Management Accounting Report: Cost Analysis, BEP, and UCK Furniture

This management accounting report provides a comprehensive overview of key concepts and techniques, including cost analysis, budgeting, and break-even point (BEP) calculations. It begins by defining management accounting and its essential requirements, highlighting its role in formulating financial strategies, improving management procedures, and maintaining profitability. The report discusses various management accounting systems, such as inventory management, price optimization, and cost accounting, explaining their benefits and applications. It then delves into cost calculation techniques, including absorption and marginal costing, and demonstrates their application through income statements. The report also addresses practical problems in budgeting, flexible budgeting, and cash budgeting, illustrating their importance in predicting a company's future financial position. The analysis is contextualized with examples related to UCK Furniture, showcasing the practical application of management accounting principles in a real-world business scenario. Desklib provides access to this and many other solved assignments.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1 ...........................................................................................................................................1
SECTION 1......................................................................................................................................1
1.1 Management accounting and essential requirements of their types......................................1
1.2 Methods utilised for management accounting reporting.......................................................3
1.3 Benefits of management accounting systems.......................................................................4
1.4 Management accounting systems and reports integrated in organisational procedure and
importance of different methods.................................................................................................5
SECTION 2......................................................................................................................................6
2.1 Calculate cost using effective techniques for cost analysis..................................................6
2.2 Apply range of MA techniques.............................................................................................8
2.3 Accurately apply and interpret data for a range of business...............................................11
2.4 Calculation of BEP..............................................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is a procedure of determining business costs as well as
operations to prepare internal financial report, statements, books & journal to aid manager’s
decision making procedure in accomplishing business objectives (Ugalde Vasquez and Naranjo-
Gil, 2020). The main aim of the report to understand the concept of management accounting and
enhance the quality of information that helps in decision making procedure. This report based on
the UCK furniture which is established in UK and provide their services. In this report consist of
different topics like MA systems and reports for the operation of entity, prepare income
statements that based on absorption and marginal costing. Along with identify practical problems
and prepare flexible and cash budget to predict future position of company.
PART 1
SECTION 1
1.1 Management accounting and essential requirements of their types
Management accounting is application of professional skills as well as knowledge use at
the time of preparation of accounting and financial information to assist internal management.
On this basis of these management apply different policies, planning and control of the
operations of firm. The only requirement of management accounting that data should present
their purpose that is supporting the management in effective decision making procedure.
Role of MA
 Formulate financial strategies: The main role management accountant to apply effective
financial strategies in order to predict sales, prepare budget include all the incomes and
expenditure. To record all financial information in different statements as per the
requirement (Krishnan, 2020).
 Improve management procedure: It is essential role in which analysis the performance of
management accordingly take further decisions. For the main activities it will increase
the major efficiency by clear and smooth inner and external procedure.
 Maintain profitability: There are analysing various types of tool that use by management
accountant to maintain profitability of business. With the help of analysis, the accountant
measure revenues against fixed as well as variable cost to know breakeven point.
Principle of MA
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 Designing and compiling: All the accounting information, reports and other activities that
based on past, present and future outcomes should be analysed and compiled to analysis
the specific business issue. It means this system designed to presenting all the related data
to sort out a specific issue.
 Management by exception: This principle is followed by the management to present all
the required information and control budgetary system. In this principle compare actual
with budgeted accordingly apply changes in different costs (Diab, 2020).
The management accounting different from the financial accounting because and
Difference between financial accounting and management accounting:
Basis Management Accounting Financial Accounting
Meaning Management accounting is system
in which supply related information
to managers to develop plans and
collect all financial information.
Financial accounting is an accounting
system in which concentrated on
preparation of financial statement to
provide financial information to
related users.
Purpose To supply financial information to
external parties.
To activity the management in proper
planning and effective decision
making procedure for detailed
information on different activity.
Uses Financial accounting use by the
company to present monetary
information to external users
MA use to present financial
information to internal users.
Different types of MA system
Inventory management system: Inventory management system is a process to keep eye
on the production activities by using an unending inventory system. In simple language it can say
that when product is moving from one process to another at every stage from raw material to
final product so keep on tracking the product and also save the things in computerised system.
This all things help the manager to check on the activities and take the final decision. In the
context of UCK furniture this system is used to put track on people purchasing product for
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further procedure. The essential requirement of this system to analysis at which stage require to
raw material and when require to order for purchase (Osim, Umoffong and Goddymkpa, 2020).
Price optimization system: Price optimization system is a mathematical process where
company check the price of the product at different level at what price customer is ready to buy
and still company earns the decant profit. The process helps company to know the price of
product where company can sell their product at maximum quantity with the level of competition
and the manufacturing cost of product. UCK furniture started using price optimization system by
analysing customer behaviour in their grocery stores which product customer is ready to buy at
what price to take the pricing and promotional decision.
Cost accounting system: Cost accounting system is system where company analyse the
cost of product by using fixed cost and variable cost. If companies want to survive or want to
earn good profit companies should know about the product that which product is profitable and
which one is not. Cost accounting system helps the companies to know the cost of product at
every level initial level, work in progress level and final level. UCK furniture is biggest super
market chain in UK so its very important for them to analyse the right cost of product. The
essential requirement of this system to analysing cost of product that manufacturer by the
company (Schaltegger, 2020).
1.2 Methods utilised for management accounting reporting
Management accounting reports: It refers as document which are preparing by the
organisation to determine the performance of each department. In these reports recorded all the
data of each division after that take right decision effectively. All the business entities use
various types of system to produce this report and supports to maintain good performance. Such
as, UCK furniture prepare this these reports in detailed manner after that take right decisions.
Inventory-management report: This report is prepared by the organisation to know
about their inventory its include the inventory waste and labour cost per hour. This report help
the companies to save the large amount of funds by utilizing the resources properly. As inventory
is most important thing for the organisation this report tells companies how they are utilizing
their inventory or where they are wasting it. UCK furniture uses this report in utilizing their
inventory they check whether every raw material of every product is used properly or not. It help
the company to save large amount of inventory by saving it from wasting.
3

Cost accounting report: This report is prepared by the organisation to identify the cost
of product. It includes the raw material cost, labour cost and any other cost. It helps the company
to know about the produce price and selling price of product. By this report company can decide
their profitability on their report. Such as UCK furniture uses this report to identify the right
valuation of their product. It helps company to provide the cheap product in market which create
the large customer base for the company (Elhossade, Abdo and Mas’ud, 2020).
Account receivable report: This report is prepared by the organisation to know about
their credit available in market. It's include the company’s policies of credit return from the
people. It helps company to know about the defaulters and any other collection issue. Such as
UCK furniture uses this report to know about their bad debt and control them. It makes the
company to save large amount of money.
1.3 Benefits of management accounting systems
Relevance: Data collected by the company should be relevant to business activities and
necessary to analysis of data on periodic manner. It is duty of accountant to record all the
transactions that impact on the business activities in direct and indirect manner. Thus, it is
required to recognise reliable data and record in accounting books.
Update information: All the accounting information should be updated as per the
changes. When company apply changes in sales strategy so it impact on the results in direct
manner. Thus accordingly require to apply changes in information and provide up to date
information to manager.
Reliability: Data should impact on steady and agreeable data on collection procedure
across collection points. This procedure related to progress activities and sources data should be
clearly identified and available from manual, automated and other records for systems.
Understandable: Accounting information should be understandable that helps to get
effective ideas and easily read by the users. On the basis of such information planning about the
future activities and organize for proper decision making. Understanding is brief, complete and
effective explanation are providing in the report (Oppi, Cavicchi and Vagnoni, 2020).
Accuracy: The data record by the accountant in accounting books should be accurate
because it helps to manager in decision making procedure. If accountant do not record all the
transactions properly so data use and should be captured although if it has different uses.
Management accounting Uses Application
4

System
Cost accounting system It is using by the business to
predict the cost of product as
well as services in effective
manner. After that set price of
different products.
It is apply in the UCK
furniture to analysis cost of
each product that manufacturer
in the business.
Inventory-management system The usage of this system to
manage stock in proper
manner and determine that at
different level how many
quantity required at different
stages.
An entity apply this system to
monitor inventory at different
level and order for further
manufacturing in UCK
furniture.
Price optimisation system It is most important system
that use by the business to
conduct research from market
and carry out results of
different customers perception
in regard of their product.
This system is apply on the
UCK furniture to set effective
price structure to generate
profitability on broad manner
and take right decision.
1.4 Management accounting systems and reports integrated in organisational procedure and
importance of different methods
Different types of MA systems and reports are contributing in organisational procedure in
effective manner. UCK furniture use different system to track the performance and increase
efficiency in appropriate manner (Fadjar and Sardjudin, 2020). UCK furniture use various types
of system like price optimisation, cost accounting and inventory management system to manage
all business activities effectively. Through cost accounting predict cost of products and the report
help to manage cost in appropriate manner. Reports are using to analysis each department and
deal with different problems that can support in right decision making.
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SECTION 2
2.1 Calculate cost using effective techniques for cost analysis
Cost: It is amount of money which is spend by an entity for the creation and production
of different products as well services. This term supports in analysis actual expenses and
necessary to pay off to clients.
Absorption costing: It refers this costing technique present all the production cost that is
absorbed by the produced units. In this technique mainly concentrated on fixed as well as
variable cost to arrange various tasks in business.
Marginal costing: It is a costing technique in which cost is charged to unit cost on the
fixed cost and charged as per the period through completely pay off against contribution (Ostaev,
Shulus, Mironova and Smolin, 2020).
January February
Direct material cost 132000 114000
Direct labor cost 88000 76000
variable production overheads 55000 47500
Fixed production overheads 22000 19000
Total cost 297000 256500
per unit cost 27 27
Income statement under absorption costing January February
sales 315000 402500
Less: cost of sales 243000 310500
Direct material cost 132000 114000
Direct labor cost 88000 76000
variable production overheads 55000 47500
Fixed production overheads 22000 19000
Closing stock 54000 0
Opening stock 0 54000
Gross profit 72000 92000
Add/less: under or over absorption fixed
cost 2000 1000
Less: Variable selling cost 9000 11500
Less: Fixed selling cost 2000 2000
59000 79500
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January February
Direct material cost 132000 114000
Direct labor cost 88000 76000
variable production overheads 55000 47500
Variable selling cost 9000 11500
Total cost 284000 249000
per unit cost 26 26
Income statement under marginal costing
January February
sales 315000 402500
Less: marginal cost of sales 232000 301000
Direct material cost 132000 114000
Direct labor cost 88000 76000
variable production overheads 55000 47500
Variable selling cost 9000 11500
Closing stock 52000 0
Opening stock 0 52000
Contribution 83000 101500
Less: fixed production cost 20000 20000
Less: fixed selling expenses 2000 2000
61000 79500
Note 1: There are production costs are related by considering average production per month:
Jan. month, overheads amount (20000/10000) *11000
Feb., overheads amount (20000/10000) *9500
2.2 Apply range of MA techniques
Product costing: It is accounting procedure in which analysis all the business
expenditure that conduct by company in certain period of time. There are consisting of various
costs like raw material, worker wages, production transportation and retail stocking fees.
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Fixed cost: It is mainly based on particular period of time that do not change with
production activities. There are consisting of those cost that are not changing for longer period of
time (Wahyuni and Triatmanto, 2020).
Variable cost: There are including those costs that change directly and proportionally for
the modification in business activity level or volume such as direct labour, taxes and operational
expenditure.
Cost of inventory: This cost is analysed by the administration that how much stock is
required to keep and outcomes are varying as per the clients. There are mentioned different types
of inventory cost such as: Ordering cost: In this cost consist of wages and related payroll taxes as well as benefits to
assure about the labour cost in which organisation can allocate stock as per the
requirement. Holding cost: This cost refers that require to proper space to hold that stock which is
consisted risk as well as loss. On the basis of this cost analysis the cost of space, money
as well as obsolescence.
 Administration cost: This cost defines that wages pay by organisation as per the
employees to associate with costs of goods sold. It is beneficial to manage certain cost of
stock and deduct to minimise cost (Łada, Kozarkiewicz and Haslam, 2020).
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Financial reporting
For the period ending February
Revenue
Sales for
January 385000
Sales for
February 332500
9

Total revenue
(A) 717500
Cost of goods
sold
Cost for
January 308000
Cost for
February 269000
Total Cost of
goods sold (B) 577000
Net
income(C= A-
B)
140500
Working
Notes- Cost of
Goods sold
January February
Particulars Details Amount
(Pounds) Details Amount
(Pounds)
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a) Units produced 11000 9500
b) Direct Material (4kg*3pound/
kg*11000) 132000 (4kg*3pound/kg*9500) 114000
c) Direct Labor
(4 hrs*
2pound/hr*11
000)
88000 (4 hrs*
2pound/hr*9500) 76000
d) Variable Overhead (5pounds/
desk*11000) 55000 (5pounds/desk*9500) 47500
e) Prime Cost 275000 237500
f) Production
overhead 20000 20000
g) Cost of goods
produced 295000 257500
h) Variable sales cost (1pound/
desk*11000) 11000 (1pound/desk*9500) 9500
i) fixed selling cost 2000 2000
j) Cost of Goods sold 308000 269000
2.3 Accurately apply and interpret data for a range of business
(a)
Month Hours
Spent Expenses
January 630 7960
February 505 7410
Mar 705 8285
April 555 7535
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May 780 9110
June 795 9820
Highest number of hours = June = 800
Lowest number of hours = February =
505
Variable cost= (9840-7410)/(800-505)
Variable cost= 8.24 pounds per
unit
fixed cost= 9840 - (800*8.24)
fixed cost= 3248 pounds
expenses for July= 3248 + (650*8.24)
expenses for July= 8604 pounds
expenses for august= 3248 +
(750*8.24)
expenses for august= 9428 pounds
(b)
Date Purchases Purchase Cost Cost per unit
Opening 50
12

15-May 100 1000 10
18-Aug 200 2200 11
19-Sep 130 1800 13.84615
FIFO
Opening 50
Purchases
15-May 100
150 10 1500
18-Aug 200
350 150*10 + 200*11 3700
19-Sep 130
480 3700 + 130 *13.84615 5500
Cost of Goods Sold
1
0
7
0
0
LIFO
Opening 50
Purchases
19-Sep 130
180 13.84615 2492.308
18-Aug 200
380 2492.308 +200*11 4692.308
13

15-May 100
480 4692.308 + 100*10 5692.308
Cost of Goods Sold
1
2
8
7
6.
9
2
FIFO
Opening 50
Purchases
15-May 100
150 10 1500
18-Aug 200
350 350*[(10+11)/2] 3675
19-Sep 130
480 (3675/350 + 13.84615)* 480 11686.15
Cost of Goods Sold
1
1
6
8
6.
1
5
14

2.4 Calculation of BEP
15

CONCLUSION
As per the above report it has been concluded that management accounting plays
essential role in different business entity. There are applying various types of system in order to
analysis various business activity in proper manner like cost accounting system for cost
management, price optimisation for effective price structure. Moreover, prepare various
accounting reports that defined about the various departments in broad manner. Apply different
types of costing techniques to carry out various results. Along with identify various planning tool
in order to predict potential business activities for proper modification.
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REFERENCES
Books and Journals
Ugalde Vasquez, A. F. and Naranjo-Gil, D., 2020. Management Accounting Systems, Top
Management Teams, and Sustainable Knowledge Acquisition: Effects on
Performance. Sustainability. 12(5). p.2132.
Krishnan, R., 2020. Across the Great Divide: Bridging the Gap between Economics-and
Sociology-Based Research on Management Accounting. Journal of Management
Accounting Research. 32(2). pp.21-25.
Diab, A. A., 2020. The relationship between informality and the formal management accounting
and control process: a case study from Egypt. Academy of Accounting and Financial
Studies Journal. 24(4).
Osim, E., Umoffong, N. J. and Goddymkpa, C. P., 2020. Management accounting practices and
the performance of small and medium-sized enterprises in Akwa Ibom State,
Nigeria. Business Perspective Review. 2(2). pp.57-74.
Schaltegger, S., 2020. Unsustainability as a key source of epi-and pandemics: conclusions for
sustainability and ecosystems accounting. Journal of Accounting & Organizational
Change.
Elhossade, S.S., Abdo, H. and Mas’ud, A., 2020. Impact of institutional and contingent factors
on adopting environmental management accounting systems: the case of manufacturing
companies in Libya. Journal of Financial Reporting and Accounting.
Oppi, C., Cavicchi, C. and Vagnoni, E., 2020. How does management accounting affect
entrepreneurial orientation in SMEs? A structural equation modelling. Management
Control.
Fadjar, A. and Sardjudin, K. N., 2020. Factors that Influence Decision Making through the
Application of Management Accounting Information Systems. International Journal of
Psychosocial Rehabilitation. 24(2).
Ostaev, G. Y., Shulus, A. A., Mironova, M. V. and Smolin, Y. V., 2020. Accounting agricultural
business from scratch: management accounting, decision making, analysis and
monitoring of business processes. Amazonia Investiga. 9(27). pp.319-332.
Wahyuni, N. and Triatmanto, B., 2020. The effect of the organizational change on company
performance mediated by changes in management accounting practices. Accounting.
6(4). pp.581-588.
Łada, M., Kozarkiewicz, A. and Haslam, J., 2020. Contending institutional logics, illegitimacy
risk and management accounting. Accounting, Auditing & Accountability Journal.
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