Management Accounting Report: Prime Furniture Case Study and Analysis

This report provides a detailed analysis of management accounting principles and their practical application, using Prime Furniture as a case study. It begins with an introduction to management accounting and its importance in financial analysis and decision-making, covering topics such as cost analysis, cost volume profit analysis, and cost variances. The report then delves into specific management accounting techniques, including absorption and marginal costing, product costing (fixed and variable costs, cost allocation, normal and standard costing, and activity-based costing), and the interpretation of financial reports, such as inventory costs. The report also examines the advantages and disadvantages of various planning tools, particularly budgets, including production, sales, and master budgets. Furthermore, it analyzes the use of planning tools through Porter’s Five Forces model, evaluating the competitive landscape of Prime Furniture. The report concludes by highlighting the importance of these tools for effective financial management and strategic planning.

5
Management
accounting

Contents
INTRODUCTION.......................................................................................................................................3
TASK 1.......................................................................................................................................................3
Covered in power point presentation.......................................................................................................3
TASK 2.......................................................................................................................................................3
P3 Calculation of costs using appropriate techniques of cost analysis.....................................................3
M2 Range of management accounting techniques...................................................................................4
D2 Financial reports that interpret data....................................................................................................5
TASK 3.......................................................................................................................................................6
P4 Advantages and disadvantages of planning tools used for budgetary control.....................................6
M3Analyze the use of different planning tools........................................................................................7
TASK 4.......................................................................................................................................................8
P4 Comparison of organizations..............................................................................................................8
M4 Analysis of financial problems..........................................................................................................9
D3 Evaluation of planning tools..............................................................................................................9
CONCLUSION...........................................................................................................................................9
REFERENCES..........................................................................................................................................10

INTRODUCTION
Management accounting is defined as a procedure of making the usage of all the financial
data, information in such a manner so that it can be helpful in generating proper analysis as well
as interpretation. It is considered as the practice of identifying, measuring, determining and
communicating all the financial information. The skills required in management accounting are
functions of controllership, non-profit accounting, analysis, business law and many more. Due to
this it leads towards implementing accurate decisions in the future aspect within whole company
which helps in assuring the overall enhancement in whole profitability level in an efficient
manner. The below report is based on Prime Furniture ( Lee and Wolnizer, 2021).The company
was established in the year 1996 in London. It is a growing East London based company which
is planning to start training course for all the new interns. The report involves range of
management accounting techniques, use of planning tools and comparison of the ways in which
organizations can use management accounting.
TASK 1
Covered in power point presentation
TASK 2
P3 Calculation of costs using appropriate techniques of cost analysis
Micro economic techniques: -
 Cost: - It is defined as a degree of the alternative opportunities in relation with the choice
of specific activity over others. There are various types of cost and cost analysis like
opportunity costs, cost benefit analysis, explicit and implicit costs and so on.
 Cost volume profit: - It is considered as a method with respect to cost accounting that
looks at the impact in accordance with varying level of costs as well as volume. In
context with prime furniture it included the evaluation of fixed costs, variable costs and
how it affects the overall profit of the business. In context with flexible budgeting it is a
financial plan of estimated cost and revenue in accordance with different levels of output.
 Cost variances: - It is defined as a difference between the actual cost which is incurred
and the overall planned amount of cost. There are three types of cost variances and these
are cumulative cost variance, point in time and variance at completion.
Absorption and marginal costing: -
 Absorption costing: - It refers to a technique through which the whole assessment of all
types of costs can be made within an organization. It is necessary with regard to the

purpose of apportionment of overheads in accordance with the expenditures that are been
made. For example, in case of prime furniture, it became a useful technique which should
be used by it so that the profits can be accurately determined that are being earned by it
and will be useful in future.
Advantages: - It is an effective method with regard to the purpose of preparation of
various types of accounts. In context with prime furniture, it was recommended that they
should use this method so that all the accounts can be prepared in correct manner in an
efficient way.
It is considered a good method for those businesses whose demand of the products
remains constant. So, on the basis of this Prime furniture should also use this method as it
will be beneficial for them.
Disadvantages: - In comparison with marginal costing, the usage of absorption costing
technique is not much effective. So, it creates a disadvantage for prime furniture. It is also
difficult for an organization while conducting a CVP analysis.
 Marginal costing: - It is defined as a technique through which the assessment of
profitability can be made and at the same point of time break-even point can also be
analyzed ( Mäkelä, 2021). So, for prime furniture also it was a useful technique because
correct results can be determined.
Advantages: - In relation with constant results it refers to the method which helps in
identifying all the constant outcomes that are useful for company. Besides this, by having
effective cost control it is very much helpful for prime furniture.
Disadvantages: - There is a difficulty in analyzing all the overheads as with respect to
this technique it becomes hard to assess everything and in relation with prime furniture it
creates a problem for them while calculating all the costs. At the same point of time there
is also a difficulty in fixation of prices as it is not easy for an organization to fix up all the
prices.
So, from the above analysis it can be said that both absorption and marginal costing
techniques are useful for the organization as by using those techniques they will be able
to assure that they can achieve all goals and objectives in an efficient way. So, Prime
furniture was also being recommended to make the use of both the techniques as it would
be useful for them in future.
M2 Range of management accounting techniques
Product costing:-
 Fixed and Variable cost: - In context with fixed costs these are indirect expenses that are
not dependent on an increase or decrease of the product and services which are being
produced by the company. These are like salaries, rent payments, loan payments and
many more. In relation with variable costs these are the expenses which are changed with

regards to the product and services that are being produced. These are like packaging
costs, utility costs and so on.
 Cost allocation: - It is defined as the procedure of identifying, accumulating and
assigning costs to all cost items. It is useful for all financial reporting purposes in order to
spread costs.
 Normal and standard costing: - In relation with normal and standard costing the main
difference is that normal costing hires actual costs for all the materials and direct labor
while in the case of standard costing it uses predetermined costs ( Jackson and Meek,
2021).
 Activity based costing: - It is defined as a costing method which determines certain
activities in an organization and allocates the cost of each activity to all the products and
services in accordance with actual consumption.
It is very crucial to make sure that exact application of all the different types of methods can be
carried out. With respect to this it will be helpful for the management department of prime
furniture so that all goals and objectives can be achieved in an efficient way. Besides this, it will
lead towards assuring that an organization is able to grow the level of efficiency and make sure
that all the goals and objectives are achieved.
D2 Financial reports that interpret data
 Inventory cost: - It involves the costs like carrying costs, shortage and so on. It is
considered as the cost which is used to order to hold inventory and to administer the
related paperwork (JovanoviÄ and VaÅ, 2021). There are different types like in relation
with shortage costs it occurs when businesses become out of stock. In context with
ordering costs, these are the costs which are sustained every time we place an order from
the supplier.
 Benefits: - With the help of reducing inventory costs waste gets minimized through
which the bottom line gets improved. By reducing the inventory the amount of floor
space gets limited and the cost of logging can also be reduced.
It is significant that various types of financial reports get prepared by different organizations
which is helpful for them to do proper analysis as well as interpretation for future aspects. In
context with Prime furniture, it is crucial for them that all the financial reports are prepared in
a proper manner so that better outcomes can be received.
TASK 3
P4 Advantages and disadvantages of planning tools used for budgetary control
It is significant that the use of planning tools is done within an organization because it
would help a lot in assuring that the implementation of different types of plans can be done in

correct manner. The main planning tool is budget. It is defined as a statement in which whole
assessment of receipts and expenditures are made so that effective results are received. There are
different types of budget which is further been explained as below: -
Production budget: -
It refers to a budget which can be used for the purpose of assuring that there are various
types of production requirements which are pre-determined and can help companies.
Advantages: -
 It is helpful for an organization because it leads to identification of excessive costs (Choi,
2021). So, for prime furniture also it was an advantage for them.
 It also leads towards assuring that the achievement of goals and objectives can be done.
Disadvantages: -
 It includes lot of cost while preparing the budget and also it is time consuming.
 While using this method use of high level skills and abilities are made.
Sales budget: -
In accordance with this budget correct assessment of sales is done within a specific
period time and is very much useful for them.
Advantages: -
 It helps in assuring that proper identification and evaluation of the sales can be carried
out which will be helpful during the preparation of correct strategy (Liu, 2021).
 Sales budget can also be made for carrying out the overall comparisons. So, with respect
to prime furniture it was beneficial for them to use the method of sales budget.
Disadvantages: -
 The future sales of organization cannot be effectively determined. Besides this it will not
be easily accepted by the people within an organization.
Master budget: -
It is defined as a budget which can be prepared by companies because with the help of
this budget they get an inclusive synopsis of the whole picture in the correct manner. For
example, in the case of Prime furniture master budget is recommended because it will help them
in assuring that all goals are achieved in proper manner.
Advantages: -

 It helps in ensuring that the synopsis of whole organization can be implemented in an
efficient way.
 It also helps in increasing the efficiency level of company.
Disadvantages: -
 It leads to the aspect of lack of specialization and due to this negative impact is created
on Prime furniture.
M3Analyze the use of different planning tools
By analyzing the usage of planning tools porter’s five forces model has been used which
is further been explained as below: -
 Threat of new entrants: - In relation with prime furniture the threat of new entrants is
high and the reason behind it is possible to start a new company at a small level and
enable a new course with least capital amount and human resources (Leo-Paul, Rounaghi
and Enayati, 2021).
 Threat of substitute product: - In accordance with this case the threat is low because
there are no close substitutes products of Furniture Company and ultimately decreases the
substitute also.
 Bargaining power of buyers: - The bargaining power of buyers is high and the reason
behind it is highly valued innovation. Due to this radical innovation decrease switching
cost of buyers.
 Bargaining power of suppliers: - It is low in the prime furniture company as they do
understand about the importance of maintaining supplier relationship to acquire best
things.
 Competitive rivalry: - The Company is intensifying their competition because they
provide good things at cost effective prices which creates difficulty in managing the
pricing and overhead expenses.
The planning tools are useful for all organizations and ultimately it is necessary for the company
to make their use. Prime furniture has to make sure that by using those tools they need to ensure
that accurate plans are been implemented in correct manner.
TASK 4
P4 Comparison of organizations
Financial problem: - It is defined as a specific situation in which the companies face lot
of difficulties in context with the financial status. Prime furniture also faces certain
financial problems. It is further been explained as below: -

 Excessive costs: - Prime Furniture Company is facing many financial problems in
relation with excessive costs and it creates an impact on the organization (Boyce and
et.al, 2021). Through this the level of expenditures are increasing and creating an impact
of the profitability level of organizations.
 Mismanagement of stock: - Prime Furniture organization if facing the problem of
mismanagement of stock also due to which the expenditure level is increasing and
creating an impact on profitability also.
Techniques to solve financial problems: -
 Financial governance: - It is defined as a method which is applied to assure that the
companies are able to manage the financial data and all the related information in an
efficient and correct manner. In context with Prime furniture it is significant that they
make use of financial governance so that all financial targets can be achieved. The
problem related to inventory can be solved.
 Balance score card: - It is defined as a technique through which the assessment of
performance of all the employees is done. It is crucial for prime Furniture also to ensure
that accurate results are received and in an efficient way. The issue with respect to
excessive costs can be solved as balance score card would be able to determine all
variations as well as deviations from the workers.
Comparison of organizations: -
Criteria Asda Aldi
Use of management
accounting system
The company is making the
use of job costing system of
the basis of solving all
financial problems
(Kolvereid and Åmo, 2021).
They are using price
optimization system in
order to solve financial
problems.
Application of the system They can use the system by
assuring that management of
job would be done in
accurate and efficient
manner.
They can use the system by
assuring that right prices
would be set up in the
company.
Financial problem They are facing the issue of
mismanagement of job
orders
They are facing the issue of
low profits due to lack of
setting up accurate prices.
M4 Analysis of financial problems
It is significant for the company to ensure that they are able to deal with all the financial
problems. In relation with the managers of Prime Furniture it is necessary for them to assure that
they access all the financial problems very fast and solve the in appropriate manner (Noor
ARDIANSAH, Anisykurlillah and Udin, 2021). It will be helpful for them to deal with such
issues in an efficient way.

D3 Evaluation of planning tools
All the tools of planning should be used by an organization in a correct way in relation
with the purpose of creating short term, long term plans effectively. With respect to prime
Furniture planning tools are very helpful because by using them the company would be able to
ensure that all the goals are achieved in a proper manner.
CONCLUSION
From the above report it has been concluded that management accounting means usage of
different tools and techniques through which effective conclusion can be received which will be
helpful for company in their future aspects. It is crucial for management department that they
properly take all financial decisions so that all goals and objectives can be achieved in
appropriate way.

REFERENCES
Books and Journals
Boyce, G., and et.al, 2021. Bringing the social into accounting curriculum: integrating a
sociological approach into learning and teaching accounting. La Trobe.
Choi, H., 2021. Effect of internal accounting control system on the value of cash
holdings. Applied Economics Letters, pp.1-5.
Jackson, D. and Meek, S., 2021. Embedding work-integrated learning into accounting education:
the state of play and pathways to future implementation. Accounting Education, 30(1), pp.63-85.
JovanoviÄ, T. and VaÅ, V., 2021. The role and application of accounting and budgeting
information in government financial management processâ a qualitative study in
Slovenia. Public Money & Management, 41(2), pp.99-106.
Kolvereid, L. and Åmo, B.W., 2021. Quality and performance in small accounting
firms. International Journal of Productivity and Quality Management, 32(1), pp.129-145.
Lee, T.A. and Wolnizer, P.W. eds., 2021. The Quest for a Science of Accounting: An Anthology
of The Research of Robert R. Sterling. Routledge.
Leo-Paul, D.A.N.A., Rounaghi, M.M. and Enayati, G., 2021. Increasing productivity and
sustainability of corporate performance by using management control systems and intellectual
capital accounting approach [J]. Green Finance, 3(1), pp.1-14.
Liu, B., 2021. Research on the Effectiveness of Public Hospital Cost Accounting in the New
Period. Academic Journal of Humanities & Social Sciences, 4(4).
Mäkelä, H., 2021. Roles of Accounting for the Contested Terrain of Social Enterprises. Social
and Environmental Accountability Journal, pp.1-22.
Noor ARDIANSAH, M., Anisykurlillah, I. and Udin, U., 2021. Investigating the Maturity Level
of Computer-Based Accounting Systems in Small and Medium-Sized Enterprises: Empirical
Evidence in Indonesia. Quality-Access to Success, (181).