Management Accounting: Costing, Budgeting, and Analysis Report

This report provides a comprehensive overview of management accounting principles and their application within a business context, using Prime Furniture Limited as a case study. It delves into various costing methods, including absorption and marginal costing, demonstrating their use in preparing financial statements and interpreting their implications on profitability. The report also explores budgetary control, outlining the benefits and limitations of different planning tools such as operational, cash, and capital budgets. Furthermore, it examines pricing strategies, competitor analysis, and the application of SWOT analysis. The report concludes by analyzing how management accounting methods can help organizations respond to financial problems, fostering sustainable success through effective planning, cost management, and financial analysis.

MANAGEMENT ACCOUNTING

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
TASK 2...................................................................................................................................................3
TASK 3...................................................................................................................................................7
TASK 4.................................................................................................................................................11
REFERENCES..........................................................................................................................................15

INTRODUCTION
With the assistance of monetary and non-monetary data, the term MA is considered a means of
managing quality information. There are a wide range of methods in order to make financial
reporting, such as absorption, marginal (Drury, 2013). The company selected for this study is
Prime Furniture Limited. This includes the production of various styles of furniture goods.
Specific information on various accounting techniques, accountancy training tools and planning
procedures to resolve financial issues is presented in the report.
MAIN BODY
TASK 2
P3. Calculation of costs and preparation of financial statements under marginal and
absorption costing method.
Micro economic techniques:
Cost- This can be defined as the total cost of different types of production and operations being
performed. There are different cost groups, namely fixed costs, contingency costs, real costs,
ancillary costs and many more.
Analysis of cost volume-Cost-benefit planning is an effective strategy for undermining the
structure and features of choices that are used to determine the best way to produce benefits
while retaining costs.
Cost variance- It can be defined as the method of calculating the difference between actual and
projected costs. Both unfavorable and optimistic forms, it is perceived (Parker, 2012).
There are a number of essential approaches, including such absorption and marginal methods, in
the sense of financial plan management. They can be seen in preparing accounting papers for
companies. These are described as follows in the following format:

Absorption costing process- It is a costing technique that defines the costs of various operations
and usually allocates them. Under it, the costs of the item are worked out as fixed and unfixed
costs.
Marginal costing process- It is possible to view the costs associated with various activities as a
way to quantify them. The fixed expenses are considered the time expense and the cost of the
goods vary.
Costing of products:
Fixed cost- It is a sort of costing that is not changed or modified by the adjustment in production
value.
Variable cost- It is a type of costing that may be changed or impacted by changes in the
production quantity.
Standard costing- Standard spending in financial reporting combines expected investments with
actual costs. If seen the differences between the estimated costs as well as the real expenditure
are then recorded.
Activity-based costing-The method to activity costing describes the organizational processes of
each procedure and calculates the expense for each process according to the actual application of
the product and service (Nixon and Burns, 2012). Indirect costs are more specifically attributed
to this approach than traditional costs.
Costing plays a vital part in price control as companies change prices depending on it. Costing
plays a major role in regulatory oversight. That is indeed because if the prices are higher than
expected, vice versa, than that of the values set by firms.
Stock cost:
Inventory cost- Inventory expenses cover purchase price, storage costs and improved monitoring
of costs. Various types of cost of production are described as follows:
 Price of Buying

 Carrying costs
 Cost of Ordering
 Cost of Recruiting
Methods of evaluation:
First in first out method-This strategy is associated with the inventory that arrives first in the
warehouses for production.
Last in first out method-This is a mechanism connected to the very last inventory for production
in factories.
Weighted average costing method-The technique of weighted average accounting valuation is
one of three techniques to calculate the company inventory by calculating the gross expense of a
product variable based on the production of goods compared to their quantity. Companies use the
weighted average to measure the sum and worth of the goods being produced.
Calculations:
Income statements using absorption costing and marginal costing are as follows:

M2. Accounting techniques to produce financial statements.
Most sales estimates are structured into absorption and marginal cost systems in the business
financial industry (Fullerton, Kennedy and Widener, 2013). Profit is stated by absorption and
incremental costing processes, as with Prime furniture. Except for these the majority of methods
cover the preparation of financial reporting such as the conventional expense system, the
planning of activities, etc. The measurement of possible costs used for contrast can be seen as
related in reference to normal costs. By increasing activity, financial costs are distributed and
analyzed for various forms of service.
D2. Interpretation of prepared financial statements.

From above, it may be seen that, despite absorption charges, net sales for quarters 1 is £ 840 and
this is £ 940 for phases 2. Net profit is stronger in Q2 due to the growing number of revenue. The
losses are recorded by both quarters within marginal expense. Losses of £ 980 for segment 1,
opposed to £ 6740 for quarter 2 in quarter 2, were attributed to higher marginal market rates due
to high losses. The difference in profit/loss between all the two methods and variable by 2
approaches when preparing the income statement may be attributable to various methods of
taking expenditures. In both methods, the reasoning for shifts in net margin or loss is attributed
to cost analysis in various ways as only contingent costs are taken as input costs in marginal
costs. Although constant and adjustable in absorption costs, these are considered as output costs.
TASK 3.
P4. Limitations and benefits of planning tools of budgetary control.
Budgetary management- This can be interpreted from many separate spending plans to control
fiscal and anti-financial output as a kind of system and commitment (Banerjee, 2012). The
management of organizations takes proactive action to deliver further results by some strategy
formulation in this part of the budget role. There is a set of projected budgets, so these are:
Operational budget- Which is a form of budget that helps the administration to calculate the
amount of commodity necessary to finish various operations for a given period of time. The
accounting professionals schedule this calculation for the management in the way that prime
furniture is limited. Appropriate actions are made by administrators with respect to the
management of various operations in this budget.
Advantages-
For organizations that monitor the usage of different kinds of services in an organization, this
framework is required.
In addition to this the above budget helps to handle various forms of functions assigned in prime
furniture limited to the production of different types of products.
Disadvantages-

It takes a lot of time and money, which are the main problems with this budget, to distribute
expenses.
This plan is not ideal for enterprises with small or small-scale projects.
Cash budget- A study outlining both cash profits and consumption and based on estimates for an
accounting period (Christ and Burritt, 2013). The budget proposal is generated after all measures,
like revenue, profit planning, financial plan and purchasing budget. There are marked expenses
and modifications to financial products. It is mainly for foreign parties and after launch it cannot
be changed conveniently. In the above-mentioned industry area, this budget has many benefits
and drawbacks, such as:
Advantages-
This is beneficial for corporations to handle capital and revenue on a regular basis.
It is better for enterprises to monitor the use of allocated achievement rewards and various
categories of items that contribute to cash profits by means of such a budget.
Disadvantages-
This plan is built on expectations so that for other financial plans, companies do not rely entirely
on it.
This plan does not deliver any specific result for businesses and thus it will become a challenge
for businesses to take.
Capital budget-The operating capital process performed by a corporation is the process for
reviewing potentially large projects or acquisitions (Taipaleenmäki and Ikäheimo, 2013). Plan
reports that involve the budgeting of wealth prior to acceptance or dismissal are the construction
of a new infrastructure or substantial contributions in an external undertaking. An organization

should analyze revenue and expenses in a future project for life in order to identify if anticipated
incentives that are created meet a suitable target benchmark. The capital budgeting method is
often called an expenditure appraisal.
Advantages-
For a detailed budget review, the financial condition of primary furniture is analyzed.
Another value of this plan is that it helps to determine the lengthy objectives of the business and
to direct projects.
Drawback—
In this plan, the big obstacle is that it is impossible to make improvements.
Every time, it's doesn't create correct predictions and businesses cannot rely on it because
expenditure mistakes can lead to enormous estimates.
Pricing:
Strategies for pricing:
Penetration pricing approach- The penetration pricing scheme initially lowers the price of a
product so that it hits a large portion of the sector quickly. The strategy works for clients because
of the decreased price of the new company.
Price skimming is a product technique whereby a selling firm initially sets the real demand for a
particular or product at relatively high prices and eventually lowers prices over time (Merchant,
2012). Incomprehension has emerged. If competition from the first buyers is resolved, the
business lowers the price to draw another price-sensitive group.
How rivals decide prices- In accordance with market trends and product attributes, businesses
determine pricing. The main tasks conducted out are measured and the prices are focused on
them.

Supply-demand consideration- Pricing is the economic principle for a production and
consumption area. The prices of products of a specific resource or of other industrialization
brought, such as labor or monetary fluid resources, shall be set in situations in which they are
equivalent to the value provided (at current rates), culminating in fair development and use of
investment assets.
Strategic Strategy Planning
SWOT Analysis- SWOT analysis can be extended to an entity, community of organizations,
person or team. Indeed, analysis is supported by a range of project goals. For example, for the
evaluation and externalization of a business or product, a payment or a partnership, the SWOT
approach may be used. Swot may also be used to determine a single point of production,
business process and sales of products or to implement technology.
Benefits- SWOT analysis may impact an organization, an organizing system, a person or team. A
number of project goals will actually be met by the report. For instance, to establish a product or
service, an agreement or partnership, or to externalize an operational organization, the SWOT
method can be used. SWOT analysis can also help to identify a particular supply point, business
cycle and demand for commodities, or innovation use.
Drawbacks- In each nation, the SWOT analysis focuses on four classes of strengths,
vulnerabilities, risks and opportunities. The method does not however, provide a system for
rating the importance of one variable over the other. It is also impossible to evaluate the true
effect of any factor on the target.
M3. Use of different planning tools and their application for preparing and forecasting
budgets.
Various forms of budgets are used by businesses for better strategic decisions. There are several
plans in their papers, such as the income outlook, the spending schedule and the investing plan,
as seen above (Schaltegger, Gibassier and Zvezdov, 2013). All these forecasts can be used to
reliably track their cash reserves and to precisely schedule various operations. In the total
calculation of income and investment, both these expenditures play an important part. This is
possibly that the administration of this company analyses evidence calculated in past years in

order to estimate existing operations. Consequently, it may be claimed that the budgetary
regulation prediction instruments are too important to exact. Different forecasting methods such
as cash expenditure allow them to cope with problems that are related to higher cash costs and
those in the sense of Prime furniture limited. They distribute their funds through such preparation
tools and monitor the use of funds in an efficient way.
TASK 4
P5. Analysis of ways in which management accounting methods help organisation to
respond to financial problems that will have sustainable success.
Monetary problems- In the present business environment, competition is evolving and
contributing to monetary difficulties. A lack of effective coordination and execution of a policy
describes these problems. Furthermore the absence of revenue, where businesses aim to conduct
multiple activities, creates financial problems. Here are some unique financial challenges most
firms face:
Errors in accounting reports- This can be described as the financial problem correlated with
deliberate or accidental figural manipulation contributing to improper preparation of accounts
(Bouten and Hoozée, 2013). Firms do not find large profits, acquisitions and even else due to this
financial problem. They face situations, which concerns their financial results, from the above
Prime furniture.
Insufficient capital asset protection-This is a kind of problem connected to the risk of losing an
asset. The loss of fixed and unfixed asset management lies in this problem.
MA methods to respond financial problems:
Benchmarking- This approach requires the financial variables of competing firms in a
corporation in order to identify negative variances. The company would also identify the causes
that are leading to the financial meltdown. They use this method in the sector described above to
assess their fundamental monetary problem. The financial variables are linked to other firms.

Primary performance indicator-Consistent with the proper financial and non-financial
assessment, they can be described as a technique. The cost aspect is the performance, costs, etc.
of the organisation, while non-financial dimensions are the degree of worker tension, relations,
etc.
Financial governance-It can be known as a strategy in which for a specified period of time all a
firm's earnings transactions are properly registered. This method explains real monetary
challenges and uses analytical methods to address the problems.
Management accountant skills:
Better communication skills- The profitable accountancy firm should be granted effective
communication skills so that financial data can be extracted inside the company (Herbert and
Seal, 2012).
Efficient understanding of accounting principles- In order to produce financial reports, accounts
must also have full research tools.
Such accounting expertise may be used to solve problems with capital. This is because, on the
basis of this, businesses can overcome some type of crisis and can guide company executives to
find solutions.
Comparison of companies in order to solve financial issues by help of MAS:
Basis of
difference
London beer factory Orbit beers
Monetary issue Their financial issue in this business
has to do with accounting irregularities.
It prevents them from analysing real
company results.
The problem facing the organization
is the lack of asset protection. As a
result, the valuation of land cannot be
tracked and assessed.
Accounting
system
In addition to this the above-mentioned
business has used the costing system to
report all forms of expenditures and
other non-production costs. This
In order to control their various forms
of assets in an efficient way, this
business used inventory levels. It was
necessary since each stock is