Evaluation of Management Accounting Systems and Techniques Report

This report provides a comprehensive analysis of management accounting, focusing on its application within the context of UCK Furniture, a furniture firm in the United Kingdom. The report is divided into two parts, the first part explaining the core concepts of management accounting, its essential systems such as cost accounting, inventory management, job costing, and price optimization, and the different techniques involved including financial planning, analysis of financial statements, standard costing, budgetary control, marginal costing, fund flow, and cash flow statements. The second part focuses on applying these techniques to the business, including cost calculations using appropriate techniques, and evaluating how organizations can use the systems to solve their financial problems. The report also includes a critical evaluation of the benefits and drawbacks of different systems and techniques, concluding with recommendations for effective implementation to enhance decision-making and maximize profitability.

Management
Accounting

Contents
PART 1.........................................................................................................................................................4
TASK 1..........................................................................................................................................................4
P1: Explanation of management accounting and its essential systems...................................................4
P2: Explanation of use of techniques of management accounting..........................................................5
M1: Evaluation of benefits of management accounting systems............................................................6
D1: Critical evaluation of systems of management accounting...............................................................6
TASK 2..........................................................................................................................................................7
P3: Calculation of costs by using appropriate techniques........................................................................7
M2: Application of management accounting techniques......................................................................15
D2: Producing financial reports which interpret data for complex business activities..........................15
PART 2.......................................................................................................................................................16
TASK 3........................................................................................................................................................16
P4: Advantages and disadvantages of planning tools............................................................................16
M3: Analysis of use of planning tools....................................................................................................22
TASK 4........................................................................................................................................................22
P5: Evaluation of organizations adopting management accounting systems to solve problems...........22
M4: Analysis of organizations attaining success after resolving problems............................................24
D3: Evaluation of planning tools............................................................................................................24
CONCLUSION.............................................................................................................................................25
REFERENCES..............................................................................................................................................26

INTRODUCTION
Management accounting refers to use of provisions of accounting systems in an effective
and efficient manner so as to take better decisions for the benefit of the company (Al-Hebry and
Al-Matari, 2017). Thus it essentially helps the management in effective decision-making. It aids
the management in performing better so as to maximize the profits of the firm. The company
which has been selected for this report is UCK Furniture which is a furniture firm in United
Kingdom. In this assignment, specific focus will be made on demonstration of understanding of
management accounting systems, application of techniques, use of planning tools and
comparison of ways in which organizations can use the systems for solving their financial
problems.
PART 1
TASK 1
P1: Explanation of management accounting and its essential systems
Management accounting refers to use of the available accounting and financial data of the
company in a productive manner so that decision-making can be improved in order to maximize
the profits and to achieve the goals and objectives of the organization. UCK Furniture can use it
to set different goals and framing a time-limit to achieve them (Alzoubi, 2016). The various
types of systems in management accounting which it can use are as follows-
Cost accounting system- It is a system which is widely used for the purpose of
determination of costs, their segregation and classification of overheads. The managers of UCK
Furniture can use it which will help the firm in finding and segregating its costs and effectively
reducing them to earn more profits. This system will enable the company in dealing with its
costing issues and find out the reasons of excessive cost, variances and deviations and preparing
strategies to rectify them.
Inventory management system- In this system, better tracking and valuation of
inventory is enabled which helps the companies in keeping a better track and order of their stock
level. UCK Furniture can use it which will help them in periodically checking their stocks and
resolving any kind of problems or issues related to inventory. It will enhance better maintenance
of inventory level and its various techniques like LIFO, FIFO can help in effectively dealing with
problems related to stock of the company. Thus it can reduce the costs of maintenance and
increase the overall profits of the firm.

Job costing system- This is a system which is used mostly by manufacturing companies.
As UCK Furniture is a firm which takes orders for making of furniture it can use this system
which will enable it in keeping a better track of its job orders. For it this system is of must use as
it regularly takes orders for furniture of its clients.
Price optimization system- In this system, an analysis is done by the companies to
determine a pricing strategy which best suits their needs and requirements (Di Vaio and Varriale,
2018). Multiple factors are required to be considered for it. UCK Furniture can use it which will
help them in dealing with their pricing issues if any and ensure that the firm gains sustainable
competitive advantage over its rivals. Also, this system is highly useful in countering the
problems related with price determination. Its techniques help in determination of the right price
which will increase the profit level of the company.
P2: Explanation of use of techniques of management accounting
Different types of techniques can be used by firms in management accounting which will
enhance them to take better decisions (Techniques of management accounting, 2015). Their
analysis in the context of UCK Furniture is as follows-
Financial planning- In this technique, detailed financial plans are made and arrangement
of sources of finance is done. It helps in achievement of both short-term and long-term objectives
of the company. This can help UCK Furniture in detailing out projections and helps in bringing
efficiency and effectiveness in its operations.
Analysis of financial statements- In this technique, financial statements like P&L A/c,
Balance Sheet etc. are analyzed to draw conclusions and comparing with the established
standards. UCK Furniture can use this technique to compare and find out deviations and
variations if any so that rectification measures can be taken immediately.
Standard costing- This technique analyzes the standard costs and actual costs in making
of a product to compare them with established industrial standards to find out whether results are
adverse or favorable (Gull and et.al., 2018). It can help in quickly identifying deviations and
variances if any and taking of steps to rectify them. UCK Furniture can make use of this
technique for enhanced profitability level.
Budgetary control- Budgetary control techniques can help a firm in formulation and
checking of budgets for a particular period of time. A firm like UCK Furniture can easily use
these techniques which will help it in framing of budget and keeping its expenses well within
check.
Marginal costing- Marginal costing refers to the extra cost incurred in production of an
extra unit of output. It helps in determination of break-even point which is the level where a firm
neither earns profit nor incurs loss. UCK Furniture can use it for cost control, better decision-
making and enhancement of profits.

Fund flow statement- Fund flow statement is used for determining the inflows and
outflows of funds over a particular period of time. UCK Furniture can use it for analyzing the
movement of its funds and identification of sources and outflows of funds.
Cash flow statement- A cash flow statement is extremely helpful in determination of
inflows and outflows of cash and other cash equivalents (Heinicke, Guenther and Widener,
2016). Its preparation is essential to ensure that proper liquidity level is maintained in the
company. UCK Furniture can use it to ensure that it maintains liquid assets if the need to use
them for payment purpose arises. Also it can be used by the organization to help in controlling
the movement of cash. It helps in raising the overall efficiency, effectiveness and productivity in
operations and also aids in decision-making.
M1: Evaluation of benefits of management accounting systems
There are different benefits of management accounting systems for UCK Furniture. Cost
accounting system can help it in determination and controlling of costs, inventory management
system can track the stock levels, job costing system helps in tracking of job orders and price
optimization system determines the optimum price to be charged by the firm for its products.
Thus all of them aid managers of UCK Furniture in decision-making and framing of long-term
plans for the benefit of the organization. Selection of the right system is required for the benefit
of the company if it has to resolve its various issues.
D1: Critical evaluation of systems of management accounting
Management accounting systems can help UCK Furniture in effective decision-making.
They are of immense help in framing of short-term and long-term plans. These systems can help
in raising efficiency, effectiveness and productivity in operations. Thus they are of immense help
for firms in making plans of increasing their level of profitability. Therefore, cost accounting,
inventory management, job costing and price optimization systems are of much use in taking of
useful decisions.
TASK 2
P3: Calculation of costs by using appropriate techniques
Material 4 * 3
£
12.00
Labor 4 * 2
£
8.00
Production O/H 5 per unit
Final Production O/H
£
20.00
Estimated cost per unit ( production 20000/10 £

cost) 2.00
Selling price 35 per unit
Variable selling cost 1/ unit
Fixed selling cost 2000/month
January
Production 11000 units
Sales 9000 units
Absorption costing
Sales 9000 * 35
£
315,000.00
Production cost
Opening stock 0
Less:
Material 12 * 11000
£
132,000.00
Labor 8 * 1000
£
88,000.00
Variable production cost 5 * 11000
£
55,000.00
Fixed production cost 2 * 11000
£
22,000.00
Over absoprtion
-£
2,000.00
Closing stock 27 * 2000
£
54,000.00
New production cost
£
241,000.00
Net profit
£
63,000.00

Marginal costing- It refers to cost incurred in production of an extra unit of
output. UCK Furniture can use this technique in finding out the position where its overall cost is
increasing (Hlaciuc and et.al., 2017). It can thereby use methods to reduce the cost and maximize
its profits.
Merits-
 Marginal costing helps in controlling of costs as excessive costs can be easily identified
by using this technique. It can control overheads and help in better allocation of costs.
 This technique is simple to use as well as understand. It can also be combined with other
methods without encountering much difficulty.
Demerits-
 By use of this technique it becomes quite difficult to classify the costs into fixed and
variable. Also, in a firm where there are multiple products it is less useful.
 It can be inaccurate or faulty in giving a true picture of all operations of a business
enterprise as it is difficult in it to determine the increase in costs.
Absorption costing- It is a method of determination of costs by taking of direct
as well as indirect expenses into account (Ipino and Parbonetti, 2017). UCK Furniture
can use it which will result in identification of full cost of manufacturing a product or
providing a service.
Merits-

 Using this technique results in taking into account all the costs and expenses which are
incurred with the production or manufacturing process (Li and Yang, 2016). This can be
highly useful for a company like UCK Furniture which takes orders for making of
furniture.
 Using this technique results in more accuracy in profit determination as all the expenses
and costs are deducted from the total revenue. This can help UCK Furniture in evaluating
its earnings.
Demerits-
 Use of absorption costing does not result in improvement in operational efficiency as it
cannot perform a good analysis on cost and volume (Yilmaz and Ceran, 2017). This can
hurt the prospects of a big firm like UCK Furniture.
 Comparison of product lines is not possible by using this method which can thereby
create problems for big concerns. As UCK Furniture deals in various furniture products
this can create issues for it.
Thus, from the above discussion it may be concluded that use of both the
techniques have advantages as well as disadvantages for a manufacturing firm like UCK
Furniture. If it uses both of them effectively and efficiently then it can control its cost
operations to a large extent which will help it in achieving its long-term aim of achieving
maximization of profits.