Analysis of Management Accounting for Prime Furniture (2020)

This report provides a comprehensive overview of management accounting, beginning with a definition and exploring its significance in business operations, particularly in the context of Prime Furniture. It contrasts management accounting with financial accounting, highlighting their distinct purposes and user bases. The report then delves into various management accounting systems, such as cost accounting, inventory accounting, job costing, and price optimizing systems, outlining their benefits for businesses. Furthermore, it defines management accounting reports, emphasizing their importance in providing information for decision-making and control. The report concludes by reiterating the importance of cost control through budgeting and analysis and referencing the application of these concepts by Prime Furniture. The report also includes references to support the information provided.

UNIT 5:
MANAGEMENT
ACCOUNTING

 Introduction of Prime Furniture
 Definition of Management Accounting
 Importance of Management Accounting
 Management V&S Financial accounting
 Definition of Management Accounting System
 Different types of Management Accounting Systems
 Benefits of different types of systems
 Definition of Management Accounting Reports
 Importance of Management Accounting Reports
 Conclusion
 References
CONTENT

Introduction of prime furniture
 Established in 2000
 Mission- “We are a genuine UK based retail outlet
offering quality items at low prices than the high
street.”(Facebook.com. ,2020 [a])
 Products- Flat Pack Furniture, Cookware,
Bathroom Accessories, Toys & Games, Kids
Furniture, Beauty Products

 Management accounting is the process of
analyzing and transacting business day to day
activities for organization to increase its
credibility and performance (My Accounting
Course. ,2020).
 Marginal accounting is the process of
identifying, measuring, analyzing, interpreting
and communicating financial data to
managers for achieving organization’s goals
and fulfillment of objectives (Investopedia., 2020).
Definition of Management accounting

1. CONTROLLING
2. PLANNING
3. DEFINE BUDGETS
4. AUDIENCE TARGETING
5. RELEVANT COSTS ANALYSIS
6. MAKE OR BUY EVALUATIONS
Importance OF MANAGEMENT
ACCOUNTING

Management vs Financial accounting
Management Accounting Financial Accounting
Purpose of information Support junior accountant to make
viable decisions and achieve
company’s target.
Communicate organization’s
financial performance to related
stakeholders.
Primary users Only internal users like accountant,
managerial accountant, finance
department and business owner.
Only external users like investors,
banks, regulatory authorities and
suppliers.
Focus and emphasis It’s a future oriented and focus on
upcoming events.
It’s based on past activities analysis
and hence past oriented concept
follows.
Rules of measurement It works on GAAP regulations to
record transaction and measuring
values of all items recorded in
financial statement.
It also follows GAAP regulations
which is certified by external and
independent auditors.
Time span It takes around 18 years with
financial and non-financial reports
on items and departments.
Reports are based only on annual
and quarterly of company as a
whole.
Behavioral implications It is built for implicating behavior of
managers and staff.
Due to manager’s compensation
based on reported financial results;
it influence behavior.

 The management accounting system is
gathering of information as a input from
operations and financial statement of firm; it
also includes data of financial and non-financial
activities of business .
(Pdfs.semanticscholar.org. ,2020).
 These management accounting systems are
used to give critical data to management which
is to be used in operations decision making
process. Also it can be used by processing
company to support costing and management
department (Freshlook's. ,2020).
DEFINITION OF MANAGEMENT
ACCOUNTING SYSTEM

Different types of management
accounting systems
Management Accounting System
Cost -accounting
Job-
costing
Price-
optimising
Inventory management
Direct
costing
Marginal
costing

 Identify the alternatives for achieving the aim of
business
 Creates valuable tool to support decision making
process of senior managers.
 Develops coordination between different
departments of organization such as operations,
human resource, marketing and finance
 Helps in making expansion strategy for firm
 Removing unnecessary expenses to increase
overall profit of the company
 Allows minimizing cost of sales by adopting
different management accounting tools.
Benefits of different types of
systems for prime furniture

 Cost Accounting System: This system helps management in identifying
activities having profitable and non-profitable nature and it also provides the
way for future expansion with available budget. It show why profit during a year
increase or decrease and supports in make or buy decisions by manufacturing
firm, government bodies and economic centre countries.

 Inventory Accounting Systems: This tool allows managing of stock,
minimizing costs, more return projects choices and making ideal inventory level
without any difficulty.

 Job Costing System: It is the method of identifying benefit of each job through
analyzing cost associated with it. This system evaluates employee’s efficiency
towards work and establishes cost accordingly. Different job categorized on the
basis of value creation for company’s core business.

 Price optimizing System: It is the method of identifying proper price of
product by analyzing various factors like economic freedom, opportunity
available to reduce cost, better and quick solution option and coherence
building.
Benefits of different types of
systems

 Accounting reports display the financial status of a
business at present or over a specific period of
time. These reports compile accounting data from
accounting records and can include data like
transactions, operational costs, product profitability,
and regional sales. These reports are made so that
managers can make informed business decisions.
When businesses rely on managerial accounting
help, they can more easily gather information that
helps managers guide the business toward meeting
its goals.” (Accounting, I. and Hood, E. ,2020).
DEFINITION OF MANAGEMENT
ACCOUNTING REPORTS

 Provides Information-to various levels of management
 Helps in Selection-A report brings many alternatives
 Role in Control System- A target is fixed well in advance in an
organization.
 Helpful in Profitable Operations- A report highlights the
direction of moving the business
 Follow the Principle of Management by Exception-the
activities, which are not carried out according to planning and
budget, are highlighted before the management
 Helpful in Achieving Overall Objectives- Report motivates the
executives and employees which means maximum profit with
the help of reporting system.”
Source: Accountlearning.com (2020)
IMPORTANCE OF MANAGEMENT
ACCOUNTING REPORTS

 Budget Report
 Accounts Receivable Aging Report
 Job Cost Report
 Inventory and Manufacturing Report
Different types of managerial
accounting reports

 On the basis of the presentation every organization
must control the cost through budget and analysis
thereby managers can define the performance
which could be improved by the right strategies on
time.
 Prime Furniture applies different budgeting method
to make suitable usage of their available finances.
They frame cost classification to make best
application of their expenses. They use their
prepared budget differently such as they evaluate
productivity and essence useful information in
their decision making process.
CONCLUSION

 My Accounting Course. (2020). What is Management Accounting? - Definition | Meaning | Example. [online] Available at:
https://www.myaccountingcourse.com/accounting-dictionary/management-accounting [Accessed 28 Jan. 2020].
 Investopedia. (2020). Managerial Accounting Definition. [online] Available at:
https://www.investopedia.com/terms/m/managerialaccounting.asp [Accessed 28 Jan. 2020].
 Contributor, G. and Contributor, G. (2020). 6 Reasons Why Management Accounting Is Important for Decision Making
| Dominion Systems | Blog. [online] Dominion Systems. Available at: https://www.dominionsystems.com/blog/6-
reasons-why-management-accounting-is-important-for-decision-making [Accessed 30 Jan. 2020].
 Freshlook's. (2020). What Is Management Accounting? | FreshBooks. [online] Available at:
https://www.freshbooks.com/hub/accounting/management-accounting [Accessed 31 Jan. 2020].
 Pdfs.semanticscholar.org. (2020). [online] Available at:
https://pdfs.semanticscholar.org/411b/98d53173314ec12a6f90e4088b633a6a7485.pdf [Accessed 31 Jan. 2020]
 Facebook.com. (2020). Prime Furnishing. [online] Available at: https://www.facebook.com/pg/NewHomeWorld/about/?
ref=page_internal [Accessed 3 Feb. 2020]
 Accounting, I. and Hood, E. (2020). Get Expert Managerial Accounting Help From US-Based Professionals | Profit-
Focused Managerial Accounting Services. [online] Ignitespot.com. Available at:
https://www.ignitespot.com/managerial-accounting-reports [Accessed 3 Feb. 2020]
 Accountlearning.com. (2020). Management Reporting | Functions or Importance of a Report. [online] Available at:
https://accountlearning.com/management-reporting-functions-or-importance-of-a-report/ [Accessed 3 Feb. 2020].
 Google.com. (2020). [online] Available at: https://www.google.com/search?q=management+V
%26S+financial+accounting&rlz=1C1CHBF_en-
GBGB814GB814&source=lnms&tbm=isch&sa=X&ved=2ahUKEwjGr8Kv7bnnAhXGa8AKHSaqBUgQ_AUoAXoECA4QAw
&biw=1242&bih=553&dpr=1.1#imgrc=LbHDgnffMxGr_M [Accessed 5 Feb. 2020].
 Google.com. (2020). [online] Available at: https://www.google.com/search?
q=managerial+accounting+system&rlz=1C1CHBF_en-
GBGB814GB814&source=lnms&tbm=isch&sa=X&ved=2ahUKEwilvqGa9bnnAhWrSxUIHbMcC1EQ_AUoAXoECBAQAw
&biw=1242&bih=553&dpr=1.1#imgrc=AbrAYYW7TzIKUM [Accessed 5 Feb. 2020].
REFERENCES