Management Accounting Report on Cost Analysis and Budgeting

This report provides a comprehensive analysis of management accounting principles and their application within the context of UCK Furniture. It begins with an introduction to management accounting, emphasizing its role in providing financial information for managerial decision-making. The report then explores various management accounting systems, including inventory management, job costing, and price optimization, and highlights their benefits. Different methods of management accounting reporting, such as performance reports and cost managerial accounting reports, are explained. The report delves into cost analysis, calculating costs using marginal and absorption costing methods to produce income statements and cost cards, along with a discussion of their merits and demerits. Furthermore, the report examines budgeting, outlining its purpose and various types, including cash and flexible budgets, and their respective advantages and disadvantages. Finally, it addresses financial problems faced by organizations and explores performance measures, such as benchmarking and KPIs, used to assess organizational success.

Management
Accounting
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INTRODUCTION
Management accounting is also known as managerial accounting and could be described as
a procedure of providing the managers with financial information and resources when making
decisions (Akbar, 2010). Management accounting is used primarily by the organisation's
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management department, and that is the only thing that makes it distinct from financial
accounting. This assignment based on UCK Furniture which is UK based company.
This report includes the various topics such as demonstration of management accounting
system and it include the range of techniques to produce income statement by using appropriate
methods. In addition, it also covers the use of planning tools in management accounting and the
way organizations used to respond their financial problems.
MAIN BODY
PART 1
Section 1
1.1 Explain management accounting and present the essential requirements of different types of
management accounting systems
According to the Institute of Cost and Management Accounting, application of
professional skills in order to manage accounting information in that way which provide useful
information (Callahan, Stetz and Brooks, 2011). By using management accounting, managers
able to formulate policies and build plan to control entire operational activity of organization.
UCK Furniture follow the range of management accounting systems that is essentially required
to maximise their overall productivity and profitability are as follow:
Inventory management system: It is a primarily a discipline which specifies the structure
and positioning of stocked products. It is important to immediately follow the standard and
scheduled course of production and stock of materials at various locations within a facility or
within several locations of a supply network. It is a computer-based system used to monitor
inventory rates, purchases, deliveries, and orders (Hopper and Bui, 2016). This system is used in
the manufacturing sector in some situations to produce a work order, bill of materials, and other
supplies relevant to the product. It is essentially required by UCK Furniture to reduce inventory
over-storage and under-stocking problems.
Job costing system: It is a method of determining the costs they spend to a particular job
that is associated with company. This term is commonly used in the construction industry, which
refers to the distribution of costs at a corporation for specific building projects. Most of the
organizations used this accounting system to set separate cost for each job that is essentially
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required to minimise the production cost which further helps in maximising productivity as well
as profitability of UCK Furniture company.
Price optimisation: This system used to seeking the perfect spot pricing or price
maximization against consumer willingness to pay. Business up and down the supply chain, both
in B2B and B2C environments, rightly devote a considerable amount of time to market
management and ensure that their goods are delivered efficiently at the right price while still
making decent profits. It is essential for UCK Furniture to meet their consumer expectation
through fulfilling business objectives.
Above mention management accounting systems helps UCK Furniture to manage their
financial information which required by top management to take further decisions or build
strategies for the development of the business (Lavia López and Hiebl, 2014). It is used to
maximise productivity or profitability through improving overall performance of business
operations.
1.2 Explain different methods used for management accounting reporting
Performance report: This report is produced to assess a company's performance as a
whole and at the end of a year, for each employee. In large organizations even various
departments’ performance reports are produced. These success analyses are used by managers to
make important business decisions about the organisation's future. People are often rewarded for
their contribution to the company, and are laid off or treated as needed under performers.
Managers of UCK Furniture use this report to evaluate their overall organizational or employees
performance and further build strategies accordingly to improve the outcomes.
Cost managerial accounting report: Managerial accounting measures the prices of the
manufactured products. All the prices of raw materials, overheads, wages and any other prices
are taken into account. The sums are divided by the quantities generated. Managers of UCK
Furniture get the opportunity to understand products ' purchase prices against their value for sale.
Through these reports, profit margins are calculated and tracked, due to have a good picture of
all the costs involved in the development or procurement of the posts. Production loss, daily
labour costs and operating expenses are all part of cost accounting reports for managers. They
have a clear view of all costs, which is important for better source of information optimisation in
all departments.
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1.3 Benefits of management accounting systems
Systems Benefits
Inventory Management Tracking and finding the movement of inventories within an
organization is often useful for the company. It will also help
administrators make full use of inventories.
Job Costing System This is mainly useful in ensuring transparency and effective
distribution of various costs to different systems for businesses.
Price Optimisation System To production managers, this is useful in finding the most
competitive prices to goods or products as well as for assessing
the cost of manufactured and sold goods. This framework
provides the basis on which to establish pricing strategies.
1.4 Critically evaluate that how accounting systems and reporting integrated with each other or
provide business success:
It has been critically evaluated that financial reporting is very essential for the
organizations because it helps the management to make strategies and it is important in various
aspects (Leitner, 2013). For the purpose of tax which required by the regulation and reporting
provide an indication of the firm's financial stability and creditworthiness to investors, creditors
and other companies. The importance of financial statements and reports also extends to
stakeholders. Shares in a company or are an activist investor who holds a large equity stake, then
it is important to provide full disclosure of all assets, liabilities, cash usage, sales and related
business costs.
Section 2
2.1 Calculate costs using relevant cost analysis methods to draw up an income statement using
marginal and absorption costs.
Produce cost card by using marginal or absorption costing:
Cost card using marginal costing:
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Cost card using absorption costing:
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Describe possible merits and demerits of the both methods:
Marginal costing:
 Advantage: This method is used to determine overall costs and the impact of variable
costs on the amount of output. Throughout the basis of uncertainty, all costs are divided
between fixed costs and variable expenses. The expenses are split into fixed expenditures,
and variable costs. Benefit is calculated, as normal. The payment is made as it excludes
the overall cost from the income. This contributes to income as the investment deducts
operating costs.
 Disadvantage: The separation of costs into fixed and variable components is of
considerable technical complexity. The linear relation between outputs and variable
expenses at varying operating levels may not be true. Therefore, neither fixed costs
remain unchanged, nor variable costs change compared to level of operation
Absorption costing:
 Advantage: In cases where the production is made to have future sales or seasonal sales
as opposed to marginal costing it shows the correct measure of income (Modell, 2014).
This requires both accrual and matching rules to be adhered to that include costs balanced
with revenue for a defined period. This allows managers to be more responsible for the
services and equipment they supply to their branches due to proper allocation including
overhead distribution of fixed costs
 Disadvantage: Absorption costs are not very useful when taking management decisions
such as finding the correct product mix, how and when to import or manufacture, whether
or not to accept an export request, preferring alternatives, the minimum price to be set
during a crisis, the quantity of goods to be sold to gain the necessary profit etc.
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2.2 Apply a range of management accounting technique to produce financial reporting
documents
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2.3 Produce financial report and interpret the data which accurately apply in the business
According to the above income statement and cost cards prepared using marginal and
absorption costs, it was analyzed that net profits under marginal costing are £ 75000 and £ 64500
respectively for January and February, while net profit amounts are £ 77000 and £ 63500
respectively during Jan and Feb by absorption method. There is a disparity in net profit estimates
due to accumulation of fixed costs above or under.
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(A)
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(B)
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PART 2
3.1 Explain the purpose of budget and produce different types of budget along with its
advantages or disadvantages
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