Management Accounting Report: Cost Analysis, Techniques and Budgeting

This report provides a comprehensive overview of management accounting principles and their application within an organization, specifically using UCK Furniture as a case study. The report delves into various cost analysis techniques, including marginal and absorption costing, and explains their significance in preparing income statements and making informed financial decisions. It explores different costing methods, such as actual and standard costing, job costing, and price optimization systems, highlighting their role in inventory management and overall business operations. Furthermore, the report examines the purpose and preparation of budgets, particularly cash budgets, and analyzes the merits and demerits of using planning tools. It also covers the preparation of various accounting reports, including inventory management, financial accounting, accounts receivable, accounts payable, and operating reports, showcasing how these reports contribute to effective decision-making and financial control. The report concludes with an analysis of the accounting and financial tools used to provide insights into the financial performance of an organization and its comparison with other organizations.

Management Accounting
1

Table of Contents
INTRODUCTION...........................................................................................................................................3
PPT content:............................................................................................................................................3
1.1 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs.....................................................................................................14
1.2 Accurately apply a range of management accounting techniques and produce a financial reporting
document..............................................................................................................................................18
1.3 Data interpretation by using costing methods which is used in an organization.............................18
TASK 2........................................................................................................................................................19
2.1: Merits and demerit of using planning tools....................................................................................19
2.2 Calculation of total cost...................................................................................................................20
2.3 Explain the purpose of budget and prepare a cash budget with the given information for coming
month....................................................................................................................................................21
TASK 3........................................................................................................................................................22
3: Comparison with other organisation.................................................................................................22
3.2 Analysis of the accounting tools......................................................................................................23
3.3: Evaluation of the financial tools......................................................................................................23
CONCLUSION.............................................................................................................................................24
REFERENCES..............................................................................................................................................25
2

INTRODUCTION
Management accounting is one of the crucial part of an organization that can assist in
recording of various financial transaction that are done during the period of time. In a
competitive environment, the management of an organization is searching for some effective
management system that can helpful them to control and manage their financial and non-
financial transactions in a systematic or effective manner. The management reports provide
important information to the whole departments of an organization and also helpful them in
preparing various reports. Evaluation of various kind of planning tools those are used to control
budgets are evaluated effectively under this report.
PPT content:
3

In this report, UCK Furniture is taken which specially deals in furniture industry. This report
is divided into two parts. First part covers various management accounting systems in order to
make reports.
4

In simplest way accounting means recording of financial transactions related to a
business. It is the process of summarizing, analysing and reporting these transactions to
regulators and tax entities. system that guides management actions, motivates behaviour and
supports and creates the cultural values necessary to achieve an organisation's strategic, tactical
and operating objectives. Therefore, it must require for UCK Furniture Ltd. To form
management accounting as it helps in formulating policies, decision making and the day to day
operations of enterprises. Management accounting is very helpful in taking decisions like,
structured, semi structured, strategic or non-strategic decisions
5

Two types of costing which can be used by organisation to estimate accurate cost:
Actual Cost:
It is said to be actual expenses that are made to acquire an asset which consists of
supplier invoiced expenditure included with the cost to deliver and test assets. The actual amount
of money a physician or their services provider or supplier charges for a certain medical product.
This is one of the cost of an asset when it is initially recorded in the financial statement as a fixed
asset. Like, an actual cost can be more or less than the predicated cost. A car shop is an
estimation that can repairs will cost $700 but at the same time the actual cost can varies to 800.
Standard Cost:
It is an estimation of cost of performing an operation or producing a product or services
under the normal situation. These are used as target costs and are formed from the historical data
evaluation or from time and motion analysis. They are almost varying from the actual cost
because every situation has their share of unpredictable aspects those are related with the normal
cost. The cost accountant periodically determine variance that can break out various caused by
some of the factors like labour rate changes and cost of material.
6

Inventory management system
It is known as one of the valuable system that can assist in recording of opening and
closing stock information into their respective statements. It will help in planning their business
for the coming period of time. By the help of this manager of the company can easily make
supervision of the non-capitalized assets and inventory items. It is known as the specific element
of supply chain management. It is said to be overall supervision of the goods from production to
warehouses and from these facilities to the store. There is various way to manage the inventory,
which are as follows -
FIFO:
FIFO stands for first in first out, which simply assume that first items placed in inventory
are the first sold. Taking an example from UCK Furniture point of view, if 100 items were
purchased for 10 pound and 100 more items were purchased next for 15 pound, FIFO would
assign the cost of first items resold of 10 pound. After 100 items were sold, new cost of item
would become 15 pound, regardless of any inventory purchases made.
LIFO:
In case of LIFO method, the manager use as recent costs of products purchased are the
first costs expenses as the cost of goods sold. In case the company sells the products to the
retailer and manufacturer it finds the costs of their items increasing. The use of LIFO will result
in less taxable income and minimum tax payment than FIFO. As for an example, UCK Furniture
manufactured 100 chargers, the first 50 chargers cost 50 pound each and last 50 cost 100 pound
each and arrived one day ago. So by using LIFO, last inventory in is the first inventory sold. This
means the charger costing 100 pound sold first. And then remaining 50 would be sold at 50
pound each.
Just in Time:
It is said to be one of the effective system that communicate rare materials that is used by
the manager while recording information related with the stocks. As it helps in increasing the
competence and reduction leftover during the time of manufacturing process, which helps in
7

reducing inventory cost. As UCK Furniture Ltd, can apply this inventory system, they can
directly communicate the supplier for inventory as when they required. It can help in minimizing
the cost of warehouse and increasing in the overall profitability of UCK Furniture Ltd.
Generally, it is one of the effective costing system that can be used by the production
manager for the purpose of analysing the total cost they are incurring on the production of one
unit of job. As UCK Furniture Ltd, should be using this system to detect the overall batch of
product they are producing during the period of time and for that total amount of expenses is
incurred by the company can also be determine at the same point of time. Job costing accounting
procedure consist of, receiving enquiry from the customer about the quality and price of material
and time to fulfil the order. Basically, it is said to be effective process of assigning the costs by
the UKC furniture for a specific product. This term is largely in the construction sector and it
refers to allocating costs to individual project that is planned by the company. So UCK Furniture
Ltd can use this, can get benefit out of this job costing system.
Price Optimising System:
It is known as one of the mathematical analysis through which a company used to
determine about how customer will respond to their various products and services that are being
8

offered to them during the period of time. As this particular method is more reliable for
analysing the overall perception of the customer towards the company performance. Because the
brand image can be relying on their overall decision made by the client. The company UCK
Furniture Ltd can use this system for tailoring the prices for customer segment by getting their
responses to different price levels. This type of systems will help UCK Furniture Ltd to decide
pricing structure for initial pricing, discount pricing and promotional pricing.
In the context of UCK Furniture are the manufacturer of special charger for mobile
telephone and other carry-on gadgets for retail outlets. UCK Furniture emphasis on its
accounting reports to rectify problems associated with its operations, budgeting and investments.
Some of the accounting reports maintained by UCK Furniture are as follows:
9

As cost accounting act as integral part of business strategy it allows to measure
information regarding to cost of utilization of resources. Cost accounting allows to gain
information about both financial and management accounting.
Inventory Management Report: UCK Furniture manages inventory management
reports to holds the finished products in the stock and transfer in the market at valuable state. The
main purpose to maintain inventory management report is that it allows UCK Furniture when to
get orders and in how many units’ order will they get in future. All the inventory cost which
includes carrying cost of holding any items, ordering cost of replenishing any item and shortage
cost comes under inventory management reports.
Financial Accounting: UCK Furniture is hand dryer manufacturer and focused at
maintaining financial accounting that helps them to gain historical background information. This
historical information provides guidelines for future financial forecasting which includes future
investment and budgeting.
10

Budgets on the basis of time that can be long term budget plans or short term budget
plans can be managed well through budget reports. Similarly, on the basis of function, it is easy
to manage purchase budget, production budget, sales budget, capital expenditure budget and cash
budget. Moreover, budgets reports enable to invest and control research and development budget
as per as to requirement
Account receivable reports allows establishing and communicating credit policies and
setting credit lines. Account receivables reports helps in maintaining credit policy that is related
to investment in receivables
Account payable reports: UCK Furniture prepare accounts payable reports that helps
them to identify those suppliers and vendors who are on credits. If no promissory note is
signature by the company, the bill of vendors will be recorded as account payable. With the help
account payable reports UCK Furniture is able access money that is owed by them to its
creditors. The account payable reports are reviewed by many different documents which includes
purchase orders, receiving orders, contracts and other agreements. With the help of payable
records UCK Furniture is able record what they ordered and received from vendors. The
11

accuracy of UCK Furniture financial statements is directly depending upon accounts payable
process.
Operating Reports: Operating records are prepared and managed by UCK Furniture to
focus on their inputs and outputs. This reports also help then to improve supply chain
management and deliver finished products to customer when there is demand. Operating reports
helps in calculating break-even point both for product quantity and sales. This reports helps in
determining amount of financial leverages of UCK Furniture.
Decision making and controlling the firms finance becomes quite easy. To speed up
process and hence save time: Due to proper filing of data and information in the form of reports
it is easy to speed up work which saves the precious time of works of UCK Furniture and
reduces manpower labour.
12