Management Accounting Report: Cost Analysis of Katie Walker Furniture

This report delves into the core concepts of management accounting, specifically examining its application within the context of Katie Walker Furniture, a British furniture designer. The report begins by defining management accounting and exploring different management accounting systems, including cost-accounting, inventory management, job order costing, and price optimization systems. It contrasts management accounting with financial accounting, highlighting their distinct purposes and methodologies. The report then analyzes various methods of management accounting reporting, such as account receivable reports, performance reports, and budget reports. Furthermore, it provides a detailed cost analysis, including the calculation of costs using marginal and absorption costing techniques, preparing an effective income statement. The report also covers the tools of budgetary control, outlining their advantages and disadvantages. Finally, it compares different ways organizations adopt management accounting systems to address financial challenges. The report offers a comprehensive overview of how management accounting principles can be applied to improve decision-making, control operations, and enhance the financial performance of a business.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1 ...........................................................................................................................................3
P1 Management accounting along with different types of management accounting system......3
P2 Methods of management accounting reporting......................................................................5
TASK 2 ......................................................................................................................................6
P3 Calculate of cost by using appropriate techniques to analyse and prepare effective income
statement.....................................................................................................................................6
TASK 3 ........................................................................................................................................10
P4 Tools of budgetary control with their advantages and dis-advantages................................10
TASK 4..........................................................................................................................................11
P5 Comparison of ways which adopts by organisation for management accounting system...11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting work as a process of analysing overall business cost and
operations in order formulate an effective financial report. The main concern of management
accounting is to record monetary information and data that leads managers to develop an
organised decision making process for accomplishing organisational goals and objectives within
specified time period. This selected organisation for this report is Katie Walker furniture which
is a British furniture designer that is well known for combining various components to develop
an unique furniture design (Agyemang and Broadbent, 2015). Katie Walker is manufacturing
organisational products by completing its work with motive of designing an effective structure
for company. Moreover, this report highlights on management accounting and types of
management accounting system along with various methods used for management accounting
report. Income statement will also be prepared by company through using marginal and
absorption cost in upcoming report. In the last, advantages and dis-advantages of different
planning tools as well as comparison between management accounting system to respond
financial problems will be focused in the report.
TASK 1
P1 Management accounting along with different types of management accounting system
Katie Walker is one of the most prominent British furniture designer that works with motive of
combining simple and effective components in organisational work. Along with this commercial
products that are sold by organisation relates with manufacturing or producing specific
commission to provide and deliver good variety of furniture products.
Management accounting- It is defined as a system or procedure that identify, analyse, record
and demonstrate financial information to internal departments to complete all work within
minimum cost. Katie Walker furniture implement management accounting system to perform all
work with decided business strategy. In management accounting managers utilise all provision
that are related with provision of accounting information as it is used for implement better
information that matters with in organisation to perform and control operations of company
(Takeda and Boyns, 2014). Management accounting system- Their are various accounting
system follow and implement by the organisation that leads management of Katie Walker
furniture to complete all task and operations with motive of gaining competitive edge in market

(Aksenov and et. al., 2015). Key aspects of management accounting system is cost-accounting,
price optimisation, inventory management system and many more are mention as follow:
Variations between financial and management accounting
Management accounting- Management accounting is used by company for formulation of
internal policies and plans. Management related accounting is to provide information within
unspecified manner. Financial accounting- This system is used by organisation to focus on
preparation of financial statement to demonstrate fiscal information.To demonstrate data in
proper manner company utilise specific task and format (Collis and Hussey, 2017).
Types of management accounting system
Cost-accounting system- The term cost-accounting system leads an organisation to understand
overall cost of company by estimating various techniques. It includes profitability analysis, cost-
control and inventory evaluation. Form perspective of Katie Walker furniture system render all
relevant information to generate effective results which boost overall performance of company
(Alsharari and Dixon, 2015). Moreover, two types of cost system relates with business
production and operating activities that is direct and indirect.
Inventory management system- This system relates with inventory management which is used to
develop and retain proper stock to fulfil current demand of customers. Katie Walker furniture
utilise inventory management that leads company to perform work with proper warehouses. This
also includes various types which undertakes LIFO, FIFO etc. to monitor required stock in
organisation. It results all task perform by management leads company in managing proper level
of stock (Malmi, 2016). Job order costing system- Job costing system support all information
which is related with actual cost to manufacture various units in company. The main concern of
job costing system is to forecast right profits for business. It also remove difficulties for manager
that terminate those aspects which reduces profitability of organisation. So it work as positive
aspect for organisation to complete task in appropriate manner.
Price optimisation system- This system relates with price optimisation system regarding actual
cost that allots right process for manufacturing various units. Price system also leads company to
maintain proper records of overall cost that generates more income for business by performing
organisational activities in proper manner (Azudin and Mansor, 2018).
Functions of management accounting system

Planning- Plans related with management accounting system help manager to formulate right
reports as well as to estimate right and alternative action to perform work for achieving long term
results. Control- It is also used by management to perform there work with motive of controlling
functions that leads to perform functions in proper manner. It is also used by management for
controlling projects in proper manner .Cost accounting- With cost accounting system
management accounting leads company to perform there work easily. By cost-accounting Katie
walker leads company to perform work with more appropriate manner. Decision-making-
Budgets and control of operations are also work as an important tool which is improving
decisions through reducing cost. Financial management- The management that relates with
finance help company to perform work by analysing there financial aspects to work as per
operations. Auditing- It is one of the most important tool that is used to control all operations
and functions as per audit and skills.
Benefits related with accounting system
Cost accounting system- Katie Walker furniture records all cost of business that incurred in
business to record overall cost. It is essential that cost-accounting system is practical, simple and
capable for meeting needs of a business at global level. Along with this data related with cost
must be accurate and relevant to ensure better financial results. Further, cost to install and
operate right system also works as positive aspects for company.
Cost- It is required among all research, retail, accounting and production activities that refer to
the value which is used by management to set the prices that is used for producing and delivering
acquire of cost.
Multiple cost set- Multiple costing refers to an accounting method that is used by the
organisation when there are two and more methods that are used for determining the final cost
relates with products. It is essential for Katie furniture to implement multiple cost set because
they manufacture different cost.
System integration- It works as a project that is used for setting all hardware and software relates
with production and operational process. Production department and its engaged workers are not
aware about the software. Therefore, with better system integration long term results are gained
by management as it decide right cost for business.

Direct cost- A direct cost refers to the price which is directly related with production and tied all
activities relates with production of specific goods. In context of Katie furniture management is
performing their work with accomplishing better production activities.
Indirect cost- The term indirect overhead cost is not relates with manufacturing overhead it refers
to another expenses that not relates with provision and sometimes indirect cost is variable.
Example- accounting, auditing and legal expenses are indirect cost that is related with business
and its task and operations.
Inventory management system- With proper management of inventory company manage cost of
its warehouses that reduces storages prices of company. This is used for making positive results
by utilising minimum amount of resources. With right amount it is also easy to calculate right
cost for its materials.
Just in time- This is an effective manufacturing system that is also known as just-in production.
It is one of the most appropriate methodology that aim to reducing the time of the production
process. It also works as right system but in this response time of suppliers for completing all
work in specified time.
Economic order quantity- It refers to the number of units that is utilised by the organisation for
adding more inventory that is added by management of Katie furniture for minimising total cost
of inventory. The main motive of EOQ is to maintain balance between production cost and
manufacturing units.
ROP- The term reorder point refers to the level of inventory that triggers an action for replenish
the quantity of particular stock. From the perspective of Katie furniture reorder refers to maintain
minimum level of stock. Sometimes, due to fluctuation in market stock or inventory go up and
down. So with ROP amount of stock is reordered.
Safety stock formula- Safety stock refers to the extra layer that is padding up with inventory that
is used for generating sudden shocks. Example- if there is sudden raise in demand of products
management implement safety stock by calculating availability of materials and production time.
Job costing system- Katie Walker acquire those system for ascertaining various benefits related
with cost to fulfil customer's needs and wants. It also refers to the process of accumulating
information about its cost that is used with particular production and service job.

Material cost- This refers to the custom home that relates with drastically depend on the aspects
that how much the raw-material is implemented by Katie furniture to manufacture materials. It is
also used to make predict right cost of furniture.
Labour cost- The term labour cost refers to the number of people and employees that are required
by the management to manufacture products. This is also relates with production type and the
location like furniture is designed with help of skilled worker so it enhance cost of production.
Overhead cost- Overhead is one of the expense that is used to make changes depends on specific
job. Management fees also needs to consider and fluctuate minimum time. Moreover, overhead
cost is determine by Katie walker furniture to manage its business with deprecation on the
company owned equipment.
P2 Methods of management accounting reporting
Management accounting reporting- Management reporting refers to functions by which
business transactions are recorded in a company for making effective decisions that enhance
productivity and profitability of company (Chenhall and Moers, 2015). This results it is easy for
management to perform and manage their business for longer period in market. Moreover,
reporting plays a crucial role to recognise actual financial position of company.
Characteristic of effective information system- Accuracy- With information system
organisation relates reliable perspective for identifying accurate results to complete work as per
stakeholders results. Reliability- It is generated for good information system that provides
information to recognise current perspective of company in market (McLaren, Appleyard and
Mitchell, 2016).
Reason to understand to overall cost of report
The management requires large information to interpret and understand all reports to provide
assistance for making appropriate decisions. It results this is easy for organisation to enhance
future growth for business.
Types of management reporting
Account receivable report- The perspective or aspects related with account receivable
report leads company to perform work with different customers. Mostly it is prepared by
organisation that offers products to company on credit basis. Most positive point for account
receivable report is to learn actual number of debtors from which company earn the amount in
future (Dong and et. al., 2016). Katie Walker furniture utilise account receivable report to

manage funds for organisation. Performance report- With performance report Katie Walker
furniture keep records for all information of company and operations. It is utilised by company to
maintain equilibrium asset and its management that record individual and organisational data.
Performance report also leads company to record incentives that leads company to achieve goals
and objectives within decided time period. Budget report- Budgets are the intrinsic part of a
business that is used by business to design budgets for performing different operational and
functional departments. It is also used by managers of Katie Walker furniture for making
comparative study that are desired to complete work as per liquidity of available cash
(Honggowati and et. al., 2017). Moreover, it also helps company to recognise cash availability in
organisational operations.
Management accounting system is integrated with various organisational process that is utilised
by company to set right price for furnitures. Along with this accounting receivable report to
make credit policies to recognise money due on clients.
TASK 2
P3 Calculate of cost by using appropriate techniques to analyse and prepare effective income
statement
Cost- It is termed as total sum that is paid by purchaser to seller for consuming product and
service. To enhance market area as well as for attracting more customers Katie Walker furniture
decide right cost for its products.
Types of cost Indirect cost- This is termed as total sum that is not directly related with
manufacturing and production activities including rent etc. Direct cost- Direct cost that is related
with sales of products to complete all task as per direct material.
Cost analysis- It is outlined as a procedure that utilise by business to analyse various functions
that are adopted by business to earn maximum amount of profit (Hyndman and Lapsley, 2016).
Katie Walker furniture leads company to make right decisions for achieving long term
profitability. Cost volume profit- Method of cost volume is adopted by organisation to determine
essential changes in profits due to fluctuating in sales and cost of business. Marginal costing-
Methods of marginal cost includes different units that is divided into variable and fixed cost.
With the effective of marginal costing it is identified business houses utilise short run decision
making in order to generate effective outcomes from break-even point. Example- Katie Walker

utilised marginal costing to purchase raw-materials for manufacturing new or existing furniture.
Their are various solutions gained by management to complete work as per break even point,
fixation of price etc. which help company to take effective solutions for upcoming problems.
Absorption costing- This method is used by organisation to prepare financial records for
determining actual profits to transparent view of company's financial performance. It is also used
by management to transfer view and perspective of organisational needs and wants. Cost
allocating leading for performing work in effective manner (Järvenpää and Länsiluoto, 2016).
Cost variances- Their are various variances assessed to determine variations that are related with
standard and actual activities. Katie Walker furniture implement cost variances for considering
budget to complete all task and operations effectively.
MARGINAL COSTING
Not
es Year 1 Year 2 Year 3
£ £ £ £ £ £
Sales
2,52,0
00
3,33,0
00
3,06,0
00
Marginal cost of sales:
Opening Stock - 4,086 5,655
Add variable production
costs:
Direct materials 59,200 64,000 60,800
Direct labour 37,000 40,000 38,000
Variable overheads 14,800 16,000 15,200
Less closing stock 1, 2 4,086 5,655 1,968
Marginal cost of sales
1,06,9
14
1,18,4
31
1,17,6
87

Fixed manufacturing costs 91,000 91,000 91,000
Gross profit 54,086
1,23,5
69 97,313
Selling and distribution
expenses 5,600 7,400 7,000
Administration expenses 10,100 10,100 10,100
Profit /(Loss) from
operations before interest
and tax 38,386
1,06,0
69 80,213
Interest expense 1,100 1,350 1,600
Profit /(Loss) from
operations before tax 37,286
1,04,7
19 78,613
Notes
1. Closing stock in units =
Opening stock + Production - Sales
Year 1 = 0 + 3700 - 2800 = 900 units
Year 2 = 900 + 4000 - 3700 = 1200 units
Year 3 = 1200 + 3800 - 3400 = 1600 units
2. Closing stock in £ =
(Units unsold/ Units produced) * Total variable costs
Year 1 = (900/3700)* (£5600 + £10100 + £1100) 4086.49
Year 2 = (1200/4000)* (£7400 + £10100 + £1350) 5655
Year 3 = (400/3800)* (£7000 +£10100 + £1600) 1968.42

ABSORPTION COSTING
Not
es Year 1 Year 2 Year 3
£ £ £ £ £ £
Sales
2,52,0
00
3,33,0
00
3,06,0
00
Cost of sales:
Opening Stock* - 49,135
Add total production costs:
Direct materials 59,200 64,000 60,800
Direct labour 37,000 40,000 38,000
Variable overheads 14,800 16,000 15,200
Fixed manufacturing costs 91,000 91,000 91,000
Less closing stock** 1,2 49,135 63,300 21,579
Cost of sales
1,52,8
65
1,96,8
35
1,83,4
21
Gross profit
99,13
5
1,36,1
65
1,22,5
79
Distribution expenses 5,600 7,400 7,000
Administration expenses
10,10
0
10,10
0 10,100
Profit /(Loss) from
operations before interest
and tax
83,43
5
1,18,6
65
1,05,4
79

Interest 1,100 1,350 1,600
Profit /(Loss) from
operations before tax
82,33
5
1,17,3
15
1,03,8
79
Notes
1. Closing stock in units =
Opening stock + Production - Sales
Year 1 = 0 + 3700 - 2800 = 900 units
Year 2 = 900 + 4000 - 3700 = 1200 units
Year 3 = 1200 + 3800 - 3400 = 1600 units
2. Closing stock in £ =
(Units unsold/ Units produced) * Total production costs
Year 1 = (900/3700)* (£5600 + £10100 + £1100 + £91000)
Year 2 = (1200/4000)* (£7400 + £10100 + £1350 +£91000)
Year 3 = (400/3800)* (£7000 +£10100 + £1600 + £91000)
TASK 3
P4 Tools of budgetary control with their advantages and dis-advantages
Budget- It is consider as the forecasting tool which is used by company to evaluate,
calculate future revenues, expenses and income of organisation for longer period. From the
perspective of Katie Walker furniture budgets are formulated to match with clients demands and
requirements of organisation (Lavia López and Hiebl, 2015). Preparation of budget- Budget
preparation consider different steps which is used to identify number of current resources and
future requirements. Katie Walker furniture formulates various budgets to enhance customers
revenue. Some of them are mention as follow: