Management Accounting Report: Financial Statement Analysis, Costing

This report provides a comprehensive overview of management accounting principles, focusing on cost calculation, financial statement preparation, and interpretation, using Prime Furniture Limited as a case study. It covers marginal and absorption costing methods, exploring their application in financial reporting and analysis. The report further examines budgetary control, including operational, cash, and capital budgets, along with their benefits and limitations. It also delves into pricing strategies, supply-demand dynamics, and strategic planning using SWOT analysis. Furthermore, the report analyzes how management accounting methods help organizations respond to financial problems and achieve sustainable success, emphasizing the importance of financial planning and management accounting systems in overcoming financial challenges. The report concludes with a discussion of the key findings and their implications for effective financial management.

MANAGEMENT ACCOUNTING

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY..................................................................................................................................................3
TASK 2......................................................................................................................................................3
P3. Calculation of costs and preparation of financial statements under marginal and absorption
costing method........................................................................................................................................3
M2. Accounting techniques to produce financial statements.................................................................5
D2. Interpretation of prepared financial statements...............................................................................6
TASK 3......................................................................................................................................................6
P4. Limitations and benefits of planning tools of budgetary control.......................................................6
M3. Use of different planning tools and their application for preparing and forecasting budgets........10
TASK 4....................................................................................................................................................10
P5. Analysis of ways in which management accounting methods help organisation to respond to
financial problems that will have sustainable success...........................................................................10
M4. MAS to solve financial issue...........................................................................................................12
D3. Importance of financial plans for planning and managing monetary sources which can contribute
in overcoming problems regards to finance..........................................................................................13
CONCLUSION.............................................................................................................................................13
REFERENCES..............................................................................................................................................14

INTRODUCTION
The word MA is described as a means of establishing internal reporting with aid of monetary and
non - monetary details (Alsharari, 2019). There are a broad variety of strategies such as
absorption, marginal in which to render financial reports. This form of accounting is too crucial
for each type of business sectors because under it detailed information about internal reports is
offered and each of them contains financial & non financial information. Such information acts
as a key tool for making decisions in an effective manner. This is so because such accounting
information acts as a framework for taking judgments. Prime furniture limited is the firm chosen
for this project. It involves in manufacturing of different types of furniture items. The document
provides detailed information on different accounting methods, corporate accounting preparation
tools and management processes to address financial problems.
MAIN BODY
TASK 2
P3. Calculation of costs and preparation of financial statements under marginal and absorption
costing method.
Micro economic techniques:
Cost- This can be described as the overall cost of undertaking various forms of development and
operations. Various categories of costs occur, including fixed costs, contingent costs, actual
expenses, indirect costs, and many others.
Cost volume analysis- The cost-benefit planning is a significant method to the weakening
framework and attributes of options that are used to assess the optimal way to achieve gains
while preserving costs (Cescon, and Grassetti,
Taschner and Charifzadeh, 2020).
Cost variance- This can be described as the estimation method for the disparity between real and
expected costs. It is viewed in unfavorable and positive ways.

In the context of planning financial accounts, there are a variety of important techniques such as
absorption and marginal strategies. They can be used for writing business financial reports. In the
following description, these are defined as follows:
 Absorption costing method- This is a method of costing methodology which specifies and
generally allocates the costs of different activities. Under it item's costs shall be done as
fixed and unfixed costs.
 Marginal costing method- The costs involved in multiple operations can be interpreted as
a way to classify them. The fixed costs are called the cost of time and the cost of the
products varies.
Product costing:
 Fixed cost- It is a kind of expense not influenced or adjusted by the change in the volume
of output.
 Variable cost- It is a form of expense which can be modified or influenced by changes in
the amount of output.
 Standard costing- Standard costing incorporates planned expenses with real costs in
financial reports. The adjustments between the expected costs and the real costs are then
reported as shown.
 Activity based costing- The activity costing approach determines the operating functions
of each process and measures the cost relative to the practical usage of the product and
the facility for each process (Aureli, Cardoni and Lombardi, 2019). This method
attributes indirect costs more direct than conventional costs. In the context of prime
limited company, such costing technique is used in order to assess day to day activities
and cost related to each. By this method, it becomes easier for managers to know which
kind of activity is leading to higher amount of cost.
 Role of costing in setting prices- Costing plays a significant role in price regulation when
firms adjust rates on the basis of it. That's because if the costs are greater than anticipated
than the values fixed by businesses, vice versa.

Cost of inventory:
 Inventory cost- Costs in inventory are purchase costs, distribution costs and increased
cost control. Various forms of manufacturing expenses are defined as follows:
Ordering cost
Carrying cost
Purchasing cost
Hiring cost
 Valuation methods:
First in first out method- This approach is correlated with the inventory in the factories
for manufacturing first of goods that comes first. In relation to Prime limited company,
they use such method to manage their available amount of stock in an effective manner.
They deal with those stock which comes first in the store.
Last in first out method- This is a process which is related to the last stock in factories for
output. In the context of above Prime furniture limited, they use such accounting system
to manage those stock which comes last in warehouses and used on a priority basis.
Weighted average costing method- The weighted average accounting value methodology
is one of three approaches to measure the business inventory that measures the overall
expenditure of a commodity component based on the output of-item, relative to their
number. To evaluate the amount and value of the products being made, businesses use the
weighted average.
Calculations:

Marginal costing method:

M2. Accounting techniques to produce financial statements.
In the corporate finance sector, most revenue reports are organized through absorption and
marginal costing structures. As with Prime furniture, income is reported by absorption and
incremental costing approaches (Ferdous, Adams and Boyce, 2019). The pluralities of
approaches, with the exception of these, include planning of financial reports such as a
traditional cost scheme, costing events, etc. In relation to standard costing, the calculation of
potential costs used for comparison will be seen as being related. Operational expense is
dispersed and assessed for different types of operation by growing activity.
D2. Interpretation of prepared financial statements.
From above, it could be seen that net income for quarters 1 is £ 4300 under absorption costs and
this is £ 3100 for quarters 2. Owing to the increased amount of sales, net profit was higher in Q2.
Under marginal costs, the profits are reported by both quarters. Net profit of £ 1900 for portion 1,
whereas it is £ 4700 for quarter 2, in quarter 2, high net margin were due to increased marginal
sales prices. Different methods of taking expenses can be due to the disparity in profit/loss
between both the two strategies-fixed and variable through 2 methods when planning the income
statement. The rationale behind change in net margin and loss under both techniques is due to
consideration of cost in different manner as in marginal costing only variable cost is taken as cost
of production. While in absorption costing fixed and variable both are taken as cost of
production.
TASK 3.
P4. Limitations and benefits of planning tools of budgetary control.
Budgetary control- This can be understood as a kind of method and efforts by several various
expenditure plan to control monetary and anti-financial performance. In this aspect of budget
position, the management of organizations takes corrective measures to produce more results
through these strategic planning. There are a variety of budgets expected so these are:
Operational budget- It is a budget type that allows the management to determine over a certain
time the volume of product needed to complete multiple activities. For the management in the
sense which prime furniture is limited, the accountants plan this estimation. The managers take

corrective decisions with regard to the control of multiple activities in this budget. In the aspect
of above Prime furniture limited, they adopt such budget in order to manage different kinds of
operations like how much amount of wood is needed to produce furniture and many more.
Benefits-
This budget is useful for businesses to track the use of various types of resources in an
organization.
In addition to this, above budget contributes in managing different kind of operations which are
performed in prime furniture limited to produce various kinds of items.
Drawbacks-
It takes too much time and resources for allocating expenditures, which is the key issues under
this budget.
This budget is not suitable for companies which are operated at small level or have small size.
Cash budget- It is a report that describes both cash revenue and expenditures and concentrates on
projections for a given accounting cycle (Modell, 2019). After all budgets such as income,
master budget, capital budget and buying budget, the final budget is produced. Expenditures and
changes of financial items are marked. It is primarily for external actors and cannot be
conveniently modified after release. In relation to above Prime furniture limited they apply such
budget in order to manage all those activities which are related to cash receipts and expenses
during a particular time period. This budget has many advantages and disadvantages in the
above-mentioned company aspect, such as:
Benefits-
This is useful for businesses to manage cash and profits on a daily basis.
By help of such budget, it becomes easier for companies to track usage of allocated cash items
and different kinds of items which lead to cash incomes.

Drawbacks-
This budget is focused on assumptions such that corporations cannot rely solely on it for other
financial arrangements.
This budget does not produce any accurate outcome for companies and due to which it becomes
risk for companies to take better decisions.
Capital budget- The process for assessing potentially huge project or investment is the working
capital process undertaken by a company. Building of a new facility or large investments in an
external undertaking is project reports requiring the budgeting of wealth before approval or
rejection. In order to decide whether expected rewards that are produced follow a appropriate
goal benchmark, a business could evaluate cash inflows and outflows in a future project for life.
Investment assessment is sometimes considered the capital budgeting process.
Benefits-
The financial situation of primary furniture is evaluated with a thorough budget analysis.
Another benefit of this budget is that it is helpful for assessing company’s long term investments
and guiding about investments.
Drawback-
The major challenge in this budget is that changes are difficult to create.
It does not produce accurate projections each time and companies cannot rely on this because
investment error may lead to huge loss of company.
Pricing:
Pricing strategies: