Management Accounting Report: Costing Methods and Budgetary Control

This report provides a comprehensive analysis of management accounting practices, focusing on costing methods, budgetary control, and financial analysis. The report begins by examining different costing methods, including fixed and variable costs, historical costs, absorption costing, and marginal costing, with calculations and comparisons. It then explores various management accounting techniques and their application in business organizations. The report also delves into the advantages and disadvantages of planning tools in budgetary control, such as forecasting, scenario planning, and contingency tools. Furthermore, it includes an evaluation of expenses and a cash budget. Finally, the report addresses the adoption of accounting systems to determine financial issues, evaluates crucial measures to overcome these issues, and assesses the planning tools used in management accounting, offering insights into financial ratios like ROCE, operating profit margin, and asset turnover for two hypothetical companies. This report is ideal for students seeking to understand financial management and accounting principles.

Management Accounting
PART 2

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1: Calculation of cost by using appropriate methods...............................................................3
1.2: Various range of management accounting techniques and develop a document ................5
1.3: Data interpretation by using costing methods which is used in an organisation.................5
TASK 2............................................................................................................................................5
2.1: Advantages and disadvantages of using planning tools in budgetary control ....................5
2.2: Evaluation of expenses for July and August........................................................................7
2.3: Cash budget .........................................................................................................................7
TASK 3............................................................................................................................................8
3.1: Adoption of accounting system to determine financial issues............................................8
3.2: Evaluating crucial measure to overcome financial issues of both the company .................9
3.3: Evaluating planning tools used in management accounting................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
In recent times, management is searching for some effective system that can helpful them
to manage and control their every financial or non-financial transaction in appropriate manner.
The process of preparing administrative reports and various crucial information that would
provide accurate and reliable outcome for the company. One of the major profession that consists
of positive relation in management decision making and deliver expertise financial reporting to
build strong organisational strategies. This particular part is mostly focus on merits and demerits
of using planning tools that are effectively helpful in budgetary control. Identification of
financial issues and vital measure to overcomes those issues are discuss under this report
(Bennett, Schaltegger and Zvezdov, 2013).
TASK 1
1.1: Calculation of cost by using appropriate methods
In order to get more positive outcomes as net profit manager need to make use of
effective costing systems. These are mostly associated with production of products and services.
All the costs are either directly or indirectly related with them. Cost would be generally an
important part of every manufacturing business whether it is small or large. It is the value of
money charged for getting something. Costing is a systematic method of accounting which will
helpful in assembling and recording every component of cost those are incurred for the purpose
of accomplish a particular objectives. There are various costs which will helpful in evaluating
total costs for an organisation. Some of them are discuss underneath:
Fixed and variable costs: A cost which remain unchanged in total volume changes but
varies only on a per units basis with the increase or decrease in cost driver. Like for examples,
amortization and insurance premium. Whereas, variable costs are those costs that are constant as
per unit but modify in total production changes in output. Some crucial examples are fuel
expenses and output material (Boyns and Edwards, 2013).
Historical costs: It has been seen that assets would be indicated on the balance sheet at
their original costs of purchase instead of present value. The total cost of fixed costs are included
at the time when actually the acquisition is made. It is more consistency with current value of
resources that is being employed in an organisation.
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Absorption costing: It refers as those costs which is applicable at very manufacturing
process of products and services. All costs are absorbed into manufacturing and hence, operating
standards does not separates among fixed and variable cost. Because these costs are covering all
crucial aspects in production they are said to be full costing method (Absorption costing, 2012).
For the purpose of making crucial business decision this costing method are not taken into as
effective by the owners.
Marginal costing: According to this costing, all those costs which is incurred while
producing an additional units of products and services. While calculating net profit only variable
costs are taken into consideration in-spite of fixed costs. These costs would be measure for
evaluating total costs of final units as overall outcomes. This would be considered more
effectively for making crucial decision-making in near future.
NET INCOME AS PER ABSORPTION COSTING: January February
Sales (35per units) 315000 402500
less:
Cost of Production (12+8+5+1.82) 295020 254790
Gross Profit 19980 147710
LESS:
Fixed and variable cost:
variable sales overheads (1 per unit) 9000 11500
Fixed selling cost 2000 2000
Total costs 11000 13500
NET INCOME AS PER ABSORPTION COSTING: 8980 134210
Computing net profit by using marginal costing
PARTICULARS January February
Sales (35 per unit) 315000 402500
less:
Cost of Production (12+8+5) 275000 237500
variable selling overheads (1 per unit) 11000 9500
variable cost 286000 247000
Contribution 29000 155500
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less:
fixed manufacturing overheads 20000 20000
Fixed Admin & selling cost 2000 2000
total fixed costs 22000 22000
NET INCOME AS PER MARGINAL COST 7000 133500
1.2: Various range of management accounting techniques and develop a document
In every business organisation, it is crucial for them to make their financial transaction in
more systematic manner. As because management accounting is one of the large and diverse
aspects. Henceforth, is very hard to define their scope and nature. There are various vital
techniques which is being used by managers such as historical cost accounting which is helpful
in cost accounting to enable actual costs which is incurred by the firm. Decision accounting is
being made after making vital study about various impacts of decisions associated with costs,
profit and future growth of the company (Bovens, Goodin and Schillemans, 2014).
1.3: Data interpretation by using costing methods which is used in an organisation
For the purpose of evaluating net profits of an organization, it is vital to make use of the
best costing methods which would provide more accurate solution to them. In the above case,
both marginal and absorption costing is being used for determining total net profitability for the
company. Profit generated from marginal costing is about 7000 and 133500 for January and
February month. Whereas, by using absorption cost they are 8980 and 134210 for the same. This
would be assists that company is not being sufficient position in case they are using marginal
costing.
Advantages of marginal cost: It is one of the more crucial techniques in which only one
individual variable or direct costs would be taken into account. The most business investors
mainly use to consider this costing techniques for future decision.
Limitation: The most interesting part of this accounting techniques is that they only
considered variable costs. That would make primary reason for low profitability.
Merits of absorption costing: It is mostly helpful to evaluate effective aspects out of
fixed costs which is associated with production process. These are mainly crucial for preparing
final account.
Demerits: It is not taken as more vital for future decision-making by the company.
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TASK 2
2.1: Advantages and disadvantages of using planning tools in budgetary control
Planning is utmost important part of every manufacturing business enterprises. They need
to perform certain types of business activities in order to generate maximum benefits. Every
activity must concluded with expense and incomes of UCK group of company. The primary aim
of the company is always help to make sure that the expenses does not reverse its revenue and
for that UCK group always tried to make appropriate budgets that will control their everyday
transactions. The process of budgetary control is utilise by the company in order to manage their
future estimation about total costs and expenses. In accordance with this, various kinds of
expenses prevailing in UCK group company such as cash flow expenses, capital and revenue
expenditure or so on. Some crucial budgets are sales, production and raw material budgets. An
effective budget would also assists the company to keep regular overlook of total workforce and
examine whether work is going right direction. In order to make budgets for the company
various planning tools are taken into consideration by the accounts managers. These techniques
are helpful in forecasting future growth and financial stability for the company. Some of them
are discuss underneath:
Forecasting tools: It is mostly seen in an organisation that they always plan to make
forecasted in order to attain efficiency in internal department performance. A company can
accurately held responsible for estimating better results in terms of total sales and revenue. This
will lead to create better image in front of various competitors (Hansen, 2011).
Merits: It would assist managers to make forecasting for future through making right
direction in the way company can attain their aims and objectives. As, demand of customers kept
changing which would help the company to make their creative products to an organisation.
Demerits: As forecasting is done through estimation and henceforth it cannot be accurate
and reliable in every case.
Scenario tools: The another planning tools is scenario strategies which tries to make
focus on the outlook for the future estimation. It is more vital tools by which UCK group of
company can form a positive idea for predicting future situations.
Advantages: It is one of the most creative planning which is more suits as per the given
situation in an organisation. It would deal with all those crucial aspects that remain uncertain.
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Demerits: As per this planning techniques cannot accurately predict their future because
it is based on assumptions. It is too costly to implement this types of planning tool.
Contingency tools: An organisation always faces certain types of risks which are
associated with uncertain activities. These activities can be arise from external as well as internal
contingencies such as fire occurred at the factory and some other aspects.
Merits: By the help of proper plan which would be applicable in contingency situations
in best suitable manner. Because risk are uncertain and cannot be resolve early. The role of
managers are well assigned in perfect manner before any contingencies arises.
Demerits: It is reactive methods of business management (Kihn and Ihantola, 2015).
2.2: Evaluation of expenses for July and August
In order to calculate variable cost per units in order to determine high and low activity
stage.
(Total expenditure of high activity – Expenditure from low activity)
Total cost=
(Highest activity per hour spend – Lower hour spend)
Total expenditure (Per units): (9820-7410) / 795-505)=8.31
Total expenses for July:
= 650*8.31= 5401.5
For August:
= 750*8.31= 6232.5
2.3: Cash budget
Cash budget Amount
Particulars September
Opening balance 9000
Cash sales 39000
Sale on account 5648
Total Cash collected 53648
Less:
Purchase -16800
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Selling and administration
expenses -13000
Equipment cost -18000
Dividend paid -4000
1848
Add: minimum cash balance 5000
Expected cash at the end of
September month 6848
TASK 3
3.1: Adoption of accounting system to determine financial issues
In every business like UCK group is working in formulating various issues which will
leads to make huge implications over the ratio of an organisation.
Ratios Formula UCK furnitures UCK woodworks
ROCE (Return on
capital employed):
Operating profit/Capital
employed*100
5890+3600/23100+31
930*100
=9490/55030*100
=17.24%
6955/81230*100
=8.56%
Operating profit
margin
Operating profit / sales
*100
9490/13000+24900*1
00
=25.03%
6955/81230*100
=8.56%
Assets turnover Revenue / Net assets 13000+24900/23106+
31930
=0.68 times
8150/81230
=0.100 times
UCK Furnitures UCK WOODWORKDS
It is mostly related with producing only one
products which is desks.
They are held responsible for providing
valuable material to UCK furnitures.
As per the ROCE ratio, it has been seen that Under this company, just 8.56% of total return
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they are getting total return of 17.24% total
investments made by the company.
they are able to generate during an accounting
year which is very low as compare to furnitures
company.
Assets turnover of the company is 0.68 time
rotating during the time.
Whereas, 0.10 times assets are moving out of
total sales.
Operating profit margin is about 25.03%. While, they are still generating very low
position because to their maximum
expenditure.
3.2: Evaluating crucial measure to overcome financial issues of both the company
In order to make proper analysis, financial situation of UCK Group has been found that
UCK woodworks is having low market or return as compare to UCK furnitures. In order to
resolve there financial issues they need to make use of various financial tools such as:
KPI(Key performance indicators): It is one of the key financial tools which is helpful
in resolving various financial problems those are arises in an organisation. This done by making
comparison through using past and present data.
Financial governance: This techniques is helpful in resolving key issues those are
affecting the performance of UCK Group. By following effective rule and regulation prescribed
by local authorities are needs to be followed in effective manner (Quattrone, 2016).
3.3: Evaluating planning tools used in management accounting
With proper utilisation of forecasted costs and revenue through formulating budget and
effective measures to control their losses which is being seen during calculating ratios of the
company. Ratios analysis is an additional tool which is providing crucial information regarding
present position of the company.
CONCLUSION
From the above project report, it has been found that managers need to evaluate various
planning tools those effectively helpful in controlling budgets. By the help of proper costing
methods net profitability can easily be determine. The overall project is estimating proper
balance among their financial condition.
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