Management Accounting Report: Cost Evaluation and Planning Tools

This report provides a comprehensive analysis of management accounting principles and their application within the context of Prime Furniture Ltd. It begins with an introduction to management accounting and its importance, followed by an evaluation of different cost types and the preparation of financial statements using both marginal and absorption costing methods. The report then delves into the evaluation of accounting techniques for producing relevant financial statements, along with their interpretation. Furthermore, it assesses the advantages and disadvantages of various budgetary control tools, including operational, cash, and capital budgets, and explores pricing strategies. Finally, the report examines management accounting methods for addressing financial problems, emphasizing the significance of financial plans for managing monetary resources. The conclusion summarizes the key findings, highlighting the crucial role of management accounting in business decision-making.

Management
accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 2............................................................................................................................................1
P3. Evaluation of different types of costs and preparation of financial statements using
marginal as well as absorption methods of costing.....................................................................1
M2. Evaluation of the techniques of accounting so as to produce a relevant financial statement
.....................................................................................................................................................4
D2. Interpretation and detailed evaluation of the prepared financial statements.........................4
TASK 3............................................................................................................................................4
P4. Detailed evaluation and analysis of the advantages and disadvantages of the tools of
planning of budgetary control......................................................................................................4
M3. Evaluating various planning tools and their application for forecasting budgets................6
TASK 4............................................................................................................................................7
P5. Evaluation of the method of management accounting that helps a firm to respond to
different financial problems.........................................................................................................7
M4. Solving of financial issues...................................................................................................8
D3. Importance of financial plans for planning and managing monetary sources which can
contribute in overcoming problems regards to finance...............................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Management accounting is one of the most essential as well as important aspect for each and
every business firm that is operating in the market irrespective of the industry in which it is
working because of the value that it carriers with itself (Chathurangani and Madhusanka, 2019).
It is related with managing accounts of the firm in an effective as well as efficient manner so that
it adds to the value of the firm in the long run. This report covers various aspects related to
management accounting and its related aspects like marginal and absorption costing in detail like
its techniques, types, products, etc. of the firm that is Prime Furniture Ltd. Apart from this the
report also includes accounting techniques used to analyse and evaluate financial statement and
its interpretation. Further analysis of planning tools in detail like its advantages, disadvantages,
other factors is also involved in this report.
TASK 2
P3. Evaluation of different types of costs and preparation of financial statements using marginal
as well as absorption methods of costing
There are various techniques that are related with micro economics and all of them are
discussed below in detail-
Cost- It is an amount that is paid by the firm or it can be said as the amount that is incurred
while producing a product or service that can fulfil the needs, requirements, and demands of the
society in the long run. It includes various other costs like fixed cost, variable cost, semi-variable
cost, real cost, contingency cost, and many other types of costs are also included in it.
Analysis of cost volume- It is one of the most important aspects as it helps in
determining the cost and volume proportion that could be used so as to increase the growth and
profitability of the firm so that it can stand ahead of its competitors.
Cost variance- It is an essential factor as it helps the company to analyse and evaluate
the deviation between the standard that has been set and the actual performance so as to analyse
the reasons for change so that it can be rectified accordingly. There are various methods
prevailing in the industry to calculate and evaluate these aspects but most commonly used is the
two approaches that is marginal and absorption costing and they are described below briefly-

 Absorption costing process- It is a costing process in which all the costs is included that
incurred in producing and manufacturing a product inclusive of all indirect as well as
direct cost like material, labour, rent, etc.
 Marginal costing process- It is a process of costing that is related with the total cost that
incurred included fixed, variable, and semi-variable costs and thus it possess a lot of
importance for all firms irrespective of the market in which they are operating (ElKelish
and Rickards, 2018).
Costing of products- It is very important as well as crucial aspect and there are various costs
included in it that are explained in detail below-
 Fixed cost- It is a type of cost that remains fixed during the operation of the firm and does
not change with output or with time.
 Variable cost- It is a cost that changes with the change in output that is it increases with
the increase in output and decreases with the decrease in output. It is also known as
output related costs.
 Standard costing- It is a method of costing in which a standard is set well in advance so
that the actual performance can be compared and evaluated on the basis of it and further
improvement can be done accordingly.
 Activity-based costing- As the name of it suggests it is related with the allocation of
resources to various activities according to the needs, requirements, and demand of that
particular activity or task.
Costing is an important part for each and every firm as it helps to analyse and evaluate
the reasons for deviation so that appropriate measure can be taken and that too within a
limited period of frame.
Stock cost- There are different types of costs that are related with stock and are explained in
detail below-
 Inventory cost- It is a type of cost that involves all the amount that has been incurred for
the production and manufacturing of a particular product like storage cost, price of
purchase, etc. there are various other costs that are subsequently involved in it and they
are price of buying the product, cost of carrying, ordering cost, and cost of recruiting.
Evaluation methods-

 First in first out method- In this method the product that comes first in the factors is sold
first that is it is given the priority among others.
 Last in first out method- It is a type in which the product that arrives last in the factory is
sold first that is last one is given priority.
 Weighted average costing method- In this method of costing average of all the product is
taken and after it the product is sold accordingly and it is the most used method in the
current scenario because of the value that it possesses (Galinova, 2017).
Calculations- Calculating of income statement using marginal and absorption costing as
discussed above of the firm that is Prime Furniture Ltd.

M2. Evaluation of the techniques of accounting so as to produce a relevant financial statement
There are different types of accounting techniques that are used by various firms according
to the need and requirements of the business but the firm that is Prime Furniture Ltd. Uses
absorption costing as it suits the firm pretty well and proved very beneficial for the company too
in improving its profit and growth and that too in the long run aspect.
D2. Interpretation and detailed evaluation of the prepared financial statements
It can be clearly seen from the above that company is performing commendably well in the
industry as the net sales of the firm was £ 840 in the first quarter while it increased to £ 940 in
the second quarter. But it is not placed very well in the industry as it is incurring heavy losses in
the market that is the loss for the first quarter was £ 980 whereas it was increased by a whooping
margin and rose to £ 6740 in the second quarter which is not a very good sign for the firm. There
can be various reasons for it and the firm have to analyse all of them so that it adds to the value
of the firm in the long run rather than destroying and destructing its position in the industry in
which it is operating (Georgiev, 2016).
TASK 3
P4. Detailed evaluation and analysis of the advantages and disadvantages of the tools of planning
of budgetary control
Budgetary management- It is one of the most important aspect as it helps to plan well in
advance about the decisions that can be taken for the allocation of finances in various different
activities so as to fetch the maximum result with it. There are different types of budget prepared
according to the needs of the firm and all of them are discussed below briefly-
 Operational budget- It is a budget that is very important as well as essential to prepare as
it is resulted with the day to day transactions of the business as in it a budget is prepared
so that it can prove beneficial for the transactions and activities that are done on a regular
basis. There are various advantages as well as disadvantages of this type of budget and
that has been explained below-
Advantages Disadvantages
 The most important benefit of this type
of budget is that it helps to keep a track
 One of the most important limitation of
this type of budget is that it is highly

of each and every business transaction.
 It also helps to develop an
understanding and communication with
other employees which helps in
increasing the profits of the firm
(Heinzelmann, 2016).
rigid as well as it takes a lot of time that
hampers the performance of the firm.
 Also it is very inaccurate at times and a
lot of effort is also required to
formulate it.
 Cash budget- It is a budget that is related with cash which is that it compromises of the
receipts as well as expenditures of a firm that is in the context of cash. It involves
revenues collected and payments that have been made and thus there are various
advantages as well as disadvantages of it that has been discussed below in an effective
and efficient manner.
Advantages Disadvantages
 This type of budget is very beneficial in
keeping a record of cash and its related
aspects so that in case of shortage or
excess of cash necessary and
appropriate measures can be taken
without any delay.
 It also helps to regulate the expenses of
a firm that is a very crucial aspect as it
can take a firm to new heights.
 This type of budget is very dangerous
and risky if goes in wrong hands as the
information can be misused and it
could create a lot of problems for the
company in the long run.
 It also limits and restricts the capability
to perform and thus is not
recommended by experts (Hoozée and
Mitchell, 2018).
 Capital budget- It is one of the most important as well as crucial and critical aspect for
each and every firm as in it capital related aspects are involved that is decisions related to
capital nature assets are taken and then a budget is prepared accordingly. There are
different disadvantages and advantages and that have been discussed below-
Advantages Disadvantages
 This type of budget is very important as
it helps in taking correct decisions
regarding the most prestigious assets of
the firm that are of capital nature.
 This budget is related with taking log
term decisions that are not predictable
as the market is dynamic in nature and
thus it makes it irrelevant in the current

 It also helps a firm to evaluate and
analyse correct and precise estimation
of these assets so that it can prove
useful for the company in the near
future (Horvat and Mojzer, 2019)
(Mitchell, 2017).
scenario.
 It is also very time and money
consuming and thus it is the reason
most of the firm does not like to
evaluate these types of budgets.
Pricing and its related aspects- Strategies used for pricing are described below-
 Cost-plus pricing
 High-low pricing
 Dynamic pricing
 Hourly pricing
 Competition- based pricing
 Skimming pricing
 Penetration pricing
 Freemium pricing
Strategic Planning-
SWOT Analysis- It is a analysis that is done to evaluate and analyse various aspects that is
strengths, weaknesses, opportunities, and threats and it can be done for anyone be it a firm,
organisation or an individual person, it is beneficial for all but have some drawbacks too and
both of them are analysed below-
 Benefits- This analysis is highly beneficial and it is used by almost each and every person
as it helps to identify various factors which carry the potential to improve profitability,
growth, and development and thus all takes it very seriously because of the value that it
possess (Mueller and Trost, 2017).
 Drawbacks- This analysis is highly time as well as fund coming and thus it is not
recommended by experts to all.
M3. Evaluating various planning tools and their application for forecasting budgets
There are a number of planning tools available in the market but only a carry the potential to
forecast budget in an effective and efficient manner and all these are done so that all the
decisions regarding business can be taken with utmost accuracy that would help the firm in
sustain in the market for a much longer time period as compared to its competitors.

TASK 4
P5. Evaluation of the method of management accounting that helps a firm to respond to different
financial problems
A business faces with various different types of problems that are majorly monetary
problems, errors in reports of accounting, insufficient protection of capital assets, etc. and all
have to be dealt in an effective as well as efficient manner so that it can lead to the firm to grow
and prosper in the long run rather than performing poorly in the market. There are various skills
of management accountant that can be used in order to deal with all the problems in an effective
manner and all of them are described below-
 Communication skills
 Leadership qualities
 Understanding of financial statement and accounts
These all can help a firm to achieve its targets and that too within a limited period of time.
Comparison of companies in order to solve financial issues-
Basis London beer factory Orbit beers
Monetary
issue
The firm has many irregularities and
this could definitely help the company
to solve them.
Assets of the firm are not evaluated
properly and it is the one that can help
it.
Accounting
system
Accounting system of the firm is very
rigid and with the help of it the firm
can grow and proper like earlier
(Muktiyanto, 2017).
Inventories of the firm are not
accounted properly and thus it is very
useful for the firm.
Techniques to
solve issues
The company uses mostly
benchmarking to solve its problems.
This firm uses predictor technology to
solve its major issues.
M4. Solving of financial issues
The firm that is Prime Furniture Ltd. Faces various types of financial problems like bad
accounting of its assets and inventories, reporting issues, etc. and management accounting

system can help it to achieve its targets but solving all the problems of the firm in an effective
and efficient manner (Nkundabayanga, Tauringana and Muhwezi, 2018).
D3. Importance of financial plans for planning and managing monetary sources which can
contribute in overcoming problems regards to finance.
One of the most important technology is the use of predictor one that can help all the firm in a
very tactful manner as it is very beneficial for each and every firm irrespective of the industry in
which it is operating (Oyewo, 2016).
CONCLUSION
From the above it can be concluded that there are various costs that are incurred and each
and every firm must take special measure so that it cannot hamper the working of the firm in the
long run. Apart from this it can also be concluded that management accounting system is one of
the most essential as well as important aspect and the firm that is Prime Furniture Ltd. Must used
in so as to improve the condition of the firm as it helps in increasing the profitability and growth
of the firm and that too within a limited period of time period.

REFERENCES
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(USALI) for the Purposes of Financial and Management Accounting. Izvestiya. Journal
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accounting. Accounting in Europe. 13(1). pp.103-120.
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systems? An exploratory study. Australian Accounting Review. 28(3). pp.374-390.
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Decision-Making of Management. Naše gospodarstvo/Our economy. 65(2). pp.11-20.
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Pragmatic Constructivist Approach. pp.272-279.
Mueller, D. and Trost, R. eds., 2017. Game Theory in Management Accounting: Implementing
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Nkundabayanga, S., Tauringana, V. and Muhwezi, M., 2018. Management accounting practices,
governing boards and competitive advantage of Ugandan secondary schools. The
International Journal of Management Education. 32(6). pp.958-974.
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