Management Accounting Report: Costing Methods, Budgets, and Analysis

This report delves into the core aspects of management accounting, focusing on a case study involving UKC Furniture. It begins by exploring various costing methods, including absorption and marginal costing, calculating costs and analyzing their impact on profitability. The report then examines different management techniques and planning tools, such as forecasting and contingency tools, evaluating their advantages and disadvantages, and applying them to budget analysis. Furthermore, it includes a detailed analysis of expenses, specifically for July and August, and constructs cash budgets. Finally, the report provides a comparative analysis of UKC Furniture's financial performance against a related company, identifying key financial issues and recommending solutions through the use of financial governance and key performance indicators. The report highlights the importance of effective accounting systems in analyzing financial performance and driving growth.

Management Accounting
PART 2

INTRODUCTION
Management is one of the valuable aspects for an organisation which is used by the
company to analyse their financial performance as well as growth opportunities in coming
period of time. In accordance to deal with all these issues managers are looking to use
effective accounting systems that are help them to summarise and record all their day to day
expenses or cost those are incurred during the time of production process (Amoako, 2013).
Apart from this, uses of costing methods that are help them to evaluate net profit for the
company. Along with that advantage and disadvantage of using planning tools that can help
in controlling budgets. Comparison with other organisation regarding adoption of accounting
system that can help them to resolve financial issues are covered under this report.
TASK 1
1.1: Calculation of cost by using various methods
Cost is said to be the value which is given for the purpose of getting something in
return. It is simply that are aspects which is considered while the production of products and
services within an organisation. A business would be raise as capital from different sources
such as equity and other crucial sources. The capital is more invested in different projects of
an organisation in accordance with producing sufficient amount of goods. Costing is said to
be systematic procedure of evaluating total cost of UKC furniture in investing over the
production process with the present cost of capital (Brewer, Sorensen and Stout, 2014). The
management of analysis is reliable with the amount to select the accurate option that would
be delivering more effective results for the company. Cost is either related directly or
indirectly with manufacturing process in more effective manner. There are various types of
costing that are related with UKC furniture business operations. Some of them are mentioned
below:
Absorption costing: It is said to that cost which is applicable over the period of time
in producing product for the company. It includes both variable as well as fixed cost because
of which they are known as full costing method. It has been seen that they are some many
benefits of using this costing. But at the same point of time, certain limitation of using this
cost is also affecting the net profitability position of the company (Absorption costing, 2018).
This seems to be not considered as that much effective for making crucial decision making.

Marginal costing: It refers as those cost which are applicable additional on the
production of goods and services within an organisation. It consists of certain variable while
evaluating overall contribution per units during the period of time. Because of which, it is
said to be period costing method. It is more effectively taken into account for making future
decision as chances of mistakes can be less (JOSHI and et. al., 2011).

Computing net profit by using marginal costing (January)
Particular Amount Total
Sales (35*9000) 315000
Variable cost:
Opening inventory 0
Direct Material (12*11000) 132000
Direct labour (8*11000) 88000
Variable OH (5*11000) 55000
Closing inventory (25*2000) -50000 -225000
Variable selling cost -9000 -9000
Gross profit 81000
Fixed cost:
Fixed prod. Cost 2000
Fixed selling cost 20000
-22000
Net profit 59000
PARTICULARS February
Sales (35 per unit) 402500
less:
Opening stock 50000
Direct material (12*9500) 114000
Direct labour (8*9500) 76000
Variable overhead (5*9500) 47500

Closing stock 0
Variable selling cost -11500
COP 287500
Gross profit 103500
fixed manufacturing overheads 20000
Fixed Admin & selling cost 2000
total fixed costs 22000
NET INCOME AS PER MARGINAL COST 81500
1.2: Large range of management techniques
In accordance with the growth and financial stability of business entity, it is essential
for UKC business to ensure effective utilization of techniques which are held responsible for
presenting more strong results for an organisation. This examines the incapability of the
company that company is not able to achieve their valuable outcomes in case they are not
using profitable accounting methodology in eveluatring and regulating the operational
activites of the organisation. Several are mainly useful to measure the present financial
performances of UCK furniture like marginal as well as absorption costing. With the help of
marginal costing chances of getting more valuable outcomes can be more easily attain before
the set time limits (Klemstine and Maher, 2014). Apart from this, historical costing
techniques are also so effective for the current business operations. Through this, additional
cost that are incurred on the production process can be controlled during the time of
manufacturing process.
1.3: Analysis of data collected from income statement
It is vital for UCK group of company to choose right kind of techniques which are
useful in incurring more reliable outcomes in accordance with net profit during the period of
time. In relation of UCK furniture business they are having various options for calculating net
profitability of the company. There are various outcomes can be different from either of the
costing method such as absorption and marginal costing. It has been determine that with the
use of marginal costing 133500 and by using absorption they are getting 134210. It means
that company need to go with marginal costing method as the profitability is much more
higher from the absorption costing.

TASK 2
2.1: Advantage and disadvantage of using planning tools
Budget is said to be an estimation of overall expenses and cost which a company is
going to plan in accordance with increase profitability of the company. There are various
types of budgets such as sales, production and flexible budgets that can assist in overall
strategic formulation of the company. In order to control the impacts of budget certain
planning tools are needed to be taken into account. Some of them are mentioned below:
Forecasting tool: According to these particular tools and techniques which can be more
reliable through an individual to predict upcoming profits and loss for UCK furniture that
plans to generated by utilising the present resources. It cab easily perform with the help of
using past record and early to prepare plans of future losses.
 Advantage: It is primarily beneficial of using these specific tool that are valuable for
estimating total cost and expenses in more reliable manner. It seems to be more
reliable in making upcoming decision those are made for the purpose of earning
maximum revenue during the period of time (Lim, 2011).
 Disadvantage: It has been found that estimation of future business risk cannot be
predicated accurately because of qualitative nature of business operations.
Contingency tools: It is said to be particular effective tools, mainly used in order to
evaluating several categories of business risks which are un-identical for the company. This
examines that various crucial aspects by a company can control their operational risks.
 Advantage: According to these particular tools which a company is able to examine
the total loss they are going to get after the formulation of budgets. This planning
tools control all the associated risks those are affecting the business (Tessier and
Otley, 2012).
 Disadvantage: There are certain demerits of using these particular tools, in case of
any urgency kind of situation, it get failed to overcome the issues. It is more time
taking activity that required prior permission from the top level management.

2.2: Analysis of the expenses for July and August
In accordance with calculating all the essential variable cost per units various types of
methods are taken into account. It is vital for the manager to examine high and low activity
process.
(Total expenditure of high activity – Expenditure from low activity)
Total cost=
(Highest activity per hour spend – Lower hour spend)
Total expenditure (Per units): (9820-7410) / 795-505)=8.31
Total expenses for July:
= 650*8.31= 5401.5
For August:
= 750*8.31= 6232.5
2.3: Objective and cash budget
In accordance to make valuable budgets that are prepared by UCK furniture, it is
essential to make use of data more effectively so that plenty of growth opportunity can get
enhance in stronger manner. By the help of cash budget company can easily able to analyse
total investment they are made on the various activities such as operating, investing and
financing. It is basically related with forecasting of gains and loss statements which is
considered as primary tool for the company. The basic motive of preparing budgets is to
examine productivity as well as plan to control the additional cost they are going to pay
during the period of time. This seems to be calculated as sum total amount which is taken into
account for a specific motive as per the decision made by the company (Van der Stede,
2015).
Expected Cash Collection Budget
Particulars July (£) August(£) September(£)
Cash Sales 19000 29000 39000
Credit Sales:
July 5600*10% 560
5600*80% 4480

5600*7% 392
August 5520*10% 552
5520*80% 4416
September 8400*10% 840
Total 19650 34032 44648
Expected Cash Disbursement Budget
Particulars July (£) August(£) September(£)
Payment for August 15000
September purchases 4800
Total expected cash disbursement 19800
Total 39600
Cash Budget
Particulars July (£) August(£) September(£)
Opining cash balance 0 0 9000
Cash Collection 44648
Total Available Cash 53648
Cash Disbursement -19800
Selling and Administration(13000-4000) -9000
Equipment Purchase -18000
Dividend -3000
Available Cash 3848
Borrowings 1152
Closing Cash Balance 5000

TASK 3
UCK Furniture’s UCK WOODWORKDS
This particular company is associated with the
production of DESK.
The major purpose of this group is to supply all
the essential raw material to UCK furniture
which is used in production of goods.
ROCE ratio is 17.24%, it means that company
is getting more reliable outcome as return from
the overall capital investments.
In this, only 8.6% is generating this much
returns as collected in the year 2017.
The Assets turnover ratio is 0.68 time rotating
in the given year. It has been calculated with
the motive of analysing performance of the
company.
Only 0.10 time inventory of UCK furniture is
rotating during the period of time.
3.2: Evaluating financial issues faced by UCK furniture
It is essential for every company to make analysing of various financial issues those
are associated with the company. It cans directly impacts on the profitability position of an

organisation. In order to resolve all those issues, managers would need to make use of below
mentioned tools. Some of them are mentioned below:
KPI (Key performance indicator): It is one of the crucial financial tools which will
be use by the company to determine financial position of the company. It can evaluate by
taking financial information from last year statements.
Financial governance: It is basically more effective financial tools that will be
considered for evaluating financial position of the company. It is based on certain rules and
regulations that are planned by legal bodies to regular their business more effectively in near
future time (Zoni, Dossi and Morelli, 2012).
3.3: Analysis of planning tools that is used in management accounting
In respect to analyse the overall profitability level of the company planning tools are
taken into account. The budgets are need to evaluated before ordering any kind of production
related plan so that they can earn maximum profit for the company. In accordance with
controlling budgets more of the business entity requires to utilise the planning tools.
Forecasting tools which can be termed as more compelling tool, is utilise for the purpose to
predict and estimates the efficiency position of entity. Contingency tools are more effective
planning tools that is used in controlling business related risks.
CONCLUSION
On the basis of presented report, it has been concluded that managrerial accounting
refers to primary aspect for evaluating the overall growth of the company. It is relatively use
to attain more profitability in near future time, company need to analyse total cost they are
getting in to use while production process. Merits aas well as demerits of utilising planning
tools to control budgets are done accordingly. This will help the company in attaining future
acheivements and sustainable growth for the business organisation.