Management Accounting Report: Analysis of Prime Furniture's Systems

This report delves into the realm of management accounting, offering a comprehensive analysis of its principles, systems, and applications within the context of Prime Furniture. The report begins by defining management accounting and highlighting its significance, differentiating it from financial accounting and exploring various management accounting systems, such as inventory management, cost accounting, and price optimization. It then proceeds to examine management accounting reporting, detailing the features of financial data and different types of reports, including performance reports, accounts receivable aging reports, and inventory reports. The report further explores cost and costing methods, including cost volume analysis, cost variances, and marginal and absorption costing. Budgetary control and planning tools are also discussed, with an emphasis on capital budgets, flexible budgeting, and SWOT analysis. Finally, the report addresses financial problems, the characteristics of effective management accountants, and the importance of financial governance. The report concludes with an overview of the key concepts discussed and their relevance to effective business management.

Management Accounting

Contents
INTRODUCTION...........................................................................................................................................4
TASK 1..........................................................................................................................................................4
P1 Management Accounting System:......................................................................................................4
Management Accounting:....................................................................................................................4
Benefits of management accounting systems:.........................................................................................6
P2 Management Accounting Reporting:..................................................................................................6
Features of Financial Data:..................................................................................................................6
Different types of reports.....................................................................................................................7
TASK 2..........................................................................................................................................................7
P3 Cost and Costing Methods:.................................................................................................................7
Accounting techniques to produce financial statements........................................................................12
Interpretation of prepared financial statements......................................................................................12
TASK 3........................................................................................................................................................12
P4 Budgetary control and Planning tools:..............................................................................................12
Common Costing Systems:................................................................................................................14
SWOT Analysis:................................................................................................................................15
TASK 4........................................................................................................................................................16
P5 Financial Problems and Financial Governance:................................................................................16
Characteristics and Skills of effective management accountant:........................................................17
CONCLUSION.............................................................................................................................................18
REFERENCES..............................................................................................................................................19

INTRODUCTION
Management is made up of two words: management and accounting, both of which are
necessary for running a firm and making sound judgments. It is critical for businesses to know
how to expand and prosper in a hard climate. It has become essential for managers to employ a
management accounting needs and implement reports that will assist them in operating and
running their businesses efficiently (Nassereddine and Ahmad, 2019). This can assist in making
sound business judgments. It outlines techniques and concepts for effective planning, selection,
and administration of relevant business operations, as well as administration by evaluation and
effectiveness evaluation. Prime Furniture was chosen as the subject of this research. The research
includes a thorough examination of several accounting systems/frameworks, reporting
methodologies, and planning tools that are successful in addressing financial issues.
TASK 1
P1 Management Accounting System:
Management Accounting:
While there's no precise definition defining management accounting, it may be regarded
as the foundation or comprehensive method of collecting, analyzing, identifying, documenting,
and analyzing financial as well as non information in such a way that management of the
company may develop its plans and identify opportunities so that organisational vision and
mission are met. The notion of managerial accounting emerged around the end of the 19th
century to govern and regulate an institution's inner structure and constituents. The following are
some key distinctions between management and financial accounting:
Management Accounting Financial Accounting
This accounting system may utilise and show
monetary or non-financial relevant data.
Financial information are often used and
provided by revenue recognition systems.
Management accounting information is used
by team members including as administrators,
proprietors, and board of directors.
External parties including as stockholders, the
authorities, entrepreneurs, rivals, and others
can value refers accounting information.

In compiling and access information,
management accounting doesn't really adhere
to any precise formulae or standards.
Financial accounting complies with legal
requirements by presenting knowledge and
statistics in a pre-defined manner.
Management Accounting Systems: A management accounting system may be defined as a
strategy for managing a firm's daily procedures with using accessible profitable and non records /
knowledge. Prime Furniture has created a management accounting system for reviewing various
sectors and operations such that the management team can track and control the condition the
each and then every operation. The following are the possible management accounting systems
used by the target business:
 Inventory management system: This system is mainly used the manufacturing
organisation to track the stock in organisation at different stages. The purpose of an
inventory management process is to achieve the condition of stored products, even if they
are raw or completed (Nyamwanza, Madzivire and Madzivire, 2020). This technology
aids the particular management team in observing and recording all stock movements.
Prime furniture, for example, employs the most up-to-date enterprise resource planning
technology to monitor every single model of their manufacture.
 Cost accounting system: This system is a way of tracing and recording the additional
costs at different levels of the project. This pricing methodology aids administration in
determining numerous internal and external operating costs such that all expenses can be
attributed to their respective overhead costs and the true inventory holding costs can be
computed.
 Price optimization system: A pricing optimization method was created to determine the
price of pricing models that people are willing to pay. This approach aids in the
comprehension of clients' responses to different rice ranges for various items and
services. The management of the chosen organisation is responsible for determining the
highest standard of service that is both lucrative for the company and accessible for the
consumers.

Benefits of management accounting systems:
Accounting
Systems
Benefits
Inventory
Management
System
 By combining the whole manufacturing and selling process, this
system aids in enhancing operational efficiency.
 It also saves a lot of time, cash, and area, all of which may be put to
better use.
Cost
Accounting
System
 A cost accounting system aids in the elimination of different
unreasonable and unneeded manufacturing expenses.
 This approach also assists managers of a chosen business in
distributing capital fairly and keeping power over manufacturing
process (Dijkman, 2019).
Price
Optimisation
System
 Management has the power to select the best pricing, resulting in
increased compensation and employee happiness.
 With the aid of this method, the worry concerning pricing constancy
may be put to rest.
P2 Management Accounting Reporting:
Management accounting reporting refers to the process of documenting and providing
financial statements to employees and managers in order for them to monitor and review the
efficiency and effectiveness and growth of the organizations. According on the cost and time or
kind of business, such accounting reports may be generated regularly, annually, or annual. The
managerial accountant's data in such statements must have several characteristics that make it
useful, as shown below:
Features of Financial Data:
•Accurate: Data and analysis should be reliable, and they should be recorded at the time of
operation. It should not be entered numerous times, even if it is used for several tasks, because it
may be misinterpreted.

•Relevant: The information contained in the studies should be useful for the reason for which it
was supplied. In order for managers to make appropriate choices, it is vital to examine the needs
on a regular basis.
•Trustworthy: The material must come from dependable, coherent, and steady references.
Changes to the data collection techniques and procedures should be avoided since they may
affect the evaluation process.
Prime Furniture prepares a variety of reports to assist its management in monitoring the
effectiveness of its personnel and also the company that are listed below:
Different types of reports
Performance Report: A performance report is used to assess an activity's or a person's
result or effectiveness. This report compares real results to measurement methods in order to
determine the differences. It also aids in determining the causes of such aberrations and
attempting to correct those unless the outcomes are negative (Kharlamova and et. al., 2020).
Accounts receivable agin report: This study is an important tool for businesses who
operate on loan terms. This report aids in the management of the firm's working capital by
staying on top of clients, their debts, charge on interest charges, and so on. This report is
intended to assess and restrict credit regulations, as well as raise the debtor inventory turnover.
Inventory report: Government and commercial firms, such as Prime Furniture, provide
these reports to improve their manufacturing techniques. The leadership's management can
evaluate different manufacturing phases and manufacturing plants to identify procedures,
operations, and procedures that might be enhanced.
TASK 2
P3 Cost and Costing Methods:
Costs - In accountancy, costs refer to the cash value of expenditures / expenditures on raw
materials, inventories, commodities, suppliers, people, utilities, and other items. This is an
amount that is recorded in the financial statement as an expense or a cost under several headings.

CV Analysis (Cost Volume Analysis) analyses the patterns of value fluctuations in response to
cost and quantity variations. In layman's terms, it's a projection of how pricing and volumes
would affect earnings. The senior management may select the sales level at which the firm will
be in a hardly any point for these metrics, known colloquially as the CVP Study. This is referred
to as the break-even point (Blankley, Kerr and Wiggins, 2018).
Cost variances - When actual experienced costs differ from standardized prices, these would be
known to as variances. The favorable variation is produced if the actual expenses are smaller
than the standardized expenses or if the added value is larger than the standardized profits. On
the other hand, whenever real costs are more than regular expenditure or revenue is lower, this is
termed a negative variance.
Cost Volume Profit: This type of analysis is used to determine the influence of costs on
operational profit. It is also recognized as break-even assessment, which is used to calculate the
revenue and pricing structure break-even level such that the chosen company's leadership may
make smaller financial choices.
Flexible Budgeting: It is a means of creating a budget statement that flexes or changes
depending on the needs of the company. The administration may change the operating costs that
fluctuate with income using a flexible budget. This budgeting is more applicable to a constant or
stable expenditure due to the extreme following reasons:
• The business success may be forecasted with higher precision.
• Make it easier to accurately analyses the performance of individual departments.
• The expenditure for variety of activities can be adjusted to reflect changing circumstances.
Marginal Costing: Marginal costing is a way for calculating the cost of producing one more unit
of a commodity. This pricing approach is used to determine the institution's maximal
manufacturing capacity. All variable expenses were allocated to the manufacturing units, since
all overhead costs were deducted from of the contributions (Bakhshi, Azinfar and
NabaviChashmi, 2021).

Absorption costing: The absorption costing strategy assumes that all costs associated with the
manufacturing process should be assigned to the production facilities; this implies that this
technique incorporates all manufactured overhead costs, either fixed or dynamic, directly or
indirectly in origin, in the cost of manufacture.
Valuation methods
 FIFO- This method assumes that inventories bought or produced for the first time are
sold, but fresh stock is not. The price of the products provided is then ascribed to the
worth of the earlier stock, and the expenditure of the most recent stock is tied to the
inventory's fulfillment.
 LIFO- This method is commonly used to assign financial costs to inventories. It is
predicated on the idea how the last item of stock acquired is the first product to be
discharged / auctioned.
 Weighted average costing technique- The simplest approach to inventory is periodical
weighed averaging. The net expenditure of the things purchased for sale is calculated,
and the amount of required items is split, as the computation is completed at the end of
the period. It's useful to distinguish between buying and sells.
Calculations:

Accounting techniques to produce financial statements.
In the reporting of business administration, financial statement is also grouped into
absorbing-method and marginal-method systems. As for Prime furniture, absorption and also
marginal-costing procedures show earnings. Aside from these, company's financial preparation
represents a wide range of strategies, like the standard spending architecture, cost occurrences,
and so on. The computation of the prospective expenses considered for contrast might be
interpreted as connected to the usual costing. Operating expenses are assigned and estimated by
growing engagement for various sorts of activities (Tarekegn, Yosef and Gutu, 2020).
Interpretation of prepared financial statements.
Though the following produced income statement is discussed, it can be indicates that the
majority of net income by absorbing cost technique is 1900 GBP. Operating income are
comparable to 4,700 pounds, producing a marginal cost framework. The profit percentage
variation is mostly attributable to under or over fixed-cost absorbing for various methods.
TASK 3
P4 Budgetary control and Planning tools:
Budget: A budget may be described as an estimate of future receipts and expenses which
may occur inside the company during a given timeframe. These are created using prior
expenditures and expertise to assess the company's future demands. Budgetary control is the
process of evaluating those expenditures to the desired achievements, identifying variations, and
regulating the operation as per the expenditures. The following are examples of the many sorts of
budgeting created by the chosen firm:
Capital Budget: A capital budget is created to examine the firm's anticipated deals involving
investment revenues and expenditures. This budget covers the acquisition or selling of

marketable securities, mortgage or debt payments, and equity repayments, among other things.
This budget aids in determining if an investment plan is lucrative for the company (Zolghadr
Nasab and et.al, 2021).
 Advantage - A thorough budgetary analysis evaluates a firm's financial situation.
 Drawback: Adjustments are a problem to keep this sort of budget, which is the main
disadvantage.
Operating Budget: An operating budget is a thorough projection of operations activities
related to receipts and expenses that are dependent on sales projections for a specific time.
Because the operating budget is focused on short-term activities, it excludes any wealth revenue
or expenditure.
 Benefits- This is beneficial for the business to manage its tasks effectively by analysing
the true effectiveness of the different projects and also anticipating them.
 Drawbacks- The categorization of operations and the allocation of expenses are time
intensive activities in this approach.
Zero-based Budgeting: This is a novel method of budgeting that creates a schedule instead
of using prior budgets and calculates all of the revenue and expenditure on its own. This
budgeting supports all and every expense and cost increase, while avoiding any expenditure that
isn’t necessary, lowering the overall cost of manufacturing (Ramezani, 2021).
 Benefit: A zero-based budget is one that is focused on the present state of a corporation
instead of what has transpired in the past, allows companies to assess correct earnings for
the reporting quarter. By controlling all operations and tasks, this drives coordination and
interaction all through business. Such a budget is expense for Prime Furniture since it
eliminates obsolete and superfluous account statements.
 Drawback: Accounting of objects might be challenging when there are no products
involved. Budgets take a long time to prepare, as well as required skills for executives,
lower productivity. The amount of documentation produced is substantial, and it may
cause problems for businesses.
Pricing strategies

Pricing is the process of finding the cost or quantity which will be paid for supplying an item or
brand. The most important element influencing production and consumption is price. Other
elements that influence market forces are mentioned elsewhere here:
• Price variation
• Market dynamics
• Earnings and Credits
• Business Advertising
• Replacement Accessibility
• Seasonal
The following are some pricing schemes to consider:
Premium pricing: Such strategies are established and work in an environment or section where
the organisation in the market has substantial competitive advantages, including the blades
business for Gillette and the car mobility segment for Porsche.
Economic Pricing: It is utilized when a company seeks to create a strong product portfolio by
marketing its products and services at a lower opportunity cost and profitability, such as good tea
makers (Panahi, 2019).
Skimming Pricing: Whenever a good or brand is new to the industry and there is no rivalry, this
retail prices technique is used. Whenever rivals entering the industry, pricing are initially set
higher and then progressively dropped.
Common Costing Systems:
Batch Costing: A batch costing technique is used when a collection of services or goods is
created however the value of a single good or service cannot be determined. The full
performance of producing a batch of items is divided by the total of pieces in this scenario to get
the price of a new item.

Job costing system: A job order costing system was developed to gather intelligence about the
additional expenses with a certain trade or manufacturing task. The data produced by this costing
system is useful in determining the correctness of the estimating system, allowing it to offer the
best pricing for the items.
Process Costing: Whenever a large number of similar items or components are made, a cost
accounting technique is used to determine costs. This costing approach is suited for businesses
that produce a large number of units in a sequential process. Since correct bookkeeping is
essential for shifting costs from completed items to COGS, the accounting system is used
(Bollinger, 2019).
SWOT Analysis:
Strengths Weaknesses
 The institution's furniture’s are of
excellent quality and meet industry
standards.
 The business's previous record and
heritage are quite brilliant and
outstanding, which contributes to its
popularity.
 The organization's corporate entity is
only consistent with the present
marketing strategy.
 The company's product line is too
narrow for buyers.
Opportunities Threats
 Technological innovation can open up a
lot of doors for new products to be
introduced.
 Lower transportation costs as a result of
increased state regulations can boost
the efficiency of the business.
 Market industry is very competitive as
wholesalers' capabilities have
strengthened.
 A lack of competent workers can have a
negative impact on a company's
performance.

TASK 4
P5 Financial Problems and Financial Governance:
Financial Problems: These are obstacles or challenges pertaining to financial or financial
services that create headaches to the institution's administrators as they struggle to carry out its
operations and operations. The following are some instances of financial issues that the chosen
organisation may face:
 Sudden Expenses: Sudden expenses are costs that were not budgeted for by
administration since they typically do not occur in business activities, yet arise in the
midst of the fiscal year but cash basis due to circumstances. The profitability of the
company is lowered as a result of these unplanned charges.
 Weak fund management system: Whenever senior management does not pay attention to
the effect of subordinate owners and workers, the leadership might become prone to poor
financial services. Workers or supervisors with nefarious motives can tamper with
financial accounts, causing the company's important cash to vanish.
There are various tools and approaches that Prime Furniture's management may use to spot
these financial issues before they occur or become more serious. The following are all of these
methods:
Key performance indicator: The assessments used to assess the institution's
productivity and effectiveness are known as performance indicators. Such indications are used to
judge the effectiveness of steeply processes and activities, and frequently lead to the
identification of areas where improvements may be made. This tool may be used by the
organisation to detect and correct financial finance management systems (Rabiee, Mehrani and
Tahriri, 2020).
Benchmarking: Benchmarking is a technique for evaluating performance of a firm's
services and goods by contrasting them to those of other companies in the same industry. This
procedure aids in the assessment of social processes and the delivery of high-quality goods and
services. Analyzing competing products might help a firm discover process improvement
options.

Financial Governance: The means of obtaining, monitoring, analysing, and regulating
financial data is known as financial governance. The term "financial governance" was used to
describe the process of managing accounting transactions and categorizing it in such a way that
the risks of mistake and fraud are minimized. It examines and monitors financial activity,
attempting to eliminate deviations while also honing risk assessment abilities. Integrate financial
governance into the organization to guarantee that financial material is trustworthy and accurate,
as well as that it is compliant and legitimate. Companies implementing a consolidated mix to
determine financial governance rules have a significant competitive advantage over their rivals.
The economic effect of company modifications is minimized while all financial activities are
handled in an integrated and comprehensive manner.
Comparison:
Herbert Johnson Ltd Sam Weller Ltd
The company is having trouble deciding on
the optimal pricing for its products and
adopting a pricing optimization system to
remedy the problem.
The wrapping manufacturing firm’s production
costs are rising drastically, which may be
lowered through the use of a cost management
accounting system.
It also has an issue with late payments from its
customers that may be addressed via financial
governance that will aid in the assessment of
its credit policies.
The corporation could also use a benchmarking
approach to improve the customer satisfaction
that is now lacking.
Characteristics and Skills of effective management accountant:
• Credibility: An successful accountant is expected to deliver information honestly and honestly,
and to provide all factual facts that may impact the consumers' judgments.
• Confidentiality: A good managerial accountant has the ability to maintain stuff private as per its
original task, preventing fraud and mismanagement.
• Leadership: The accountant should be able to interact with one another and motivate them to
achieve the company's mission (Ramzi Rad Choobeh, Rezazadeh and Kazemi, 2020).

• Decision Making: A competent accountant must have this competence in order to lead
judgments, build a professional atmosphere, and plan and monitor risk.
CONCLUSION
According to the above research, accounting is the method of controlling, organizing, and
coordinating all operations associated with a business in order to assist the firm function
efficiently and profitably. Management prepares financial report including such cost accounting,
account receivable, inventory management, and so on, which aid in decision-making.
Organizations utilise planning tools for capital structure of the company and management
accounting practices to react to money problems which can assist them operate as well as govern
their businesses more effectively.

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