Management Accounting: Budgetary Control, Costing & Strategies

This report provides a detailed overview of management accounting, focusing on budgetary control and cost analysis. It discusses various planning tools used for budgetary control, highlighting their advantages and disadvantages, including cost volume profit analysis, pricing strategies, zero-based budgeting, and SWOT analysis. The report also examines how companies adapt management accounting systems to solve financial problems, emphasizing the importance of financial governance, management accounting skills, and effective strategies. Furthermore, it includes a calculation of cost using both marginal and absorption costing methods. The analysis aims to equip managers with the knowledge to make informed decisions for organizational development and financial well-being. Desklib offers a wide range of similar resources for students.

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Table of Contents
Introduction......................................................................................................................................3
MAIN BODY..................................................................................................................................3
Task 2...............................................................................................................................................3
Advantages and disadvantages of various planning tools used for budgetary control................3
Companies are adapting management accounting systems to solve financial problems.............5
Calculation of cost.......................................................................................................................7
Conclusion.....................................................................................................................................10
REFERENCES..............................................................................................................................12

Introduction
Management accounting is an ongoing process of forming various reports which helps the
managers to make proper decisions for the development and welfare of the organisation (Li,
2018). This report focuses on providing detail information about Management Accounting and
its different types. Along with these different methods of Management Accounting reporting is
also mentioned in this report. This report provides the calculation of cost using absorption and
marginal costing. Along with this various planning tools and their advantages and disadvantages
has also been elaborated in this report
MAIN BODY
Task 2
Advantages and disadvantages of various planning tools used for budgetary control
Budgetary control:
It is the process which helps in managing expenditure and income. Under budgetary
control actual income and expenditure are compared on regular basis with the planned
expenditure and income so that to find out that actions are required or not. Budgetary control is
considered as the planning tool which is used for the purpose of planning and control the
organisation's manufacturing or product selling (Goretzki and Strauss, 2017). It is also used to
encourage communication and coordination between various departments. It is also helpful in
motivating managers. Budget plan consists of all elements of organisation operations to make
sure that organisation achieves its goals.
Cost volume profit analysis:
This is the managerial accounting process which evaluate sales volume effect and product
cost within the operating profit of company. It shows that how operating profit gets influenced
by changes in variable costs, fixed costs, selling price or the sales mix of various products. Cost
volume profit analysis estimates that all costs can be variable or fixed or cost /sales price per
unit. This is the planning tool which is used by the management to calculate revenue from cost,
sales and profits. This is done by applying formula which calculate how changes made in profits
and sales will affect the profit.

Advantages:
breakeven point will help the manager for doing estimation for future expenses and how
production will influence business goals. It also helps managers to decide product price which
they can offer to customers in relation of their competitors.
Disadvantages:
It assumes every costs as the fixed cost as there are mixed costs also which change with the
production. Separating variable and fixed costs from total costs is not easy (Lepistö and et.al.,
2018).
Pricing strategy:
Price is the value which is given to the product or services and prices are assigned after doing
research, calculations, risk taking etc. prices are set by focusing on competition and customers.
There are various pricing policies like penetration, skimming, premium etc.
advantages:
customer base pricing helps that how much customers can pay for the item so that ideal price can
be determined and that helps in getting more sales. Cost based pricing strategy helps
management to get knowledge of gross margin and costs.
Disadvantages:
as per management pricing, business assign price to the product as per their cost and not
according to customers, resulting is loss of sales. Cost base pricing can price the product
competitively.
Zero based budget
As per the name Zero based budget is the process in which budget is prepared from the starting.
It starts from zero and is does not match traditional budget which starts with older digits.
Advantages
This budgeting tool is good for cost saving. As with the help of this technique company have
control on all cost cutting factors and can save money for future financial problems. It is also
helps in decision making process and through this company can focus on success and growth.
Disadvantages
This technique does not include fixed costs like building lease. It can also impact the customer's
experience.
Pest analysis:

political factor: prime furniture can gets influenced by this factor (Nielsen, 2017). As this factor
includes labour law, tax policy, trade restrictions etc.
economic factors: it involves inflation rate, foreign exchange rate, interest rate etc. good
economy of the country can be helpful in increasing financial position of the company.
Social factors: it consists of lifestyle and cultural aspects. Acceptance of the company's product
by the society can lead to large sales.
Technology factors: adoption of advanced technology will help prime furniture in enhancing
financial performance.
Swot analysis:
Strength: its strength is it deals in all types of furniture products like bed, cupboards, tables etc.
good quality of product is the USP of company which helps in generating more revenue.
Weakness: shortage of skilled labours is the biggest weakness (Mdimu, 2020). Lack of
specialization can decrease sales.
Opportunities: prime furniture can start selling online in order to increase their sales.
Threats: there are lot of competition in the furniture sector which is decreasing company's market
share.
Porters five forces:
bargaining power of suppliers:
It is low because there are many suppliers which provide good quality of raw material which is
used by prime furniture.
Bargaining power of buyers:
It is also high because there are other companies also which provide same furniture so customers
can shift to them (Goloyadova, 2021).
Threats of new entrants:
It is high because it is easy to get entry in this industry, as it does not require much investment.
Threats of substitutes:
It is also high because there are other materials like plastic or metal which is cheap as compare to
furniture.
Competition:
There is high competition as many firms are operating in this industry.
Use of planning tools for budgets-

The planning tools which are used in accounting are costing systems, pricing strategies and
budgets. It helps company in making budget effectively.
Companies are adapting management accounting systems to solve financial problems.
Identifying financial problems:
Negative cash flow is the sign that company is not able to generate cash which is required
to run the business (7 ways to figure out problems in a company's financial health., 2016). When
company starts compromising on quality in order to increase their sales then it can hurt
reputation of company and also decrease their sales. If the current ratio of company went below 1
then it can say that business is not able to pay its current debt obligations. If the debt ratio of
company is more then it is assumed that company is not able to pay its debtors.
Financial governance:
It is the process which tells that how the company is gathering, managing and controlling
financial data or information. It involves the steps regarding how company track the financial
transactions, monitor performance and control operations and compliance.
Financial governance make sure that financial data should be correct. When prime
furniture controls financial data then they should have ensure that finance department is using
right data to complete budgets, reports or financial documents. Good financial governance is
helpful in making models, planning and forecasting accurately. If company will properly
forecasts then it will help them in preventing financial issues. As financial governance provide
reliable information so this information can be used by the management to make strategy which
is based on solid financial reality. Strong business strategy helps in preventing financial
problems. It is also helpful in competing financial process rapidly. Financial processes are time
consuming so with the help of financial governance the processes takes less time. It results in
very few missed deadlines. As with the help of software data gets filled automatically and
finance team does not have to keep the record of data manually (Imo and Chika, 2018).
Management accounting skills:
Management accountant is the very important person of the company. It is helpful in
making policies, budgets or deciding future actions. So that is why he or she is having some
special qualities. Management accountant have convincing power and he can convince
employees in the case of emergency. They also have to capacity to present desired information in
an effective manner in front of the organisation. They have knowledge about roles of executives

in the company. They also give direction to the executives which helps in solving and preventing
various problems. They encourage team work. When work is done in a team then it gets
completed quickly and efficiently and also helps in solving issues quickly if arises during work.
They are the self motivated person.
Management accountant motivates employees in the organisation so that there
productivity can be increased and they can contribute in the growth of company. They are the
responsible people of the organisation. They do not see problems as an issue while they see them
as an opportunity. When company will take every opportunity then only then will able to survive
for the long term. They have skills and know how to deal with the clients. They have good
interpersonal skills which helps company in getting clients. They also have information
technology skills, this skill is required to solve technology related problems so that company can
run smoothly and no hurdles will arise in the growth.
Effective strategies and systems:
Prime furniture can solve financial issues by deriving brainstorming solutions and think
something different. First they have to identify the issue and to find out alternative solutions.
Problem solving and decision making runs together. While making decisions managers should
have trust on them and should also involve their workforce while making decisions (Mohd Ali,
2021). Team work is also the solution for solving various issues of the organisation. As when an
individual works with the team then he or she gets quick solution for the problem.
Organization adopt management system for the solving of financial problems
It improve goodwill, not only goodwill it also improvise the knowledge that which
expenses company can cut and how they cut down the cost of raw material, production price cost
and many more. Business owner and financial manager consider this practice for effective
financial management.
Management accounting leads to sustainability
Set benchmarks
Financial issues can be solved by when company prepares structure, and they give idea
that how much expenses are needed for particular department. Financial problems can get solved
by this benchmark because it gives clear and concise information.
Planning tools helps in solving financial problems

With the help of planning tools like cash budget helps company in solving cash related issues
and because of this it safeguard company from financial problems.
Calculation of cost
Marginal costing
Marginal costing is being known as a technique of presenting sales and cost so that it can provide
guidance to the managers for forming Strategies for long term and short term basis. The main
purpose of using marginal costing is to calculate the overall cost of production and services.
Marginal costing is a technique which presents the overall sales along with their cost so that
managers can bring different decisions which is related to the sales buying of raw material and
providing special orders for the equipments (Kihn and et.al 2017). Marginal costing is being used
by the managers for cost control and forecasting budgets along with this it helps the management
and profit planning. Marginal costing states that various cost be have or differently as per the
increase and decrease in the production and its volume. There are some ghost which can you
change proportionately by having change in the production please cost known as variable cost.
On the other hand some cost remains fixed and did not get changed as per the changes in volume
of production and sales are known as fixed cost. But marginal costing system uses variable cost
only which includes unit cost. Fixed cost is treated as period cost and it is related to the profit
and loss account.
Absorption costing
Absorption costing is also a Management Accounting method which is used to accumulate the
entire cost which is associated with the production of production services. Absorption costing is
also known as full costing method. Products are absorbed by dividing into fixed and variable
cost. Absorption costing do not recognise all the expenses at the current period the date in which
they are incurred but these cost recognised in the inventory balance when the products get sold.
There are different parts of absorption costing which are direct material direct labour variable
manufacturing overhead fixed manufacturing overheads. Direct material is those which is used
for the production of units on the other hand directly was our doors who help the organisation in
producing various goods and products (Ostaev and et.al 2020) Apart from this another important
part of absorption costing as variable manufacturing overhead which represents the cost which
leave it on manufacturing of products such as electricity ,water. Along with these fixed
manufacturing overheads is also mentioned as an important feature of absorption costing because

it also States about the coast which do not get changes with the volume of production these
remains fixed for the organisation. For instance rent electricity insurance at the fixed
manufacturing overhead is not relied on the production.
Income statement
Income statement is one of the important financial statement which represents the average
income revenues and expenditure of the company. It helps the management to know the financial
health of the company with the company’s early profit or not. Income statement is also important
financial statement for the perspective of investors as well because by checking income
statement for investors can easily know that how this company uses their Assets and resources to
generate more profit and revenue.
Marginal costing
Particulars Amount (quarter 1 ) Amount (quarter 2)
Sales 66000 74000
Opening stock - 12000
Less- closing stock (12000) (4000)
Less – variable cost (52000) -
Contribution 2000 82000
Less – Fixed cost 16000 (68000)
Profit / loss (14000) 14000
Absorption costing
Particulars Amount (quarter 1 ) Amount (quarter 2)
Sales 66000 74000
Add – production cost 68000 68000
Less- closing stock (12000) (4000)
Gross profit 1,22,000 1,38,000
Less- distribution and
administration cost
68000 68000
Profit / loss 54000 70,000

Reconciliation Income statement under marginal costing
Particulars Amount (quarter 1 ) Amount (quarter 2)
Sales 66000 74000
Marginal cost of goods
sold :
Opening stock - 12000
Add : cost of production 80,000 80,000
Less : closing stock 12,000 4,000
Contribution -2000 14000
Less :
Variable cost 52000 -
Fixed cost 16000 68000
Profit/ loss -70000 -54000
Reconciliation Income statement under Absorption costing
Particulars Amount (quarter 1 ) Amount (quarter 2)
Sales 66000 74000
Absorption cost of goods
sold :
Opening stock - 12000
Add : cost of production 80,000 80,000
Less : closing stock 12,000 4,000
Contribution -2000 14000
Less :
Variable cost 52000 -
Profit/ loss -50000 14000

Conclusion
Through this report it can be concluded that costs analysis is the important part of the
business. If company will estimate proper costs then only they can earn expected profits. This
report has calculated costs using methods of cost analysis and income statement is prepared
using marginal and absorption costs. Budgetary control is the vital activity of the business. Its
tools are cost analysis and pricing strategy. Prime furniture has to carefully choose pricing
strategy which will help them in getting maximum profits. Management accountant have various
skills like interpersonal skills, problem solving skills, convincing skills etc. which helps company
in getting out or prevent various business problems. Management accountant is the person which
have the ability to manage complete organisation effectively. Financial problems are the biggest
problems for any company and management accounting helps to prevent financial problems.

REFERENCES
Book and Journal
Goloyadova, T.O., 2021. BUDGETARY CONTROL OF UKRAINE ACCORDING TO
EUROPEAN STANDARDS. Publishing House “Baltija Publishing”.
Goretzki, L. and Strauss, E. eds., 2017. The role of the management accountant: Local variations
and global influences. Routledge.
Imo, T.O. and Chika, D.E.S., 2018. An Assessment on the Effect of Budgetary Control on
Return on Assets and Net Profit of Government-Owned Companies in Rivers
State. International Journal of Academic Research in Accounting, Finance and
Management Sciences. 8(3). pp.277-290.
Kihn, L.A. and Näsi, S., 2017. Emerging diversity in management accounting research: The case
of Finnish doctoral dissertations, 1945-2015. Journal of accounting & organizational
change.
Lepistö, L. and et.al., 2018. Being a management accountant in a shared services centre. Journal
of Accounting & Organizational Change.
Li, W.S., 2018. Strategic Management Accounting. Management for Professionals.
Mdimu, G.A., 2020. The Role of Budgetary Control in Achieving Institution Objective: A Case
of Institute of Finance Management (Doctoral dissertation, Mzumbe university).
Mohd Ali, B., 2021. Organization Budgetary Control System. Organization Budgetary Control
System (February 28, 2021).
Nielsen, S., 2017. New and Interesting Perspectives for the Management Accountant in a World
of Data.
Ostaev, G.Y., Suetin, S.N., Frantsisko, O.Y. and Alexandrova, E.V., 2020. Assessment of the
effectiveness of the management of agricultural organizations in management
accounting. Amazonia Investiga, 9(28), pp.260-271
Online
7 ways to figure out problems in a company's financial health., 2016. [Online]. Available
through: <https://economictimes.indiatimes.com/management-leaders/six-leadership-
lessons-from-goddess-durga/adaptability/slideshow/54776315.cms>