Management Accounting: Cost Analysis, Budgetary Control & UCK

This management accounting report focuses on UCK Furnitures, examining essential requirements and various types of management accounting systems. It discusses different methods for management accounting reporting, including budget reports, job cost reports, and inventory & manufacturing reports. The report calculates costs using appropriate techniques of cost analysis to prepare income statements using marginal and absorption costing, further explaining the advantages and disadvantages of planning tools used for budgetary control. Finally, it compares how organizations adapt management accounting systems to respond to financial problems, providing a comprehensive overview of management accounting principles and practices.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
TASK1 ......................................................................................................................................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
TASK2 ............................................................................................................................................4
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs. ..........................................................................4
PART 2..........................................................................................................................................10
TASK 3 .........................................................................................................................................10
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.......................................................................................................................10
TASK4 ..........................................................................................................................................13
P5 Compare how organizations are adapting management accounting systems to respond to
financial problems......................................................................................................................13
CONCLUSION .............................................................................................................................15
REFERENCES .............................................................................................................................16

INTRODUCTION
Management accounting refers to the function in a business organisation which is related
to managing various accounting information and helps all the stakeholders of the organisation to
effectively identify the financial position of various accounts in the business (Renz, 2016).
When taking the following report into context UCK Furnitures which is a company that produces
product such as desk is taken into consideration.
The report discusses about the requirements of management accounting for a business
and different types of management accounting systems. Various methods used for reporting of
management accounting is also discussed in this report along with appropriate techniques for
cost and analysis. A number of advantages and disadvantages of different budgetary control tools
are also discussed in the report along with comparison between various management accounting
systems which are adopted by an organisation to solve their accounting problems.
PART 1
TASK1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems
Management accounting is a process in an organisation which relates to valuation of
various accounts and determination of them in a financial term in order to understand financial
position of company and various information about its management of finance. When taking
organisation into context management accounting is in accounting which provides the
organisation with the particular process in which identification of the position of company can be
done in order to achieve its goals and objectives. The following system is associated with the
current financial position of the company and analysis of financial accounting system which
provides a standard in order to determine position of company in competitive environment
(Guinea, 2016). Various systems which are used in management accounting that are elaborated
for UCK Furnitures:
Price optimisation: Prize optimisation is an effective tool in management accounting
which is used by businesses in order to identify the response of their customers as per the
services which is provided by organisation to them (Cooper, Ezzamel and Qu, 2017). It is
necessary for UCK Furnitures in order to deter mine what can be the actual cost of their
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products to customers and how much are they ready to expend for their products and services.
Essential requirement of price optimisation system within UCK Furniture is to increase profits of
a business. They use a number of different strategies as well as structures for the products and
services offered by them in competitive environment.
Inventory management system: Inventory management system is an important part of
accounting system in which major focus is paid upon managing various inventory is in
organisation including unfinished goods, work in progress, finished goods and so on. There are a
number of methods used by UCK Furniture managers such as FIFO, LIFO which are used in
inventory management system. Key requirement of it in the company is that it helps in
organisation of different inventory is in the business effectively.
Cost accounting system: cost accounting system relates to that part of accounting in
which all cost of the businesses identified and listed down in order to determine the cost which is
used for production of products and services in business. It is necessary for business such as
UCK Furniture to adopt a cost accounting system in order to determine various cost such as
operating cost, variable cost, fixed cost, absorption cost and so on. The management accounting
also include various diagrams and charts in cost accounting system. There is a chart used called
as marginal cost chart which can help in understanding the increase in cost every extra unit
produced which is its essential requirement in the company (Alam, 2017).
P2 Explain different methods used for management accounting reporting.
Management accounting reporting
The account reports are considered to be a necessity for every organisation as it helps in
completing the performance picture of the business and its position in the market effectively
(Nkundabanyanga, Muhwezi and Tauringana, 2018). When taking UCK Furnitures into
consideration it is necessary for organisation to make sure that a valid accounting report with
perfect audits of every quarter is created in order to identify the position of business in
competitive environment. Various reports of accounting are discussed below:
Budget report: budget report can be effectively referred to a fundamental report on
organisation which includes all the expenses and incomes which will be taking place within a
given time period. It is necessary for the owner of business to understand that they need to
control their expenses taking place in the organisation (Coad, Jack and Kholeif, 2016). The
following report helps to provide data in an organisation which can be used by all the
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departments for decision-making and radius expenses. The valuation of past expenses and
forecast of future expenses is done in order to create a budgeting report for the company.
Job Cost report: Job cost reports consist of all the different reports which are somehow
directly related to the total cost which will be used on a single project. However in this the cost
for every job or activity is divided differently into various small farms. It is necessary that
organisations are effectively performing in a retail industry while managing all their costs (Hall,
2016). It is also helping all the leaders in a business organisation to evaluate profits of different
decision making in their business.
Inventory and manufacturing report: our inventory and manufacturing report includes
all the physical products in a business which is manufactured in the organisation. It helps the
organisation in identifying all the processes involved in inventory and manufacturing which also
helps the business to centralise all the data related to inventory cost labour. There are a number
of different production processes which are used by a business to convert their raw materials into
finished goods as well as management of all the machinery and tool in business which is
described in this following report.
With the help of other information it can be clearly evaluated that accounting reports are
in important function to be managing business which will also help in identifying future
opportunities available in business environment. The budget of a reports such as account
receivable aging reports and job costing report are also used to identify various cost, tools and
techniques which will be used by organisation in order to achieve all their objectives and goals
affectively (Agrawal, 2018).
TASK2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs.
2.1 Calculations of costs through appropriate techniques
Januar
y
Februar
y
Direct material cost 132000 114000
Direct labor cost 88000 76000
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variable production overheads 55000 47500
Fixed production overheads 22000 19000
Total cost 297000 256500
per unit cost 27 27
Income statement under absorption costing
Januar
y
Februar
y
sales 315000 402500
Less: cost of sales 243000 310500
Direct material cost 132000 114000
Direct labor cost 88000 76000
variable production overheads 55000 47500
Fixed production overheads 22000 19000
Closing stock 54000 0
Opening stock 0 54000
Gross profit 72000 92000
Add/less: under or over absorption fixed
cost 2000 1000
Less: Variable selling cost 9000 11500
Less: Fixed selling cost 2000 2000
59000 79500
Januar
y
Februar
y
Direct material cost 132000 114000
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Direct labor cost 88000 76000
variable production overheads 55000 47500
Variable selling cost 9000 11500
Total cost 284000 249000
per unit cost 26 26
Income statement under marginal costing
Januar
y
Februar
y
sales 315000 402500
Less: marginal cost of sales 232000 301000
Direct material cost 132000 114000
Direct labor cost 88000 76000
variable production overheads 55000 47500
Variable selling cost 9000 11500
Closing stock 52000 0
Opening stock 0 52000
Contribution 83000 101500
Less: fixed production cost 20000 20000
Less: fixed selling expenses 2000 2000
61000 79500
2.2 Absorption and marginal costing
Absorption Cost: Absorption cost refers to a kind of cost that includes all the cost of
manufacturing in an organisation. It is not only the cost of materials and human resource used for
manufacturing but overheads including fixed and variable overheads are also included in it. The
major reason behind using concept of cost of absorption is to distribute all the overheads to
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different departments and particularly identify what are the cost required by each department in
the organisation.
Marginal costing: It refers to a costing technique that includes charge of variable cost to
units and written off of fixed costs against aggregate contribution (Thomson, 2017). In UCK
Furnitures, benefits related to marginal costing are that it helps in calculating totality of
profitability, controlling cost, planning for future profits and so on.
2.3 Producing financial reports
(a)
Month Hours
Spent Expenses
January 630 7960
February 505 7410
Mar 705 8285
April 555 7535
May 780 9110
June 795 9820
Highest number of hours = June = 800
Lowest number of hours = February =
505
Variable cost= (9840-7410)/(800-505)
Variable cost= 8.24 pounds per
unit
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fixed cost= 9840 - (800*8.24)
fixed cost= 3248 pounds
expenses for July= 3248 + (650*8.24)
expenses for July= 8604 pounds
expenses for august= 3248 +
(750*8.24)
expenses for august= 9428 pounds
(b)
Date Purchases Purchase Cost Cost per unit
Opening 50
15-May 100 1000 10
18-Aug 200 2200 11
19-Sep 130 1800 13.84615
FIFO
Opening 50
Purchases
15-May 100
150 10 1500
18-Aug 200
350 150*10 + 200*11 3700
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19-Sep 130
480 3700 + 130 *13.84615 5500
Cost of Goods Sold 10700
LIFO
Opening 50
Purchases
19-Sep 130
180 13.84615 2492.308
18-Aug 200
380 2492.308 +200*11 4692.308
15-May 100
480 4692.308 + 100*10 5692.308
Cost of Goods Sold 12876.92
FIFO
Opening 50
Purchases
15-May 100
150 10 1500
18-Aug 200
350 350*[(10+11)/2] 3675
19-Sep 130
480
(3675/350 + 13.84615)*
480 11686.15
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Cost of Goods Sold 11686.15
2.4 Computing BEP
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PART 2
TASK 3
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.
3.1 Purpose of budget and preparation of different budgets
Budget: Budget refers to a statement which defines all the estimation of cost, revenues,
expenses and profitability in a business for a specific period of time. It is necessary for an
organisation to ensure that internal management in an organisation is managed properly
according to all the standards policies and procedures in business. Budgetary control refers to a
technique which is used to determine various expenses in organisation based on revenues which
is forecasted by the organisation. After this forecast the calculation for budget is made.
There are various tools that are used for different purpose of budgetary planning:
Flexible budget: Budget is a tool used by businesses in order to manage all the activities
according to the requirement in the organisation (Chibili, 2019). UCK Furnitures uses it to
monitor their revenues based on the standards fixed by the organisation for a specific period of
time.
Benefits: Flexible budget is used in a business in order to determine the level of
production which is required. Also revenues of a business for specific time can be predicted with
the help of flexible budget. Flexible budget is also used in organisations to minimise the cost of
inventory.
Limitations: in order to efficiently apply flexible budget in an organisation it is required
to train the staff in a proper manner and work accordingly for the requirements which may arise
in future. Flexible budget is financially viable to a number of organisations as monitory
compensation is required to pay trained staff using it.
Master budget: Master budget consist of a lower level of budget which is divided into a
number of different budget for different departments. A summation of all this budget is
combined together which is then known as master budget (Johanson and Madsen, 2018). There
are a number of a financial instruments used in master budget which include financial planning,
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budgeted statement, cash of forecasting and so on. In context to UCK Furnitures the company
firms a master budget once a year which is applicable for financial year in the organisation.
Benefits: This budget is used as a summary of all the management information in an
organisation. It is also helpful in reflecting all the expenses as well as revenues for different
departments. It summarises all the different budget together so that the stakeholders can verify
budget at once.
Limitations: It is difficult to bring in changes in a master budget as the changes may
require a lot of time and effort’s. Flexible budget is more helpful in bringing in change from time
to time. It is necessary for organisations to change their budget as per the changing moods of
environment which cannot be done in a master budget.
3.2 Prepare a flexible budget
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TASK4
P5 Compare how organizations are adapting management accounting systems to respond to
financial problems.
Financial issues in a business are related to limited supply of resources of finance (Libby
and Salterio, 2019). There are a number of issues which take place in an organisation due to
default of financial managers or miss presentation of data by the financial managers. Some of
such issues are mentioned below:
High expenses: It is often seen that the finances which are allotted to different activities
in a business are increased due to change in market situation. When taking UCK Furnitures into
consideration the company have to communicate their products and services into market due to
which they required to spend on various promotional tools. It is often seen that the budgeted
expenses for promotion is exceeded due to changing market environment.
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Financial governance: National governance is a set of policy and procedure that is used
by an organisation in order to gather necessary information regarding to finance. It is necessary
for businesses to enhance the authenticity of all the financial information which is gathered by
the managers in order to take future decisions in the business (Ostaev and Khosiev, 2018).
Financial governance helps a business in fast decision making in order to grab the opportunities
in market.
Benchmarking: benchmarking is an approach which is used in business organisations to
carry on all the work according to the fixed standards and policies. It is necessary that every
organisation is creating benchmark regarding their financial usage in order to carry on the Work
effectively. A number of times organisations cannot fulfil the requirement of benchmark due to
which issues might arise.
In order to analyse two different organisations below discussed is a differentiation table
which will help in understanding various issues arising in companies in same industry:
Basis UCK Furnitures UCK Woodworks
Introduction UCK Furnitures is a company dealing
in production and sales of juices,
SMOOTHIES which are usually sold in
various coffee shops and supermarkets.
Coca-Cola manages the brand.
UCK Woodworks
have specialised in
beverages such as
coffee. They show
their presence in
countries like Canada,
USA, UK and France.
Issues Company have noticed huge decrease in
their revenues since the end of quarter
in March 2020. The reason for this is
COVID-19 as people are now
preferring to ear inside.
Meeting the sales
target becomes
difficult for the
organisation.
Management
accounting
Management accounting refers to a
branch of cost accounting which is used
by businesses in order to ascertain the
cost such as fixed cost and variable.
UCK Furnitures is taking benefits from
Financial department
in UCK Woodworks
is effectively using
inventory
management system
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management accounting through
creating promise of scale and spreading
its fixed cost on large quantities
produced in business. This helps in
reducing the variable cost used for
production bringing in more profits for
the organisation.
which helps them to
manage their
inventory including
raw materials, work in
progress and finished
goods.
CONCLUSION
With the help of above-mentioned report it can be clearly concluded that management
accounting is important part for every organisation as it helps in identifying various factors
related to financial position of business in the market. There are a number of different systems
such as inventory management system, cost accounting system, job costing system and price
optimisation system which are used by organisation to achieve its business objectives affectively
management accounting report is attention for a business as The helps in functioning of business
and managing all its expenses in order to achieve its goals and objectives.
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REFERENCES
Books and journals
Agrawal, R. K., 2018. Principle of Management Accounting. Educreation Publishing.
Alam, M., 2017. Management accounting, control and microfinance operation—three
papers (Doctoral dissertation, University of Glasgow).
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accounting. Journal of environmental management. 201. pp.72-81.
Chibili, M., 2019. Basic management accounting for the hospitality industry. Routledge.
Coad, A., Jack, L. and Kholeif, A., 2016. Strong structuration theory in accounting
research. Accounting, auditing & accountability journal.
Gnawali, A., 2017. Management Accounting Systems and Organizational Performance of
Nepalese Commercial Banks. Journal of Nepalese Business Studies, 10(1), pp.8-19.
Guinea, F.A., 2016. Study regarding the creative accounting techniques in management
accounting. The Audit Financiar journal, 14(142), pp.1136-1136.
Ishanka, S. and Gooneratne, T., 2018. Total quality management and changes in management
accounting systems in a manufacturing firm: A case study. Asia-Pacific Management
Accounting Journal, 13(1), pp.45-75.
Johanson, D. and Madsen, D.Ø., 2018. A virus perspective on management accounting
innovations. Available at SSRN 3197129.
Libby, T. and Salterio, S. E., 2019. Deception in management accounting experimental
research:“A tricky issue” revisited. Journal of Management Accounting
Research, 31(2), pp.143-158.
Nkundabanyanga, S. K., Muhwezi, M. and Tauringana, V., 2018. Management accounting
practices, governing boards and competitive advantage of Ugandan secondary
schools. International Journal of Educational Management.
Ostaev, G. Y. and Khosiev, B.N., 2018. Management Accounting: Development of a brand
promotion strategy. International Accounting, 21(5), p.443.
Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Szychta, A. and Dobroszek, J., 2016, December. Perception of Management Accounting and
Controlling by Polish Authors in Publications in 1990-2016. In 5th International
Conference on Accounting, Auditing, and Taxation (ICAAT 2016). Atlantis Press.
Thomson, J., 2017. Is the Accounting Profession Committed to Closing the Skills Gap?. The
CPA Journal, 87(9), pp.16-17.
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