Management Accounting Report: Prime Furniture Business Decisions

This report provides a comprehensive overview of management accounting practices, focusing on their application within the context of Prime Furniture. The report begins with an introduction to management accounting and its importance in organizational decision-making, followed by a determin...Read More

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Determining types of management accounting and evaluating certain benefits in
organisational context..................................................................................................................3
P2. Defining different methods of management reporting .........................................................5
TASK 2............................................................................................................................................6
P3. Evaluating cost techniques to analyse certain methods.........................................................6
TASK 3..........................................................................................................................................11
P4 Explain the advantages and disadvantages of different types of planning tools that are uses
for controlling budgets...............................................................................................................11
TASK 4..........................................................................................................................................14
Comparison of organisation and system in financial problems.................................................14
CONCLUSION..............................................................................................................................16
REFERENCES .............................................................................................................................17

INTRODUCTION
Management accounting is the main practices of any business as it needs to make the
right business decision by analysing all financial transactions and information. For any
organization it is important to follow principles and policies that can help to operate the business
regularly (Ax and Greve, 2017). In other words, provision of financial information and data
which uses by industry to make the right decision is known is managerial accounting. According
to accountants all transactions and financial information should be properly arranged that
supports a business to grow. Another side, accounting policies mainly uses for recording the
transaction and developing firm. To understand about this, Prime furniture has been selected that
is preparing different design of furniture for attracting number of customers and making right
business decisions. This report covers accounting systems, reports, planning tools and
comparison of ways that respond the financial problems.
TASK 1
P1. Determining types of management accounting and evaluating certain benefits in
organisational context
Management accounting is important method which is useful for the manager to essential
decision in the organisation in the context of financial and non-financial transaction. This is very
essential for the top management in many ways to take insightful decision for the betterment of
the organisation (Bui and De Villiers, 2017). In the Prime Furniture, this practice helps in
identifying, measuring, analysing the financial information to pursue the goal of the organisation.
This is beneficial in taking internal decisions that improve the overall quality of information
deliver to the management.
Principles of Management accounting are as follows-
 Designing and compiling- This refers that management accounting must be designed in
proper way to represent the data so that it could the problem in the organisation related
to records, reports and statement.
 Management by Exception- It states that budgetary control system and standard costing
techniques must be follow in the system to provide precise information to the
management.
Role of Management accounting are as follows-

 Controlling- This helps in preparing and analysing the accounts and reports such as
standard cost, budget, variance analysis (Burritt and et.al., 2019). In the context of Prime
furniture, this will help in controlling different function and activities.
 Improve management process- It will help improving the overall effectiveness in the
management through proper functioning in the company. In context to Prime Furniture,
this method is beneficial in taking appropriate decision in the organisation through proper
accounting.
Difference between Management accounting and Financial accounting
Basis Management Accounting Financial Accounting
Meaning This is the process of planning,
organising, identifying, managing and
controlling the functions and activities
of the management.
This related to financial
information which runs and
monitor the business decision.
Purpose It is used for internal process It is used in external reporting.
Uses This used in managing process to take
appropriate decision-making.
This used for investor,
shareholders and regulators.
Types of management accounting system
Cost accounting system- This is used to identify the cost structure of products to
maintain the profitability and taking adequate decision-making in the process of management.
For the company Prime Furniture, this will help in estimating the cost of products and services so
that they could manage effectively.
Inventory-management system- This refers to process of ordering, storing the goods
and services to ensure them proper delivery (Ghasemi and et.al., 2019). In the chosen company,
this will help in increasing the sales and profitability to operate the business successfully and
satisfy the costumer through regular delivery.
Price optimisation system- This is useful syatem that facilitate in taking right and
appropriate decision-making in the context of deciding the price. In the context of Prime
Furniture, this helps in satisfying the costumer to provide better price of product and services to
operate the business successfully.

Benefits of management accounting system are as follows-
Management accounting
System
Uses Application
Cost accounting system This helps in estimating the cost of
product and services that provided
by organisation to customer.
Prime Furniture will applying
the cost accounting system to
find all cost of transportation
and other expenses.
Inventory-management
system
This system will used in managing
the inventory, placing order,
checking the availability (Hiebl and
Richter, 2018).
The organisation is applying
inventory management system
to track inventory and
managing the order of product.
Price optimisation
system
This is to set the price of products
which provided by organisation to
manage the activities.
Prime Furniture is using this
system to regulate the price of
their products to satisfy their
costumer.
P2. Defining different methods of management reporting
The reports of management accounting depends on financial statements, cash flow and
profit and loss statements which is used to regulate the organisational functions and activities. In
the company managers are responsible to prepare the accounting report by monitoring all
financial management (Kostyukova and et.al., 2018). In the selected company, following are the
report that is useful in the management are as follows-
Account receivable ageing report- This refers to essential tool that manages the cash
flow and credits provided by business to its customers. This is useful in determining the
allowance for doubtful accounts that reveal that whether company able to keep them which are
late payers. For Prime Furniture, this report will help in knowing receivable account ageing
provides details of specific receivable.
Inventory management report- This report is dealing with physical inventory which is
managing by managers by preparing the inventory management report. This report helps
regulating the business and its inventory cost that will regulating certain activities and functions

in the context of inventory. In the context Prime Furniture, this report tells that which inventory
waste is occur and per unit overhead cost that become necessary to know by management and
considering all details to prepare this report.
Performance report- This known as budget report that is important for overall
performance and analysing and making productive improvement that needed in management.
This is essential to monitor the performance of operation department and that facilitates the
manager to take measurable action. For the Prime Furniture, this will help in taking the major
decisions and taking measurable action as it provide the rewards, incentives and bonuses to their
employees after analysing their performance. This will help in motivating them to improve their
performance and business profitability to ensure the better results and outcome.
Cost accounting report- This report helps in taking appropriate decision in the
management that useful in covering the cost of raw material, labour, overhead and any other cost
that increase the probability and efficiency. This is essential to note that this gives an idea to
manager to perform the major activities and functions. To the company Prime Furniture, this will
give the cost knowledge to the manager and involve all accounting standards which helps in
regulating the expenses so that probability could be maximized and able to control the cost in the
management operation.
The need to understand the concept all reports is necessary to execute the functions and
activities for the management operations and that leads to success in the organisation. This is
essential to know the right uses and application of them in order to maintain the efficiency and
effectiveness of organisation (Mahmoudian and et.al., 2020). This is important that all report
must be accurate and properly defined for future growth as this useful in taking corrective
measure in the management and it leads to certain the achievement and efficiency in operations.
TASK 2
P3. Evaluating cost techniques to analyse certain methods
Cost is the amount of money that used in organisation spends on creation and production
of product and services. This is useful to examine the ways which could be apply by company to
reduce it in order to maximise it. Cost analysis refers to the techniques that identifying the status
of cost structure of management and critically evaluate the efficiency to maintain the probability.

For the company Prime Furniture, this will help in knowing the status of management
effectiveness through analysing the cost of company and need to regulate it thoroughly.
Absorption costing- This refers costing technique that indicate all manufacturing cost
that is used in producing particular product. This focuses on fixed and variable cost to manage
the task and run business properly. For the company Prime Furniture this will facilitate in
understanding the manufacturing cost of organisation and that also helps in run the various task
and objectives.
Marginal Costing- This refers to costing techniques where cost is charged to unit cost as
fixed cost and charged for the period by completely written off against contribution. For the
company Prime Furniture this will be very useful in managing the cost analysis of operational
functions.

Product Costing
In the product costing it involves the normal and standard costing, activity based costing
and these helps in managing the appropriate price setting in the management. For the company
Prime Furniture this will facilitate in maintaining the proper efficiency and ensure the proper
techniques is followed in the company (Latan and et.al., 2018).
Inventory cost refers to the cost to hold the inventory and it is examined by management
as part of its evaluation that how much inventory is need to keep and results are varying
according to the costumer. For the company Prime Furniture, this is essential to evaluate so that
it is clearly monitoring the inventory cost to facilitate the lower cost for the company. Types of
inventory cost are as follows-
 Ordering cost- These include the wages and related payroll taxes and benefits to ensure
the labour cost to the suppliers and this helps the company in allocating the units.

 Holding cost- This is related to space require to hold the inventory is included and risk of
loss. For the company this will help in knowing the cost of space, cost of money and cost
of obsolescence.
 Administration cost- This refers to the wages pay by company to accounting staff to
compile the cost of goods sold. This is useful in maintaining certain cost of inventory and
try to reduce it in order to minimise the cost.
TASK 3
P4 Explain the advantages and disadvantages of different types of planning tools that are uses for
controlling budgets
Budget refers as estimation of incomes and expenses that arises while running an
organizational functions and activities. For management it is important to understand the task
and prepare the budget that can help to run all functions properly. In relation to Prime Furniture,
different types of budgets are defined below:
Capital Budget - This can be explained as way of investment and managing the long
term expenses that arises in organization while operating the business (Napitupulu, 2018)
(Nørreklit, 2017). This budgeting is uses by Prime Furniture to evaluate the major projects and
investments that can help to complete the task and attain the business goals. This involves IRR,
NPV and other capital receipts and payments that are related to business.
Advantages - This budget helps to prepare the long term budgets that supports to attain
the higher profitability by managing all incomes and expenses. By using this Prime Furniture can
understand the various risks that are involved in investment opportunity. This also helps to know
which option for investment is best.
Disadvantages – The decisions which are taken in capital budgeting are irreversible as it
consume much time to prepared the budget. This technique based on estimations and
assumptions as future would remain uncertain.
Operating Budget - This can be explained as operational budget which are uses by
organisation in order to evaluate the day to day expenses. The operating budgets states the
company's projected revenues and associated expenses for upcoming period. The management of
Prime Furniture is using the operating budget to set their all functions that occurs and needed to
manage.

Advantages – This is uses to focus on all activities by managing all income and
expenses. By using this sales of Prime Furniture company increases as it involves all intraday
transaction and selling activities.
Disadvantages – This planning tool is complex to use as it is time taken activity where a
person is required to focus on all functions. Herein, difficulties of allocating the expenses and
provides inaccurate outcomes.
Alternative method of budget and behavioural implications
Budget is important part of any organization as it involves income and expenses that
arises in doing any kind of business. The alternative method of budgets is zero base budget,
activity base budget and others that can be uses by Prime Furniture for the purpose of operating
their business and manage the all activities. The behavioural implications of such budgets are
positive as it supports to manage the all accounting principles and regulations that provides good
results and attain the goals.
Pricing
Pricing Strategy is main factor for organization as it uses to attracts the large number of
customers by setting affordable prices of products and services (Novas, Alves and Sousa, 2017).
Prime furniture is setting the competitive prices of their furniture that can help to attain the
competitive advantages. The competitors determine their prices by conducting research and
analysing the competitors. Supply and demand consideration means how many customers are
demanding and in what ration the products are supplying that can help to complete the task.
Common costing system
Costing systems are Actual, normal and standard costing that are uses by organization to
record and report the financial transactions. The actual costing system uses by Prime Furniture to
analysis the actual cost of specific products. Standard costing is use to estimate the cost which is
involved in single manufacturing products. Normal costing also uses to evaluate the cost and set
the prices of products. The cost system depends on the costing activity such as job, process,
batch and contract that uses to complete the activity and control over all expenses.
Strategic Planning
PEST analysis – This uses to analysing the external environment and increase
understanding which factor can impact negatively.

Political: Due to Covid-19 in whole country, government has stopped to continue the
buying and selling activities that has impacted negatively on Prime Furniture's performance.
Economic: The interest rate in UK has been decreased due to good economic condition
that became an opportunity for Prime Furniture to operate their business by increasing sales.
Social: By considering this factor, selected organization is preparing good as per culture
and demand that helps to run a business and increase the profitability in competitive
environment.
Technological: In this, Prime Furniture is bringing new technology in production and
distribution that helps to increase the sale and performance effectively.
SWOT Analysis: This tool is uses by organization to know strength and weakness. The
SWOT analysis of Prime Furniture is explained below:
Strength Weakness
 The organization is preparing better
design and quality of products.
 Herein, huge number of employees are
engaging in organization functions by
using their skills.
 The organization is not following all
trading rules and regulation.
 Having high level of competition.
Opportunities Threats
 Prime Furniture uses new technology,
machines and design to prepare the
furniture.
 Regular demand and supply of products
that increases sales
 Changes in currency.
 Climate change.
 Changes in government policies that
might be threat for organization.
Porter's 5 forces – This is effective model which uses by Prime furniture to analysing
the competition level and attain the profitability (Turner and et.al, 2017). The five forces are
described below:
Bargaining power of Buyers: In relation to Prime Furniture there is high threat of
bargaining power of customers as having many furniture manufacturers in the market.

Bargaining power of suppliers: The supplier's power is moderate because there is less
number of suppliers who can charge the high prices for their raw material and products.
Threat of substitutes: There is high threat of substitution which can be used by
customers in case of increases the price of products.
Threat of new entrants: This means new entrance in market that create the challenges
for existing business. In relation to Prime Furniture, there is high threat as new business can be
establish by competitors that reduce the productivity and sales of company.
Threat of competition: There is high threat of competition who sells the better quality of
products at less prices that provides competitive advantages.
Balance scorecard: This can be defined as performance metrics uses to identify,
improve and control the business's functions and resulting outcomes. Prime furniture is using
balance scorecard to analysing the performance and improve the business activities effectively.
This helps to attain the higher benefits.
TASK 4
Comparison of organisation and system in financial problems
Financial problems are related to business that can be arise while running a business. This
is a condition in which a company or individual cannot generate sufficient revenues or income,
making it unable to meet or pay its financial obligations. It generally arises due to high fixed
costs, a large degree of illiquid assets, or revenues sensitive to economic downturns. For
individuals, financial distress can arise from poor budgeting, overspending, too high of a debt
load, lawsuit, or loss of employment.
This is important for organization to analysing the functions and know how problems can
be resolved. Prime Furniture is facing the financial problem such as:
Late payment by costumer- This is financial problem that face by company as
customers does not make the payment on the time and it leads to problems in running business
further. This create the inefficiency in the cash collection and fluctuate the payment system to
other department. For the company Prime Furniture, this problem creates an immense hurdle in
the profit of overall management.
Inefficiency in cash flow- This also known as financial problem in the management that
means unable to make proper management of cash in organisation and leads to excessive in cash

outflow which lower down in the cash inflow (Pavlatos and Kostakis, 2018). This occurs as
major issue and impact on overall activities and functions of the company. For Prime Furniture
this can be critical issue which is require to be address in order to sustain the probability and
effectiveness of the company.
Benchmarks: This is specific tool which mainly uses by organization to identify the
problem in relation to finance by comparing with other organization that can help to make the
strategic planning and complete task. Prime Furniture is using the Benchmarking tool in
identifying risk and getting the better solution that supports to run a business.
KPI: This is defined as indicator that relates to financial and non-financial. The
management of Prime Furniture uses this tool to analysis the performance and make the right
business decision that can help to increase the business productivity and profitability.
Financial Governance: This refers as way of collecting, managing and monitoring the
financial informations. It states the rules and policies which are formulated to analysis financial
problems and make efforts to prevent them. It formulates tight credit policies and regulations that
should be uses by Prime Furniture to operate the business and run the business.
Management accounting skill sets:
Skill set is the practices which involves characteristics, skills and traits of a person
(Rikhardsson and Yigitbasioglu, 2018). The management accountant is requires following skills:
 Accounting skills,
 Research
 Budgeting skills
 Time management
These can help to operate the business and set the all projects. The management
accountant of Prime Furniture uses such skills to deal with financial problem which they are
facing in business transactions.
Comparison between organisation and it uses of system for responding systems
Basis Tesco Sainsbury
Financial problem The company is facing the
problems related to the
shortage of resources of
products and services. This
This is supermarket is that
facing the problems of refusal
from the investor and due to
Covid-19 this has affected a

will lead to face certain issues
regarding their management
operations.
lot. This also impact
negatively on the probability
of business.
Identification of problems KPI is tool that used in
management to properly
identify the problem of
financial activities. This is
necessary to perform
accordingly and maintain the
effectiveness of management.
Balance scorecard is usually
used in this to evaluate the
financial problem. This also
facilitates in knowing the why
investors are not interested in
investment and performing
many plans to maximise the
profit.
Uses of system Inventory management will be
very beneficial to understand
and track the inventory in the
organisation and manage the
resources. It helps the
company to deliver the
solution to manager and uses
in decision-making process.
Cost accounting system must
be implemented by
management to critically
evaluate the cost in the
management. This helps in
maintaining the certain
investor and leads to achieve
the success in the company.
CONCLUSION
From the report it can be concluded that management accounting uses by all
organizations by analysing the financial information and managing task. Different types of
systems are cost accounting, inventory management, and price optimization system are uses to
set the business activities and taking right actions. Capital budget and operating budgets are
prepared by management that helps to control over budgets. Moreover, accounting systems can
be use by management to solve the financial problems.

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