Business Accounting Report: Prime Furniture Cost Analysis and Planning

This report provides a comprehensive analysis of management accounting principles, focusing on Prime Furniture Company. It begins with an introduction to management accounting and its role in decision-making. The report then delves into cost calculations, differentiating between marginal and absorption costing methods, and their application in analyzing income statements. It explores the benefits and limitations of various planning tools used in budgetary control, such as capital, operational, and flexible budgets. Furthermore, the report examines how management accounting systems are utilized to address financial issues, including declining sales revenue and poor stock planning, along with techniques like KPIs and benchmarking. The report concludes by summarizing the findings and emphasizing the importance of management accounting in effective financial management.

Management Accounting

Contts
INTRODUCTION........................................................................................................... 4
TASK 2........................................................................................................................ 4
P3. Calculating the cost to analyse the income statements....................................4
P4. Benefits and limitation of planning tools of budgetary control..........................8
P5 The use of management accounting systems for the purpose to address
financial issues...................................................................................................... 10
CONCLUSION............................................................................................................ 13
REFERENCES............................................................................................................ 14

INTRODUCTION
Management accounting is the practice of managing and applying specialized abilities and
talent in the creation of financial and accounting data in order to control management practices.
This essentially aids the management in judgment and capable of taking good company
processes and handle them in a much more efficient manner in order to meet their goals and
targets. This report based on Prime Furniture Company which is established in UK. In this report
consist of marginal and absorption costing concepts to implement a variety of management
accounting approaches (Forouzandeh, Izadinia and Daei-Karimzadeh, 2020). Along with,
identify the usage of a planning tool, as well as its benefits and drawbacks. Moreover, examine
the many planning tools that are necessary for an organization's network analytics. Aside from
that, contrast the application of management accounting to the resolution of financial issues.
TASK 2
P3. Calculating the cost to analyse the income statements
Cost: Generally cost may be defined as a sacrifice which can be expressed in terms of
money. Cost and expenses are different as cost include material and labour cost in addition to
expenses. The term expenses is mostly used in financial accounts such as P& L, cash flow
statement, balance sheet. In cost accounting cost includes future cost while in financial accounts
future cost is not considered. To analyze the actual status of profit and loss account it is
necessary to calculate cost appropropriately in accurate manner because in P and L all the
manufactures expenses are cover. An income statement's financial analysis can demonstrate that
costs of goods sold are reducing or that sales are improving, all while return on equity is
increasing. When a company wants to minimize costs or figure out how to grow, income
statements are scrutinized closely.
Marginal costing: The approach of establishing the amount of change in aggregate cost
owing to an increase of one unit beyond the previous level of output is known as marginal cost.
(Allahyaribeik and et.al, 2020). By adopting this method of costing, prime furniture ascertained
per unit cost as well as profit.

Absorption costing: In absorption costing method, different variable cost along with
fixed cost is tends to be charged on production. The another name of this technique is full
costing method as it is because due to the reason that total cost is charged when the complete unit
is tends to be produced in the year . To calculate the rate of absorption of fixed overhead per
unit, first estimate the total fixed overhead and expected level of output for the future period.
Then divide the expected fixed overhead by the expected level of production.

P4. Benefits and limitation of different planning tools used to serve the purpose of budgetary
control.
Budgeting is an aggregate estimate of revenue and costs that aids in the operation of a
business by providing an efficient means of formulating all tasks and establishing the budgeting
to aid in the firm's earnings. This is a handy tool that would assist you in making crucial planning
and policy decisions. In the case of Prime Furniture, this is beneficial in determining the
manager's effectiveness in carrying out the tasks and functions (Aryanti and Adhariani, 2020).
The following are some of the budget items:
Capital budget: During the budget period, the capital budget represents the expected
outlay on fixed assets such as land, machinery, building and so on. Due to high amount of
money involvement, respective budget is tends to be subject to stringent managerial oversight. It
is prepared for the purpose to cover a long duration of time and projects capital costs across the
time period in which expenditure is planned as well as to predicted earnings
Advantage: This type of budget is critical for creating long-term budgets that allow for
improved financial performance as well as optimal shareholder value. In the instance of Prime
furniture, this is useful in determining the level of risk involved in specific project and to take
decision regarding whether to deploy funds or not.
Disadvantage: many times it tends to be prepare on the basis of assumptions and
estimation because future is tends to be uncertain so it is difficult to predict the accurate
situation. Thus Prime Furniture, face difficulty to analyse the accurate position as it tends to
increase the chances of failure because it is not easy to determine data accurately in advance.
(Kamali, Fallah Shams and Hnifi, 2020).
Operational budget: The operational budget documents all of a business's daily operations.
The company mentioned above can utilize this sort of budget to manage its operational
expenditures and increase its capital expenditure. It can be practicable since it projects a variety
of roles and procedures, helping companies to prepare tactics about which practices are complex
and which are better to handle out. In addition to the aforementioned features, it has the
following disadvantages and benefits:

 Advantage: The budget enables organizations to keep track of all spending and
efficiently control costs in order to create financial gains. This expenditure is found in all
types of operations, similar to Prime Furniture, making it easy for managers to set a
budget to accomplish stated goal.
 Disadvantage: The main problem with this budgeting is that it fails to account for capital
costs, resulting in inaccurate revenue and spending projections. It is also unsuitable for
procedures and events that occur over a lengthy period of time (Bandpey and et.al, 2021).
Flexible budget: A flexible budgeting, also referred as a flexible budget, is a financial
timetable that projects cash flows based on actual results. In other words, a flexible budget
utilizes the income and costs created in the analysis phases as a baseline and anticipate how
revenue and expenses will change when production varies. Generally, this expenditure can only
be used for management and performance that are changeable, such as payroll, bills, and so on.
Prime's management uses this budget in their business, including for expenditures that change
within a certain income statement. The following are some of the budget's advantages and
disadvantages.
 Advantage: The most essential benefit of this budget statement is that it helps the
management team to evaluate the quantity of production under varied market and
competitive dynamics. That's because it enables management to take changes to
scheduled operations in response to changing company demands.
 Disadvantage: Skilled personnel are required to work upon these budgets. A shortage of
skilled labor is a particular issue. As a result, many organizations and businesses are still
unable to take advantage of this financial strategy. This gets increasingly harder to grasp
for users as more modifications are made (Hosini and Borzoei Chaqagolani, 2021).
P5 The use of management accounting systems for the purpose to address financial issues.
Management accounting procedures aid in the evaluation of issues and their resolution via
the application of relevant methodologies and tactics. Each section discusses how different
accounting approaches or concepts were used to tackle the firm's financial problems. There are a
variety of financial difficulties that arise in company entities that must be addressed quickly. As
previously said, Prime Furniture is related to the process of producing many types of soft drinks,
and as a result, they follow a methodical process to accomplish numerous activities. Due to a

complete lack of or inadequate application of management accounting, it is apparent that there
may be some financial issues (Amir and et.al, 2021). Because there is less cash accessible, the
firm faces a financial difficulty. The firm is in this situation because it is hesitant to do jobs
appropriately, resulting in corporate losses. The following are among some of the financial
difficulties that Prime Furniture and its competitors are dealing with:
 Declining sales revenue- This can be seen as a financial problem that is mostly caused by
a downward trend in net sales. Incompetent governance, greater costs, or an inefficient
pricing strategy, for example, might be the cause of the issue. It is critical for businesses
to identify the source of the problem as quick as practicable; else, the firm may be forced
to close. A first step in dealing with this problem is to figure out what's causing it, and
then take steps to fix it. They have this difficulty under Prime Furniture because to
inherent flaws.
 Poor stock planning- This is a problem that can arise in firms that deal in large quantities
or produce huge quantities. It is a type of problem in which a company's shares overall
costs begin to rise as a result of a lack of knowledge regarding the amount of inventory
items. Becoming a management, knowing how often stock is left at the end of the
weekend is critical, and without this knowledge, a financial problem may arise since the
management team may make poor financial judgments. This problem has arisen in Prime
Furniture's competing firm.
Techniques
There are a variety of approaches that may be utilized in businesses to determine the true
source of financial issues. These approaches have been used to tackle problems in the firms
indicated above. This is how the following summary of various techniques is completed:
KPI: The term "key performance indicator" (KPI) refers to a metric that measures how
well something is working. It comes in both monetary and nonmonetary forms. Non-financial
aspects assist to detect the difficulties discovered in interpersonal connections, while financial
factors can serve to properly understand the obstacles recognized in the association's operational
financial condition. Prime Furniture's accountants employed critical KPIs to assess financial

issues. This will necessitate a thorough examination of the organization's yearly accounts as well
as the linking of prior records (Ritsri and Meeprom, 2020).
Benchmarking: This is the process of defining criteria and comparing the actual results
to those criteria. Prime Furniture, a competitor firm, uses this approach to identify the source of a
problem by analyzing it to specified criteria. It's a good strategy for firms who can't figure out
what's causing their problem. Management at the aforementioned firm used this method to
determine their results to industry standards, and as a result, they were able to pinpoint the root
of their problem.
Financial governance: It is the most important technique for gathering, managing, and
tracking financial data. This method is used by the business's accountants to figure out how
much revenue is left and when it will be collected. This knowledge is utilized to make more
online transactions in order to avoid using financial assistance, due to a reduction in needless
spending and higher profits (Shehata and et.al, 2020). Furthermore, it may be utilized to maintain
track of a company's financial operations and act as a guideline for resolving a variety of
problems.
Basis Innocent drinks limited Oshodi drinks limited
Financial
issue
This business ran into financial
difficulties as a result of decreasing
sales income. As an outcome, the
firm evolved to uphold its goal of
generating a volume of sales income
sufficient to pay the whole anticipated
cost (Andiola, Masters and Norman,
2020).
The financial difficulty in this firm
was due to greater inventory costs,
which translates into higher costs in
other activities. In addition, corporate
management was unaware of the
remaining inventory amount and were
making poor judgments due to a lack
of knowledge.
Technique These business employees employed
the key performance indicator
technique to determine the reason or
source of the financial problem,
following the advice of accounting
firms. This method assisted them in
This management team used a
benchmarking programme to figure
out what was causing their financial
problems. They were able to do so
because they evaluated their financial
statements to a previously discussed

categorising the activities that result
in inefficient efficiency. Essentially,
their financial problems were caused
by an inadequate pricing strategy,
which resulted in decreased sales
owing to increased costs.
benchmark. As a result, they were
able to pinpoint the areas where the
company's market highest current was
lacking. The source of this problem
was greater storage costs as a result of
poor management.
MAS to
solve issue
Mostly with goal of resolving the
financial issue, this firm used a
pricing optimization technique. They
were able to conquer their difficulty
with its assistance since under that
same method; goods prices are fixed
at a level that the firm cannot afford
to lose. Following firm used a similar
idea and adjusted their prices to
compensate. As a consequence,
people began to purchase drinks at
reasonable rates, and their problem
was resolved.
They used an inventory management
system since it allows them to handle
available stocks in a methodical
manner. They used it at the
aforementioned firm, and the
management began working on those
stock levels that had been sitting idle
for months, resulting in unnecessary
costs. They also concentrated on the
utilization of materials on a daily
basis. They were ready to surpass
their financial difficulties with less
time and at a lesser cost by
incorporating these elements (Fotouhi
Khankahdani, Taftiyan and Nazemi
Ardakani, 2021).
CONCLUSION
After deep study and analysis it tends to be conclude that management based accounting
increases the link between the institution's internal problems, it was deduced from the present
findings that management accounting plays an important role in the organizational success. This
is feasible because the design of multiple systems aids in the acquisition of diverse information,
which enhances awareness and, as a result, the systems' performance. Produce different types of
information aids information dissemination to internal teams and managers, providing practical

and assisting in the production of best results. There seem to be a variety of strategic resources
available, including the production budget, flexible budget, and so on. Such instruments each
contribute in budget management, assisting the business in adapting to financial issues and
improved productivity. To tackle the financial difficulties the above firms, several efficiency
approaches and procedures, including such KPI and Benchmark, are employed.

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