through which standards are set for the purpose of
measurement and comparison of performance (Fakoya and Lawal, 2020). Its use can be
made by the managers of Prime Furniture to be able to ensure that the problem related to
inventory can be resolved as by setting appropriate standards for valuation the company
will be able to make sure that it can value the inventory in a proper manner.
Financial Governance- It is way through which the companies are able to manage their
financial data and facts in an appropriate manner (Bennett and James, 2017). Its use for
preventing financial problems can be made by Prime Furniture so that it is able to present the
financial data in a desired way to achieve the various goals and objectives without problems and
issues.
Management accounting skill set: Effective management accounting of Prime Furniture
have characteristics including strong ethical sense, constant learning, focusing towards accuracy,
sense of accountability, working in team, knowledge about the profession and reliability. With
these skills, management accountant could be able to look towards pertaining situations, manage
business position and implement strategies that will lead to deal with ongoing financial problems
(Andarsari and Ningtyas, 2019).
Comparison of organizations-
Basis Arcadia Group Debenhams
Financial problem It is facing the financial
problem of excessive costs in
job orders.
It is facing the financial
problem of low profits due to
selection of wrong price for its
products and services.
Management accounting
system used
It can make use of Job costing
system for solving the problem
(Booth, 2018).
It can make use of Price
optimization system to solve
this problem.
Application of the system It can apply this system by
ensuring that it can fulfil the
various types of job orders
It can apply this system by
making sure that the
appropriate prices are set in the
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appropriately and also reduce
the costs being incurred in it.
organization for earning the
targeted profits (Owusu and
Alhassan, 2021).
Thus, by learning from the examples of Arcadia Group and Debenhams and the way they
solve their financial problems the management of Prime Furniture can make use of the
appropriate systems. They can make use of Cost accounting system to solve the problem related
to overheads and can use Inventory management system to solve the problem related to
inventory.
CONCLUSION
From the above report it can be concluded that management accounting is a system
through which appropriate decisions can be taken effectively and efficiently. Its usage helps the
managers to be able to achieve the goals and objectives which they set and it allows them to
manage the financial transactions appropriately. It has different types of systems which are quite
helpful for the firms. Its reports are useful for performing relevant analysis and interpretation. Its
techniques help in finding out the costs. Planning tools help the managers in creating plans both
for the short-term and long-term basis. The use of various types of systems can be made in the
organizations to help them to be able to solve their financial problems in an effective manner.
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REFERENCES
Books and Journals:
Alewine, H. C. and Stone, D. N., 2017. Accounting systems’ design matters: evaluability and
mode influence environmental performance judgments. In Advances in Accounting
Behavioral Research. Emerald Publishing Limited.
Andarsari, P. R. and Ningtyas, M. N., 2019. The role of financial literacy on financial
behavior. Journal of Accounting and Business Education. 4(1). pp.24-33.
Baehaqi, A., Birton, M. N. A. and Hudaefi, F. A., 2020. Time value of money in Islamic
accounting practice: a critical analysis from maqāṣid al-Sharī ‘ah. Journal of Islamic
Accounting and Business Research.
Bennett, M. and James, P. eds., 2017. The Green bottom line: environmental accounting for
management: current practice and future trends. Routledge.
Booth, P., 2018. Management control in a voluntary organization: accounting and accountants
in organizational context. Routledge.
Canh, N. H., 2018. Ineffective accounts receivable management and solution in case of Hai Son
Construction Material Company Limited.
Fakoya, M. B. and Lawal, A. B., 2020. Effect of environmental accounting on the quality of
accounting disclosures of shipping firms in Nigeria. The Journal of Accounting and
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Gerged, A. M., Al-Haddad, L. M. and Al-Hajri, M. O., 2020. Is earnings management associated
with corporate environmental disclosure?. Accounting Research Journal.
Hansen, D. R., Mowen, M. M. and Heitger, D. L., 2021. Cost management. Cengage Learning.
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enterprises: Evidence from Thailand. International journal of disaster risk reduction.
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Kaur, A. and Lodhia, S., 2018. Stakeholder engagement in sustainability accounting and
reporting. Accounting, Auditing & Accountability Journal.
Loft, A., 2020. Understanding accounting in its social and historical context: the case of cost
accounting in Britain, 1914-1925 (Vol. 43). Routledge.
Margerison, J., Fan, M. and Birkin, F., 2019, July. The prospects for environmental accounting
and accountability in China. In Accounting Forum (Vol. 43, No. 3, pp. 327-347).
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Nguyen, L., Tran, M. and Dang, T., 2020. The relationship between level of environmental
financial accounting practices and financial performance in Vietnam. Accounting, 6(4),
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Nørreklit, H. ed., 2017. A philosophy of management accounting: A pragmatic constructivist
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Oesterreich, T. D. and Teuteberg, F., 2019. The role of business analytics in the controllers and
management accountants’ competence profiles. Journal of accounting & organizational
change.
Owusu, F. B. and Alhassan, A. L., 2021. Asset‐Liability Management and bank profitability:
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Finance & Economics. 26(1). pp.1488-1502.
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Stoykova, A., Paskaleva, M. and Stoykov, D., 2020. Risk Management And Accounting with
Fintech. Entrepreneurship, Faculty of Economics. Blagoevgrad: South-West University
“Neofit Rilski. 8. pp.59-73.
Toumeh, A. A., Yahya, S. and Siam, W. Z., 2018. Expectations gap between auditors and user of
financial statements in the audit process: an auditors' perspective. Asia-Pacific
Management Accounting Journal (APMAJ). 13(3). pp.79-107.
Van der Stede, W. A., 2017. “Global” management accounting research: some reflections.
Journal of International Accounting Research. 16(2). pp.1-8.
Yi-zhen, W. A. N. G., 2019. Research on the Management of Accounts Receivable of
Construction Engineering Companies——Taking W Engineering Company as an
Example. Accounting and Finance.
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