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 ...Read More

Management Accounting
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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
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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:
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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.
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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
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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.
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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
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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
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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:
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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.
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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
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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.
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These reports further assist the company’s top level officers for taking business decisions.
Accounting systems are integrated to the management accounting reports for optimizing the
resources. However, this could be simply said that these reports are further assist the
management for attaining its pre-set targets.
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1.1 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs.
In order to earn more positive outcome as a profit, the manager of an organization need to
make use of effective and useful costing systems in their business operations. The cost
accounting system are basically associated with production of goods and services. A cost
accounting system is also known as product costing is a framework which are used by an
organization to estimate the products costs for their inventory valuation, profitability analysis
and also for cost control (Plank, 2018).
The marginal and absorption costing are two appropriate techniques of cost analysis which
helps to the manager in finding profits for their products and services (Absorption costing, 2012).
The difference between marginal and absorption costing are summarized as below:
Basis for comparison Absorption Costing Marginal Costing
Meaning Allotment of total costs to the
cost center in order to
determine the accurate total
cost of production is known
as Absorption costing
(Christian, 2018).
A decision-making technique
for ascertaining the total cost
of production is known as
Marginal costing (Hague,
2018).
Overheads classification Administration, Production,
selling and distribution
Variable and fixed
Cost per unit Changes in the opening and
closing stock affects the cost
per unit.
Changes in the opening and
closing stock does not
influence the cost per unit.
Cost data It is presented in
conventional manner.
It is presented to outline total
contribution of each product.
Recognition of cost Both variable and fixed cost
is considered as product cost.
The fixed cost is considered
as period costs while variable
cost is considered as product
cost.
Profitability Fixed cost inclusion gets
affected the profitability.
Profitability is measured by
Profit volume ratio i.e. P/V
Ratio.
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Highlights Net profit per unit Contribution per unit
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(a) Prepare a cost card using absorption costing and marginal costing
Calculation of net profit as per absorption costing
NET INCOME AS PER ABSORPTION COSTING: January February
Sales (35per units) 315000 402500
Opening inventory 0 54000
Direct material (12*11000) 132000
114000
(12*9500)
Direct labor (8*11000) 88000
76000
(8*9500)
Variable OH (5*11000) 55000
47500
(5*9500)
OH absorbed (2*11000) 22000
19000
(2*9500)
Under / Over charged -2000 -1000
Closing stock (2000*27) -54000 -
Total cost of production 241000 309500
Gross profit : 74000 91000
Fixed and variable cost:
variable sales overheads (1 per unit) - 9000 - 11500
Fixed selling cost -2000 - 2000
Total costs - 11000 - 13500
NET INCOME AS PER ABSORPTION COSTING: 63000 77500
Computing net profit by using marginal costing (January)
Particular Amount Total
Sales (35*9000) 315000
Variable cost:
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Opening inventory 0
Direct Material (12*11000) 132000
Direct labour (8*11000) 88000
Variable OH (5*11000) 55000
Closing inventory (25*2000) -50000 -225000
Variable selling cost -9000 -9000
Gross profit 81000
Fixed cost:
Fixed prod. Cost 2000
Fixed selling cost 20000
-22000
Net profit 59000
PARTICULARS February
Sales (35 per unit) 402500
less:
Opening stock 50000
Direct material (12*9500) 114000
Direct labor (8*9500) 76000
Variable overhead (5*9500) 47500
Closing stock 0
Variable selling cost -11500
COP 287500
Gross profit 103500
fixed manufacturing overheads 20000
Fixed Admin & selling cost 2000
total fixed costs 22000
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NET INCOME AS PER MARGINAL COST 81500
1.2 Accurately apply a range of management accounting techniques and produce a financial
reporting document.
In every organization it is necessary to prepare the financial transaction in an appropriate
manner. As on the grounds that administration bookkeeping is one of the expansive and assorted
angles. From now on, is difficult to characterize their extension and nature. There are different
imperative strategies which is being utilized by administrators, for example, recorded cost
bookkeeping which is useful in cost bookkeeping to empower real costs which is acquired by the
firm. Standard costing is more valuable techniques that can assist in providing specific
information to UCK furniture. Similarly, historical costing is another crucial technique that can
help in evaluation cost on the basis of historical values.
1.3 Data interpretation by using costing methods which is used in an organization.
To evaluate net incomes of UCK furniture, it is indispensable value that is related with
utilization of the best costing techniques that will give more exact answer for an organization.
From the above mentioned statements, both minimal and assimilation costing is being utilized
for deciding aggregate net gainfulness for the organization. The net revenue by using absorption
estimate they are getting 8,980, 131502, whereas by the help of using marginal costing they are
getting profit of 9000 and 120000.
Advantage of marginal costing:
This is basically considered as critical procedures that is just a single separate direct or
variable expense are taken into account. In case of profitable business financial specialists
essentially need to take benefits of costing systems for decision making which is related to the
future.
Disadvantage of marginal costing:
The most important part of this bookkeeping methods that they just thought to be variable
expenses. That would make essential explanation behind low productivity.
Advantages of absorption costing:
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It is for the most part accommodating to assess viable perspectives out of fixed costs
which is related with creation process. These are for the most part urgent for planning last record.
Disadvantage of absorption costing:
This costing is not very important for the company for making future decisions. UCK
furniture cannot be valuable while making effective decision making during the time.
TASK 2
2.1: Merits and demerit of using planning tools
Planning is most extreme critical part of each production or manufacturing business
endeavors. They have to play out specific kinds of business exercises with the end goal to create
most extreme advantages. Each action must close with cost and salaries of UCK gathering of
organization. The essential point of the organization is dependably help to ensure that the costs
does not turn around its income and for that UCK bunch constantly attempted to make fitting
spending plans that will control their ordinary exchanges. The procedure of budgetary control is
use by the organization with the end goal to deal with their future estimation about aggregate
expenses and costs. As per this, different sorts of costs winning in UCK amass organization, for
example, income costs, capital and income consumption or so on. Some significant spending
plans are deals, generation and crude material spending plans. A viable budgets or spending plan
would likewise help the organization to keep ordinary ignore of aggregate workforce and look at
whether work is going right bearing. With the end goal to make spending plans for the
organization different arranging instruments are thought about by the records supervisors
(Holland and Leslie, 2018). These systems are useful in estimating future development and
budgetary strength for the organization. Some of them are listed below with description:
Tools of forecasting: It is for the most part found in an association that they generally
plan to make estimated with the end goal to accomplish proficiency in inward office execution.
An organization can precisely have considered in charge of assessing better outcomes as far as
aggregate deals and income. This will prompt make better picture before different contenders.
Benefits: It would help administrators to make determining for future through making
right course in the manner in which organization can accomplish their points and destinations.
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As, request of clients continued changing which would assist the organization with making their
inventive items to an association.
Limitations: As anticipating is done through estimation and from this time forward it
can't be precise and dependable for each situation.
Situation or scenario tools: This seems to be important preparation tackles is situation
tools that attempts to frame center around standpoint as per the coming estimation that are made
during the period of time. It is more essential devices by which UCK gathering of organization
can shape a positive thought for anticipating upcoming circumstances (Holland and Leslie,
2018).
Benefits: It is a standout amongst the most innovative arranging which is more suits
according to the given circumstance in an association.
Limitations: According to this arranging system can't precisely foresee their future since
it depends on suspicions. It is too exorbitant to execute this kind of arranging apparatus.
Possibility or contingency tools: An association dependably faces specific sorts of
dangers which are related with questionable exercises. These exercises can be emerging from
outer and additionally inward possibilities, for example, fire happened at the production line and
some different viewpoints.
Benefits: By the assistance of legitimate arrangement which would be relevant in
possibility circumstances in best appropriate way. Since hazard are questionable and can't be
resolve early. The job of directors is very much relegated in ideal way before any possibilities
emerges.
Limitations: This planning tool cannot be effective in some kind of situation because of
which chances of controlling the uncertain risk become low.
2.2 Calculation of total cost
In order to calculate variable cost per units in order to determine high and low
activity stage.
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2.3 Explain the purpose of budget and prepare a cash budget with the given information for
coming month.
Purpose of preparing budget: The main objective of formulating budget is to examine
total amount of investments UCK furniture is incurred during the coming period of time.
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TASK 3
3: Comparison with other organisation
Most of the profitable business is working in order to formulate different problems those
are helpful to make large impacts by using ratio analysis that are mentioned below:
Particular Formula UCK
furniture’s
UCK
woodworks
ROCE (Return
on capital
employed):
Operating profit/Capital
employed*100
5890+3600/23
100+31930*10
0
=9490/55030*
100
=17.24%
6955/81230*1
00
=8.56%
Operating profit
margin
Operating profit / sales *100 9490/13000+2
4900*100
=25.03%
6955/81230*1
00
=8.56%
Assets turnover Revenue / Net assets 13000+24900/
23106+31930
=0.68 times
8150/81230
=0.100 times
UCK Furniture’s UCK WOODWORKDS
1. This is basically associated with
manufacturing only single product that is
desk.
1. The primary role of this company is to
provide all sort of raw material that are useful
for UCK furniture in preparing the desk.
2. According to the return on capital
employed, it has been analysing that they
are able to get a net return of 17.24% on
their overall investments.
2. In this company, only 8.56% of total return it
would be able to generate during the financial
period of time that is low as compare to
Furniture company.
3. The other ratio which is related with the
assets turnover ratio is incurred as 0.68, it
means that the stock are rotating this much
time during the period of time.
3. In this, stock is rotating only 0.10 times that
seems of total sales.
4. Operating profit margin is related with
25.03%.
4. It is still incurring with very low level
because of their highest expenses for the
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company.
3.2 Analysis of the accounting tools
With the end goal to make legitimate investigation, money or financial related
circumstance of UCK Group has been discovered which are having minimum level of market or
return as contrast with UCK furniture’s. With the end goal to determine their budgetary problems
they have to make utilization of different monetary tools and techniques some of them are
mentioned below:
Financial Governance: This system is useful in settling primary problem that can
influencing the execution of UCK Group. By subsequent viable guideline as well as control
recommended by nearby specialists are should be tracked in compelling way (Mayangsari, et. al.,
2018).
Key performance indicators: It happens to be basic monetary instruments that is useful in
settling different money related issues those are emerges in an association. This done by making
correlation through utilizing over a wide span of time information (Kibira, et. al., 2018).
3.3: Evaluation of the financial tools
There are various financial issues that are faced by UCK furniture during the period of time.
Some of the related with the cash flow statement as well as profitability level and some of them
are associated with the product quality. With appropriate use of gauge or forecasted expenses
and income through planning spending plan and powerful measures to control their misfortunes
which is being seen amid ascertaining proportions of the organization. KPI can be considered as
one of the primary tool to resolve the financial issues those are arises within the company. Ratio
analysis is an important technique which is giving significant data with respect to show position
of the organization.
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CONCLUSION
It can be concluded that with the help of various planning tools the manager can prepare the
reports for the organization for their future growth and development. Various planning tools
helps the manager to controls budget and monitor them in an appropriate manner. With the help
of costing systems and its methods the net income for the organization can appropriately
determine and measured. The overall report is estimating and finding proper balance among the
financial condition of an organization.
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REFERENCES
Books and Journals:
Christian, D., 2018. Building Cost Management: Case Study Using Costing Methods. IJAME.
Hague, D., 2018. Pricing in business. Routledge.
Holland, J. and Leslie, D., 2018. Financial planning: pricing the package. Tour operators and
operations: development, management and responsibility, pp.130-145.
Kibira, D., Brundage, M.P., Feng, S. and Morris, K.C., 2018. Procedure for selecting key
performance indicators for sustainable manufacturing. Journal of Manufacturing Science
and Engineering. 140(1). p.011005.
Mayangsari, S., Murwaningsari, E. and Lastanti, H.S., 2018. THE ROLE OF FINANCIAL
REPORTING QUALITY AND CORPORATE GOVERNANCE ON COMPETITION:
EVIDENCE FROM MINING COMPANIES. Media Riset Akuntansi, Auditing &
Informasi. 18(2). pp.187-204.
Plank, P., 2018. Introduction. In Price and Product-Mix Decisions Under Different Cost
Systems (pp. 1-5). Springer Gabler, Wiesbaden.
Online
Absorption costing. 2012.[Online]. Available through:
<http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Marginal%20and
%20absorption%20costing.aspx>.
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