Management Accounting Report: Furniture Practice Limited Analysis

This report delves into the core concepts of management accounting, exploring its significance in organizational decision-making, particularly for a small enterprise like Furniture Practice Limited. It begins by defining management accounting and outlining essential requirements for various accounting systems, including cost accounting, job costing, inventory management, and price management. The report then examines different management accounting reporting methods, such as budget reports, accounts receivable reports, cost management reports, and performance reports. A key section focuses on cost analysis, demonstrating the calculation of costs using marginal and absorption costing techniques, complete with income statements. Furthermore, the report analyzes different planning tools used for budgetary control, discussing their advantages and disadvantages. Finally, it addresses how organizations adapt management accounting systems to respond to financial problems, providing a comprehensive overview of the subject matter.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems.................................................................................................1
P2 Explain different methods used for management accounting reporting.................................2
TASK 2............................................................................................................................................4
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs............................................................................4
TASK 3............................................................................................................................................5
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.........................................................................................................................5
TASK 4............................................................................................................................................7
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems........................................................................................................................7
CONLUSION..................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting is a technique of representing accounts in a way which helps
managers to efficiently run their managerial process. It is one of the most vital branch of
accounting. Management accounting helps managers in formulating strategical decision for
organisations in order to achieve predetermined goals efficiently. the organisation which is
selected for this report is Furniture Practice limited which is a small size enterprise which is
located in London. The organisation offers furnitures, services related to relocation, hiring of
furniture and their maintenance and provides guidelines to their customer. This report is divided
in 4 sections each section describes various information regarding managerial accounting. in first
section meaning of managerial accounting and importance of its various system has been
defined. In second part various techniques of management accounting are identifies, in third
section meaning of planning tool and benefits and drawbacks of their tools are define in brief.
Last section of this reports cover up ways of managerial accoutring which helps in solving
financial problems of organisation.
TASK 1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems.
Management accounting:Management accounting is made of two words, management
and accounting. Management is the process of influencing people to works towards achieving
organisations objective. Accounting is a process of analysing, collecting and recording
transactions of organisational activities, thus, it is the process of analysing, collecting and
recording financial information in such a way which helps managers in formulating policies and
taking essential decision for optimum utilization of resources. Organisations uses this branch of
accounting for proper utilization of resources and take be4st decision regarding investment
(Bierma, Waterstraat and Ostrosky, 2017). Managers uses this tool so that they can effectively
formulate their managerial process. There are various types of accounting systems which an
organisation uses to effectively perform their managerial function, these are mention below:
 Cost accounting system: In this system of accounting cost of manufacturing each
products are identify. It is essential part of management accounting system. Organisations
uses absorption, marginal and other methods for calculating costs of products. This
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system of cost accounting helps in increasing profitability of the business entity through
reducing cost of production. Manager of The furniture practical limited use those system
for the purpose of analysing cost of each department and then make strategies which
helps them to minimizes cost of manufacturing products.
 Job costing system: In this type of technique managers allocate cost to each
manufacturing product,this type of accounting system are useful for those organisations
whose process of producing each products are differ from each others. This system helps
the business entity for proper utilization of resources. Manager of Furniture practical
limited uses this method when demand of each customers for making furnitures are
different (Chenhall and Moers, 2015).
 Inventory management system : It is also known as stock control system. This system
is used to identifies stock level in running organisations. This tool helps in taking
essential decision regarding inventory process. Organisation use this system for making
effective inventory control policy. Managers uses this system to analysis minimum
maximum and dangerous level of each manufacturing product. Manager of Furniture
Practical Limited uses this tool to manage stock level of their organisation. They uses
ABC and VED analysis to control wastage of stocks of their products.
 Price management system:This method is used by the managers for the purpose of
determining prices of product. Organisations take decision regarding pricing after
analysing all market conditions. This tool is helpful for managers in deciding what kind
of strategy they used for pricing their product. Managers of Furniture Practical limited
use this system for identifying factors that affect their pricing policy they use skimming
price strategies for their customers.
P2 Explain different methods used for management accounting reporting.
Management accounting reporting: Reports are the detailed summery of activities
regulate in particular event. Management accounting report is a statement which describe the
performance statement of an particular organisation. Managers prepare this report to identifying
financial status of their organisation, and then make plans and policies for achieving
organisations objectives. Manager of Furniture Practical limited uses various kind of methods for
preparing managerial reports, these are mention below:
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 Budget report: Budget is a financial statement which shows expected income and
expenses of an organisation for specific period of time. In this method managers use
prior data for the purpose of preparing report. Success of an organisation depends on
how effectively managers built their budget report Manager of Furniture practical
limited use to prepare budget reports for the purpose of identity income and expenses of
their firm. This report also help the manager to take essential financial decision.
 Account receivable reports: This method of preparing managerial accounting reports
refers to prepare reports related to collections of account receivable of company.
Managers prepare this report to make their credit collection polices stronger. This reports
helps in identifying collection period from debtors and identifying bed debts customers
of their organisations Manager of Furniture practical limited use this reports to identify
reasons of their slow time periods of credit collection.
 Cost managerial report: In this method managers prepare summarised cost report of
manufacturing products. Cost reports covers all the part of manufacturing and selling a
product which includes all expenses of producing products. It is essential report for
manufacturing organisations managers take decision regarding pricing of products and
minimizing cost after analysing summery of this report. Manager of Furniture particular
limited prepare cost reports to identify their cost of hiring labour, manufacturing
furniture of their organisation.
 Performance report: This method is uses to evaluate performance of each department
of the organisation. Performance reports are made to shows the status of performance of
each employees and department of the firm. It is vital tool of management accounting as
this reports helps managers to identifying performance level of their workforce.
Managers take decision of providing incentives promotion of employees after reviewing
this report (Renz, 2016). This reports helps managers to provides those facilities which
helps in increasing performance level of workforce of the organisation. Manager of
Furniture Practical Limited prepared this report for reviewing performance level of their
employees and then take decision of providing incentives to best working employees of
their firm.
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TASK 2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs.
Marginal costing: It is a technique of management accounting which is used to
identifying cost of producing additional unit of product in an organisation. Managers uses this
technique to analysing the effect of producing addition unit of product. This technique is helps
in taking decision regarding allocation of cost. This term can also be known as variable costing
(Spraakman and et.al., 2015).
Income statement of GSQ limited ( Marginal costing)
Particular Amount
Sale, 50000 @ 30 per unit 1500000
- Variable cost
Direct material cost @ 8 per unit 400000
Direct wages cost @3 per unit 150000
Variable manufacturing overhead @ 2 per unit 100000
Variable selling expenses @ 4 per unit 200000
Contribution 650000
- Fixed cost
Fixed manufacturing overhead 160000
Fixed administrative and distribute cost 60000
Profit 430000
Interpretation: From the above calculations it has been analysed that while using
marginal costing method organisation will be able to generate profits of 430000 pounds.
Absorption costing: It defines as an approach of managerial accounting under which
costs are allocated to each unit to identified per unit cost of each manufacturing unit. Managers
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uses this technique to identifying causes of insufficient supply chain of their organisation. This
tool of managerial accounting are useful to minimize cost of production department. Diffrences
between absorption and marginal costing is that this technique consider fixed cost for the
purpose of allocating cost but in marginal costing mangers cannot use fixed cost while
calculating cost.
Income statement of GSQ limited(Absorption costing)
particular Amount
Sale 50000 @ 30 per unit 1500000
- cost of good sold
Direct material cost @ 8 per unit 400000
Direct wages cost @3 per unit 150000
Variable manufacturing overhead @ 2 per unit 100000
Fixed manufacturing overhead 160000
Gross profit 690000
-Variable selling expenses 200000
- Fixed administrative and distribute cost 60000
Net profit 430000
Interpretation : From the above calculation it has been analysis that while using absorption
costing method organisation can earn gross profit 690000 and net profit 430000 pounds.
TASK 3
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.
Budget:- It is a formal document that management makes to forecast the estimating
income and expenses based on their goals of future plans and objectives. It is used to determine
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the final result and financial position of an entity for future period. It must be realistic,
continuous and must cover all relevant aspects of the firm.
Managers of The Furniture Practise Ltd can use it for planing the performance
measurement, which involve expense on fixed assets, rolling out new products, training
employees, setting bonus plans, etc. The budget ensures tax relief on capital gains, provides
cheaper loans for developers, declines interest rates, etc.
Budgetary control:- It is the process by which budgets are prepared for future period, as
compared with actual performance for identifying any variance to take corrective actions. It is
the continuous process which helps in planning and co-ordination to control cost.
Manager of The Furniture Practise Ltd may apply budgetary control through the
establishment of actual position to compare with budget. It helps to calculate and establish
reasons for variances by implementing corrective actions.
The budgetary control is further classified into three sub- categories are:-
 Zero base budget:- It is an approach to formulate budget from the scratch and must be
justified for each new period. Manager of The Furniture Practise Ltd must have to re-
evaluate every line of cash flow statement and justify all expenditures incurred in actual
budget (Englund and Gerdin, 2016).
Advantages:- This approach drives managers to find cost-effective methods to improve
activities. Managers must justify all operating expense, maintain legacy expense in evaluating.
The managers of Furniture Practise Ltd are also benefited with the cost reduction, as it gives
proper image of costs against the desired performance.
Disadvantages:- It is time- consuming concept as every line evaluation creates delay in
organisational goal achievement. Managers of the Furniture Practise Ltd requires high manpower
as it lacks expertise to perform these tasks.
 Cash flow budget:- It is a budget that provides an overview of cash inflow and cash
outflow during a specific period of time. The manager of Furniture Practise Ltd must
follow cash flow budget, as it helps to forecast the company's overall financial health.
This budget requires the regular monthly visit by the firm for effective way to keep the
real- time company expenditures.
Advantages:- The manager of Furniture Practise Ltd are advantageous to understand the
impact of future plans and possible outcomes. It also helps to maintain the track of overdue
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payments. Forecasting the plans for upcoming cash gaps and manage surplus and invest time in
good governance.
Disadvantages:- Managers of The Furniture Practise Ltd has to face the drawbacks
which are- unforeseen factors of change in economy and politics. It consists of limited
information and there are volatile business environment.
 Flexible budget:- This budget is more sophisticated and useful tool when measuring
manager's efficiency with adjustment in change of volume. The manager of Furniture
Practise Ltd can use this variable budget, to predict the production output based on
changing level of business activities.
Advantages:- It helps managers of the Furniture Practise Ltd to adjust for changing cost
and profit- margins. It also leads to better cost control and to be updated with current data.
Disadvantages:- A range that changes over time can make the budgeting process
confusing for users as it keeps on changing. It also enables cheating, less discipline as its not
fixed.
TASK 4
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.
Financial Problems:- The problem regarding with deficiency of money, which creates difficulty
in paying bills are called financial problems. These problems arise when lots of money is spent
and to feel burdened with debt and have little savings.
The financial problems occurs in The Furniture Practise Ltd, due to the following reasons
are as follows:-
 Income problems:- This is a very common financial issue faced by manager of The
Furniture Practise Ltd, due to making low wages, not receiving regular raises, having
limited promotion opportunities, etc.
 Excessive debt:- This occurs when credit cards rely to pay the bills when manager of
Furniture Practise Ltd, is low on income to make purchase. These debts are further added
to financial problems, due to high interest to be paid and the risk of delay payments.
 Less saving:- The Furniture Practise Ltd, has the issue that deals with not saving money
for future use or emergency period, leads to struggle with loan. Lacking the long- term
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savings for retirement can also lead to financial issues later in life (Maas, Schaltegger and
Crutzen, 2016).
 Investment issues:- Managers of Furniture Practise Ltd, surely lacks in investment as
they mostly invest in stocks, bonds, etc., with high risk instead of saving it in account.
From the above financial problems, managers of Furniture Practise Ltd, take corrective measures
to reduce these problems with the help of management tools which are as follows:-
Key Performance Indicator (KPI):- It is a measurable value that demonstrates the
efficiency to achieve the key business objectives. The Furniture Practise Ltd, implements KPI at
multiple level to evaluate by directing and controlling the success towards target. It includes
financial and non- financial problems such as- income problem and less saving.
Bench marking:- It is the concept described by the measurement of product and services
with comparative organisation strategy to be the leader of one or more operation aspects. The
managers of Furniture Practise Ltd, may compare their product process, externally with
competitors and internally with operations of similar activities in their own firm. It's main target
is to identify the best performance, to implement it for the effective and efficient goal
achievement. In this, the firm focus on the competitive strategies adopted by competitors in the
particular task such as- investment issues and excessive debts (Tucker and Lawson, 2016).
Financial governance:- This refers to the process of tracking the financial transactions,
performance management, and control information. Furniture Practise Ltd, managers implies
financial governance to manage business data and ensure that data is correct through internal
and financial controls, policies, data tracking and validation with data security. It is the most
important managing tool which helps the firm to deal with all the financial problems faced by the
Furniture Practise Ltd.
Management accounting
system
Furniture Practise Ltd Katie walker furniture
Cost accounting system With the help of it managers
will be able to determine the
costs which may take place in
future and they can arrange
funding according to them to
It can use cost accounting
system in order to bring
effectiveness in its cost
operations which will resolve
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ignore possibility of challenge
which is lack of income.
problem of excessive cost.
Price optimisation system Using it, the organisation will
be able to set the right price
which will help in resolving
the problem of excessive debt.
Katie Walker Furniture can
use it to solve the problem of
lack of customers as setting
right price will attract more
consumers towards products
of company.
CONLUSION
From the above project report it has been concluded that management accounting is an
essential tool for organisations. It is the process of using recorded accounting transactions in a
way which helps managers to perform their managerial functions efficiently. In managerial
accounting different systems used by managers which includes cost ,inventory price and job
process accounting for perform their functions effectively. In this branch of accounting reports
are made which showcase performance status of various departments. Organisations made
reports through using budget ,costing, price and performance report methods. Managers uses
marginal and absorption costing techniques to identified per unit costs and profitability. This tool
of accounting is useful to take decision. For this purpose managers use various planning tools
which includes budgets financial statements,forecasting techniques. Due to lack of capital small
organisations suffering from many problems . Managers uses management accounting tools in
order to overcoming all these problems.
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REFERENCES
Books and journals:
Bierma, T. J., Waterstraat, F. L. and Ostrosky, J., 2017. Shared Savings and Environmental
Management Accounting: Innovative Chemical Supply Strategies 1. In The Green
Bottom Line (pp. 258-273). Routledge.
Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, Organizations and
Society. 47. pp.1-13.
Englund, H. and Gerdin, J., 2016. What can (not) a flat and local structuration ontology do for
management accounting research?. Qualitative Research in Accounting & Management.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136.
pp.237-248.
Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Spraakman, G. and et.al., 2015. Employers’ perceptions of information technology competency
requirements for management accounting graduates. Accounting Education. 24(5).
pp.403-422.
Tucker, B. P. and Lawson, R., 2016. Moving academic management accounting research closer
to practice: A view from US and Australian professional accounting bodies. Advances
in Management Accounting. 27. pp.167-206.
Tucker, B. P. and Schaltegger, S., 2016. Comparing the research-practice gap in management
accounting. Accounting, Auditing & Accountability Journal.
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