Management Accounting Report: Financial Analysis of Home Furniture Ltd

This report provides a comprehensive analysis of management accounting practices, focusing on Home Furniture Ltd. It begins with an introduction to management accounting, its requirements, and the importance of financial reporting. The report then delves into specific aspects, including costing methods (marginal and absorption), the preparation and use of income statements, and the advantages and disadvantages of various planning tools like budgeting and zero-based budgeting. It also explores how companies like Home Furniture Ltd use management accounting to address financial problems, offering practical solutions. The report includes detailed financial statements and tables to support its analysis, making it a valuable resource for understanding management accounting principles and their application in a real-world business context.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Requirement of management accounting...............................................................................1
P2 Methods are used for reporting..............................................................................................3
TASK 2............................................................................................................................................5
P3 Income statement by using marginal and absorption costing................................................5
TASK 3............................................................................................................................................8
P4 Advantage and disadvantage of planning tools.....................................................................8
TASK 4..........................................................................................................................................13
P5 Companies are using management accounting to respond to financial problem.................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is related to financial reporting data and guidelines which given
by top auditor managers to make strategic decisions. Evaluating the data and making the right
choices is critical for the business community (Saunila, Pekkola and Ukko, 2014). All financial
information is gathered by accountant and used by administrators to analyse budgets and
financial data to spread out company. The goal of management accounting to making decisions,
managing business processes and control activities. Effective management accounting consist of
obligations to arrange a broad range of of critical management accounting information utilise for
management accounting system and management accounting techniques. To understand the
importance of report Home Furniture Ltd has been selected. This company apply management
accounting to analysis financial information and take appropriate decision. This report will cover
several topics management accounting system, reports and planning tools applied by the
company to control the financial activities. Additionally, apply management tool to control
financial problem with the help of system, calculate overall cost and provide solution of problem.
TASK 1
P1 Requirement of management accounting
Accounting management is linked to an organisation that can be applied by accountants
and administrators to analyse information in order to make strategic decisions. The business
manager makes and executes investment plans via the management of transactions to reduce
costs and maximise profit. All financial data are related to the information system and a company
is reported and managed. For example, Home Furniture Ltd managers use accounting for
business practices to make judgement and accomplish business goals. It present different
functions like supply data, rectify data, interpretation, facilitated accounts control, qualitative and
quantitative information. There are defined some function of Home furniture Ltd such as:
Presentation of data: To present financial information of the company in front of
directors and outsider people, prepare income statement, balance sheet, cash flow. On the basis
of these statement company take appropriate decision (Pace, 2014). Thus, Home Furniture Ltd
required to prepare all the statements to effectively present data which is essential to make right
action.
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Rectifies data: The financial information of the company modified according to
management expectations. Such as, director of Home Furniture Ltd rectified information
according to month wise, territory wise and product wise.
Predicting: It is most important factor of management accounting which is utilised by
most of the organisation for further investment. It supports to predict the accomplishments of
objective for short and long term. For instance accountant of Home Furniture supply appropriate
information as well as data for the reason of predicting.
Management accounting system: It is part of internal system that is utilised by company
to measure and analysis its procedures for a reason of arranging business activities. Different
systems are important to assist decision, control business and arranging the finance. Such as,
Home furniture is applying this system to take appropriate decision, arranging activity of profit
and investment (Green and et. al., 2014).
Cost accounting system: The particular system is a framework which is used by the
organisation to estimate the cost of products in order to evaluate profitability, stock valuation and
control cost. According to situation an organisation utilise a combination of both job order
costing and process costing. In this system cost allotment is based on the traditional costing and
activity based costing.
Financial accounting system: It is defined as accounting system that is utilized by the
accountant to maintain financial data in systematic way. This system present financial
information in front of externals of organisation such as suppliers, creditors and many others. It
is following all the rules and standards, internal control, accounting and auditing information
system to arrange financial data. Mostly organisation follow this system in order to take
appropriate financial decision. Such as, home furniture to prepare financial statement following
all the rules & regulations, accounting information system and auditing rules that supports to
record financial information adequately and according to that appropriate decision.
Tax Accounting: It can be defined as a management accounting system which supports
for subtracting tax numbers to acquire precise income. In simple terms, it is a set structure of
accounting method that not only concentrate on tax activity but also presenting public financial
statements. The amount of tax charge according to government policies which set for individual,
corporation, partnership, international tax etc. to calculate actual revenue (Nam and et. al., 2014).
The income tax return fill by the advocate and charter accountant. Such as, Home furniture
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accountant follow all the procedure to record financial data and fill income tax return to achieve
trust of customers.
Different types of management accounting system are defined below:
Job costing system: A job costing scheme includes the process of gathering data on the
expenses of a particular manufacturing or business job. This system has been utilised for
accretion of overall cost. Consequently, Home furniture's management apply new scheme to set
attract customers for increase sales and maximise profit. This system has been consisted of direct
expenses, direct labour and overhead. The requirement of this system to submit cost information
to a customer as per the contract where cost are compensate (Tung, Baird and Schoch, 2014).
Inventory management system: This systems is commonly applied by manufacturing
company to assist stock in properly way to monitoring and regulating stock movement. The
essential requirement of this system to understand which place need to supply order and how
many quantities require to produce for complete order. Such as Home furniture is trading in
furniture so require to apply this system in order to record every movement of inventory.
Price optimization system: This is a computational investment system that describes
how consumption differs at a different price stage and instead combines economic data to
establish prices of products. People are more afraid about the price of products as well as
services to set the prices of goods. In Home furniture's manager set effective price of all furniture
item to attract customer and maximise revenue.
P2 Methods are used for reporting
Management accounting reports consist of preparation, decision making, controlling
and measuring performance. It is defined as basic function of any organisation which is
presenting by the administrator. The purpose of the manager to produce these reports to examine
the information and calculate profit in the context of business. The particular reports are
produced by the accountant and book keeper to record every activities of business. For instance
manager of Home Furniture prepare a plan to apply regulations and present efficiency of
developing management accounting reports (Varley, 2014). There are defined Purpose and use of
reports:
Trading and profit loss account: This statement create by the organisation at the
beginning of the financial statement to know gross profit as well as net profit. In this statement
include all the income and expenses during a financial year. From the income less amount of
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expenditure than get amount of profit. It is produced by the Home furniture in order to calculate
net profit of the company.
Balance sheet: It is important part of financial statement which produced by the different
companies in order to analysis the actual situation of company. There are consisting of assets and
liabilities end of the financial year. The main reason of preparing balance sheet to valuation of
business to identify financial status. Such as Home furniture is producing balance sheet to
analysis of balance of assets and liabilities end of the financial year (Kuznetsova, Ruiz and Zio,
2014).
Cash flow statement: To prepare this statement required to follow set structure where
present cash inflow and outflow through different activities such as operating, investing and
financing. The main reason to produce this statement to show all detail information of cash
inflow and cash outflow in certain period of time. Home furniture prepare cash flow statement to
analysis cash position to make decision.
Different types of accounting reports are prepared by organization
Budget Report: Such a report is produced by executives that demonstrates how a
company manages resources. There are recording all the transactions after analysis present and
past performance. The main reason to produce this report to utilization of remaining funds and
used for new products. Such as Home furniture is preparing budget report to record amount of
income and expenses in order to generate profit.
Performance Report: This report is part of communication management plan that allows
to interact with staff members and closely evaluate their performance in order to provide reward
according to performance. The main reason to prepare of this report to evaluate efficiency of
workers and get improvements by rewarding them, so profit can be increasing in business entity.
It is produced by the Home furniture to monitor the performance as per the assign task among
employees. After allotted task, supervisor evaluate the efficiency and provide monetary and non
monetary reward to encourage towards work (Doherty, Horne and Wootton, 2014).
Inventory management report: It is very important report for manufacturing company
in order to keep detail information of inventory. There are consisting of stock in warehouse,
spare materials, used of raw materials and other things. Thus, manager of Home furniture
produce this report in order to track stock at each level from stating to finishing. The main reason
to produce this report to check inventory level adequately.
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TASK 2
P3 Income statement by using marginal and absorption costing
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TASK 3
P4 Advantage and disadvantage of planning tools
Budget: It is the predication of all income and expenditure which are produced by the
company to conduct business operations effectively (Sargeant and Jay, 2014). It is prepared by
the expertise after the predication of future activities and analysis past budget of Home furniture
Ltd. Thus, it is required for an organization to prepare a budget and apply different planning
tools to control them.
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Preparing of budget: To prepare a budget require to determine the actual position of
company in market and recognise the requirement of different resources could be acquired.
Therefore, the expertise are asked questions to staff members about their departments and apply
various types of strategies that apply by company to fulfil the necessitate. To effectively prepare
of budget estimate the amount of income and expenses and analysis of past budget that help in
prediction. When company provide different alternatives that time staff members are showed in
front of directors to check it and take approval. After that apply budget in the organisation and
run business smoothly.
Different types of planning tools: These tools are applied by the organization to get
result effectively and get direction for controlling budget. Several types of organization use
different types of planning tools such as:
Zero base budget: The particular budget includes all expenditure should be recognised
and approved for new financial period that supports to analysis profit of financial period. It is
starting from zero base at the beginning of year by evaluating requirement and cost of each
business activity. Home furniture can produce zero base budget to calculate amount of business
by optimizing cost. In this budget does not take past budget information as a base during to
creating budget and get adequate amount of money (Palone, and et. al., 2015). Advantage: The main advantage of this budget for Home furniture to get adequate
amount to assure about the correct amount of money. It improves performance of
organisation due to analysing financial information of each department and concentrate
on current figure rather than past budget.
 Disadvantage: To prepare of this budget required more time and it is very complex due
to ignored last years experience. It is not possible for all the companies to invest large
amount in budgeting procedure.
Capital budget: The particular budget is developed by the manager of the company to
ascertain the investment. It is beneficial for company or not due to depend on the options. In
Home furniture produced this budget to analysis future option from investment purpose and
generate more income at least profitable projects. It directs to board of directors how to make
investment that available to them after determining all the options (Mahadevan, 2015).
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 Advantage: It is defined as best suitable project that would be recognised by director in
order to make investment and generate more revenues. It may be risky alternative that
effect in positive investments to ignored by the company.
 Disadvantage: It is defining as most expensive method of develop budget because it will
take more time and require more people for analysing market activities. It is success for
only short period of time and it is not required al ways provide positive results (Olmstead,
2014).
Operational Budget: The particular budget produced by company on monthly, quarterly
and yearly basis. In this budget record all the amount of expenses as well as incomes that is
directly connected with the operations. In the context of Home furniture developed operating
budget to record all transactions regarding to expenditure while taken place in non monetary
terms. The main item depreciation record in this budget that consist as non cash item.
 Advantage: Through this budget determine the expenses that are directly connected to
operations activity in reference to control business procedure. In the context of Home
furniture, it is advantageous due to allotted all funds as per the requirement.
 Disadvantage: To execute of this budget it is required to develop a plan that fulfil the
requirement but for long time it does not provide guarantee for good result. There is
required to produce the budget by experienced people and it is very complex (Grabner,
2014).
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