Management Accounting Techniques and Budgetary Control

This document discusses the various management accounting techniques used for budgetary control, including margin analysis, constraint analysis, capital budgeting, inventory valuation, and trend analysis. It also explores the advantages and disadvantages of different planning tools used for budgeting, such as budget control, cost volume profit analysis, and pricing strategy. Additionally, it examines how management accounting systems can be adapted to respond to financial problems and achieve sustainable success.

B10781
MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...................................................................................................................................................... 3
TASK 2......................................................................................................................................................................... 4
P3 Income statement through marginal costing and absorption costing technique:.................4
M2 Range of management accounting techniques:.................................................................................. 7
P4 Advantages and disadvantages of different types of planning tools used for budgetary
control:........................................................................................................................................................................ 8
M3. Different planning tools and their application for forecasting budgets................................10
P5. Adaption of management accounting systems to respond to financial problems and
sustainable success:............................................................................................................................................ 11
CONCLUSION......................................................................................................................................................... 14
REFERENCES......................................................................................................................................................... 15

INTRODUCTION
Management accounting is new concept practicing by every organization. Previously accounting
was only used and applied by junior accountants and tally department due lack of understanding
about accounting reports; there were no gap filling tool available to interpret the result in simple
terms. Decision making team requires to understand what is written in report regardless it cannot
give its judgment whether to buy particular project or avoid it. The application of management
accounting technique makes it simple for strategic manager to understand the crux of report and
analyze the whole effect in single read. This project is based on these accounting tools which
help Prime furniture a leading furniture company to take several critical decisions on business
expansions. Additional to this report will show how depending on only one forecasting tool
could harm company’s yearly earnings and how mishandling of fund can impact company’s
profit.

TASK 2
P3 Income statement through marginal costing and absorption costing
technique:
Quarter 1 & 2
First we need to calculate product cost per unit:
Quarter 1 Quarter 2
Variable Cost
(78000 × 0.65) 50700 42900
+ Fixed Cost 16000 16000
= Total Product
Cost 66700 58900
÷ Total Units
Produced 78000 66000
= Product Cost Per
Unit 0.85 0.89
After that the product cost per unit used to create the absorption income statement. The Units
sold on the income statement (and not units produced) taken to determine sales, cost of goods
sold and any other variable period costs.
Income Statement (Absorption)
Quarter 1 Quarter 2
Sales (66000 × £1/ unit)
6600
0 Sales (74000 × £1/ unit)
7400
0
- COGS (66000 × 0.85)
5610
0 - COGS (74000 × 0.89)
6586
0
Gross Profit
990
0 Gross Profit
814
0

Less: Operating Expenses: Less: Operating Expenses:
Selling & administer.
Expenses 5200 Selling & administer. Expenses 5200
Net Operating Income
470
0
294
0
Note: 1. Selling cost / unit is assumed to be £1/unit.
2. Variable cost/ Unit = Total variable cost/ No. of units produced
= 52000/80000 = £0.65/ unit
3. COGS = Cost of goods sold
Income statement through Variable costing technique:
Quarter 1 Quarter 2
Sales (66000 × £1/unit) 66000 Sales (74000 × £1/unit) 74000
Less: Variable Cost Less: Variable Cost
Cost of Goods Manufacturing
(78000 × 0.65)
50700
Cost of Goods Manufacturing
(66000 × 0.65)
42900
Less: Closing Stock (12000 ×
0.65) 7800
Add: Opening stock (12000 ×
0.65) 7800
Less; Closing Stock (4000 ×
0.65) 2600
Contribution Margin 23100 Contribution Margin 25900
Less Period Expenses Less Period Expenses
Fixed Manufacturing cost 16000 Fixed Manufacturing cost 16000
Fixed Selling and Admin.
Expenses 5200
Fixed Selling and Admin.
Expenses 5200
Net Operating income 1900 Net Operating income 4700
Explanation:

Cost of goods manufacturing is calculated by multiplying total production with variable cost per
unit (£0.65/Unit). Cost of Goods manufacturing is expense so it is subjected to be subtract from
Sales revenue. On the other hand Closing stock is subtracted from total variable cost because this
stock has not been sold and should not be subtracted from Revenue.
Difference in Profit & Loss or Income statement calculating by Absorption and Variable
techniques:
Absorption costing Variable Costing
Quarter 1 Quarter 1
Sales (66000 × £1/ unit) 66000 Sales (66000 × £1/unit)
6600
0
- COGS (66000 × 0.85) 56100 Less: Variable Cost
Cost of Goods
Manufacturing (78000 ×
0.65) 50700
Less: Closing Stock (12000
× 0.65) 7800
Gross Profit 9900 Contribution Margin
2310
0
Less Period Expenses
Less: Operating Expenses: Fixed Manufacturing cost 16000
Selling & administer.
Expenses 5200
Fixed Selling and Admin.
Expenses 5200
Net Operating Income 4700 Net Operating income 1900
Interpretation: As from the above figure, the clear difference between Net operating incomes
from both the method is shown. The major reason behind this difference is that in absorption
costing technique cost is calculated only of those products which has been sold, while in variable
costing method total cost is calculated for total products produced.
Absorption costing Quarter 2 Variable Costing Quarter 2
Sales (74000 × £1/ unit) 74000 Sales (74000 × £1/unit) 74000
- COGS (74000 × 0.89) 65860 Less: Variable Cost

Cost of Goods
Manufacturing (66000 ×
0.65) 42900
Add: Opening stock (12000
× 0.65) 7800
Less; Closing Stock (4000
× 0.65) 2600
Gross Loss 8140 Contribution Margin 25900
Less Period Expenses
Less: Operating Expenses: Fixed Manufacturing cost 16000
Selling & administer.
Expenses 5200
Fixed Selling and Admin.
Expenses 5200
Net Operating income 2940 Net Operating income 4700
Additional to the Income statement; BEP (Break even point analysis) is a strong tool to identify
the units at which company can attain a situation of no profit no loss. BEP of above case is
calculated below:
Break even point (In Units) = Fixed costs / (revenue per unit – variable costs per unit)
= £16000 / (£ 1/unit - £0.65/ unit)
= £16000 / £ 0.35/unit
= 45714 units
These 45,714 units is the total production required by a firm to attain no profit no loss situation.
BEP can also express in pounds:
Break-even point (Sales in £) = Sales price per unit × BEP in units
= £1/unit × 45714 units
= £45714
Interpretation: Company should generate 45714 pound sales revenue to attain no profit no loss
situation.

M2 Range of management accounting techniques:
Prime furniture utilizes some of management accounting techniques for achieving desired
goals and aim of business; these techniques are discussed below:
 Margin analysis: This tools supports firm in ignoring situation of overproduction
and also facilitates company in evaluating the total unit has to be produced to get
the situation of break even point (Srithongrung, Ermasova and Yusuf, 2019).
 Constraint analysis: This strategy helps organization in assessing the obstacles
which stops organization in accomplishing ideal creation and expanded income. It
likewise expresses the explanation for this obstacle and gives reasonable
arrangement.
 Capital budgeting: This is useful apparatus or strategies which helps organization
in taking key choices identified with capital consumptions. Right now (net present
estimation) of all ventures is determined to know which use can give more returns.
 Inventory valuation: This strategy causes activity chiefs to recognize what the
genuine expense is connected with stock. Right now and backhanded expense of
creation is isolated to get the sum which straightforwardly sways stock creation.
 Trend Analysis: This technique works on accounting principles; in which it follows
past oriented approach. It evaluates past years data to estimate future revenue
generate by company. Regression method is best optimum realistic tool used to get
next year’s sales with the help of regression equation (Srithongrung, 2019).
P4 Advantages and disadvantages of different types of planning
tools used for budgetary control:
1. Budget control: It is used in long run of business; the main objective of this
method is to identify how much allocation of fund should be done to get desired
sales (Singhvi and BODHANWALA, 2018).
Advantages and Disadvantages of Budget control:
Budgetary control
Advantages Disadvantages

Directions significant data across staff
directors.
It applies precisely and inflexibly
Decipher key plans and put them
enthusiastically.
Because of absence of cooperation,
workers can de-rouse.
Gives record of various authoritative
exercises.
Governmental issues and assets rivalry
emerges.
Improves relations with workers
through sound interchanges.
An inflexible structure diminishes
activity and headway at lower levels,
making it difficult to get money for
another new task.
Improves asset reallocations Discernment shamefulness circumstance
emerges (Schaltegger and Burritt,
2017).
Gives remedial activity instruments.
2. Cost volume profit analysis:
Cost volume profit analysis
Advantages Disadvantages
Effortlessness of figuring, uses a great
deal of standard plans, numbers can be
changed quickly to choose changes in
factors.
Exactness: it acknowledges all cost are
fixed, in any case there are mixed cost
that changes with creation.
Arranging: the breakeven point helps
bosses with surveying future spending
and whole creation impact the
objectives of the business (Quinn and
Oliveira, 2018).
Acknowledge bargains remains
consistent yet enthusiasm for a thing
can change after some time.
3. Pricing strategy:
Pricing Strategy
Advantages Disadvantages
Customer base esteeming investigates The administrators esteeming, the thing

the target whether customer is glad to
pay for the thing to choose the ideal
cost, this results sets the cost to be
charged from client.
is evaluated at what the association see
not what really client can pay. This
makes a hole between real cost and
what cost ought to be.
Cost based valuing acknowledges and
bargains remains consistent yet
enthusiasm for a thing can change after
some time.
Cost base valuing confounds chiefs and
they fixed the value more than
contenders (Nørreklit, 2017).
M3. Different planning tools and their application for forecasting
budgets
Prime furniture utilizes different planning tools for better application in budget forecasting;
these are discussed below:
 Budget control: It is future estimated value which is calculated by taking past
information’s as base. It allocates funds according costs required at different levels.
Control means try to minimize error between actual and budgeted figures.
Application: It applied to gauge masterminded livelihoods and expenses for
solicitation to achieve the association's goals. Right now, is identified with the
authoritative and accounting limit of the business (Muennig and Bounthavong,
2016).
 Cost volume profit analysis: This analysis used to categorize various costs
according to their size. For instance; high cost on top of the row and low cost at
bottom. It normally deals with major costs impacts net earnings during a year. If
this expensive amount is controlled than probability of getting high profit will
increase (Adler, 2018).
Application: Cost volume advantage examination is applied by the officials to
estimate the equivalent introductory speculation motivation behind a thing this is
the point that profits by pay ascends to the cost to convey a thing thusly there is no
setback no advantage now.

 Pricing strategy: Price fixation of each commodity is not an easy task and requires
lots of real time analyses by company. As price of any product depends on how
much demand created in market and how much money is decided by customer to
willing to buy particular stock. It requires mathematical model and competitors
product price analyses prevailing in the same market and industry (Alawattage and
Wickramasinghe, 2018).
Application: It is applied to figure how firm can limit its expense to meet serious
cost lastly execute this methodology under specialists' watch. At that point the
objective is chosen, the executives pick a methodology considering interest, cost,
contenders expenses and offers, and esteeming technique. In budgetary control
estimating technique helps in getting the business income figure (Sales per unit ×
Units created).
P5. Adaption of management accounting systems to respond to
financial problems and sustainable success:
Financial problems are common in running business; these problems arises due to
lack of past report study, using outdated accounting regulations, not enough fund left
with company and improper settlement of cost of different heads (Malina, 2017).
Sustainable success is a term associated with maintaining better performance for
prolong period of time. Some of the management accounting tools is discussed
below:
1. Demand forecasting: It is the process of forecasting similarly as the
investigation of anticipating the conceivable enthusiasm for a thing or
organization later on. This figure relies upon past gauges of direct and the
procedure with designs in the present. From now on, it isn't simply guessing the
future intrigue yet is evaluating the intrigue tentatively and evenhandedly.
Through gauging request organization get data about most recent patterns of the
market and manufactured item appropriately to coordinate the interest (Jones and
et.al., 2018).

Solution to financial problem:
Through anticipating request organization can take care of money related issues
like lack of assets, underperformance, under valuation of advantages and
reduction in income through giving data ahead of time.
Comparison:
These arranging apparatuses are for the most part utilized assembling
associations to keep away from the circumstance of overproduction. Associations
which are in wholesaling don't have a lot of utilization of this.
2. Make or buy decisions: Make or buy decisions choices usually rise when a firm
that has built up a thing or part or essentially balanced a thing or part is
experiencing issue with current providers, or has lessening limit or propelling
sales. It's anything but a simple errand to take such choices regularly,
organization requires bunches of examinations like getting ready zero based
planning, seeing future relations with providers and assessing whether
organization has enough ability to deliver explicit item or not. Extra to this, it is
additionally required to discover whether the item which organization needs
make or purchase impact center business of the business in the event that Yes, at
that point it ought to go for making that stock else it should purchase or procure
specific business (Garvey, Book and Covert, 2016).
Solution to financial problem:
Monetary issues like over consumption, delay in preparing time, and so on. Can
be tackled through evaluating cost on whether to make or purchase item,
organization satisfied interest on schedule and furthermore increment its Net
income through limiting by and large expenses.
Comparison:
It is generally reasonable for assembling associations as they have to conclude
whether to create or purchase the item. Administration associations not utilize
this device since they just offer types of assistance like exchanging, client
support, friendliness, and so forth.
3. Activity based costing: Activity based costing (ABC) is a costing framework
that administers over headed and insidious expenses to related things and

associations. This bookkeeping method for costing sees the relationship between
costs, various costs exercises and produced things, sharing out mischievous
expenses to things less important than ordinary costing systems. Regardless,
some variation costs, for example, the executives and office staff pay, are hard to
give out for every item made. Through this instrument association disengage all
the activities or system on costing bases (Collis and Hussey, 2017). It takes less
costing movement on the top and high costing action on base to concentrate on
every action independently.
Solution for financial problem:
Action based bookkeeping helps the executives in taking care of money related
issues; for example, need based bookkeeping and special bookkeeping of various
esteemed based item.
Comparison:
This device is helpful for all kind of associations, particularly associations doing
get together of parts. Assembling associations utilize this strategy to know which
creation unit is their center stock, then again administration parts utilize this
technique to recognize their center selling items cost.
4. Controlling and reporting: It is the principle obligation of money related
bookkeeper to examine different proclamations, for example, pay articulation,
accounting report and proportion investigations before planning report in light of
the fact that vital choices will be assume the premise of administrative report.
Controlling expenses and different elements to keep up validness of report is
likewise vital for junior bookkeepers (Charifzadeh and Taschner, 2017). Real or
genuine cost investigations significant for right choices.
Solution to financial problem:
It helps in building up a solid connection between organization's techniques and
association's significant choices. It guarantees whether the moral estimation of
business is followed appropriately, set of accepted rules is reasonable for
workers. Advance initiative among workers; likewise help chiefs in controlling
representatives through execution examination.
Comparison:

This arranging device is similarly significant for a wide range of associations;
through ordinary revealing assembling associations gets data's which costs it
ought to diminish to diminish cost, then again, administration associations applies
this devices to realize which stretching is performing great and which isn't and it
controls their expenses in like manner (Blischke, 2019).

CONCLUSION
An affiliation having a benefit managerial accounting system is noteworthy as picking the
right official for any association. As the managerial accounting system is would have
gotten a kick out of the chance to offer organization with strong and exact information,
administrators need to guarantee that the right structure for their model of business is
picked for utilization. The organization accounting study helps understudies unmistakably
appear; instructors can't keep up any blooper. The essential clarification is that accounting
is seen as the establishment of each business and thusly needs precision. Giving sensible
chart and tables of cash related accounting is the essential issue which accounting
understudy experience recorded as a printed version an assignment.

REFERENCES
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