Management Accounting Report: Cost Analysis, Systems, and Budgets

This report delves into the core concepts of management accounting, examining its crucial requirements and diverse systems, with a specific focus on UCK Furniture. It explores the integration of management accounting (MA) systems within organizational processes, emphasizing the importance of timely and relevant information for managerial decision-making. The report analyzes cost accounting methods, including marginal and absorption costing, with detailed calculations and the preparation of income statements. It also covers the application of various management accounting techniques and the creation of financial reporting documents. Furthermore, the report discusses budgeting, its purpose, and how organizations adapt management accounting systems to address financial challenges. It concludes with an evaluation of planning tools and an analysis of how management accounting can enhance financial performance and ensure sustainable success. The report includes cost cards, income statements, and working notes to illustrate the concepts discussed.

MANAGEMENT
ACCOUNTING

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Section one.......................................................................................................................................3
1.1 Management Accounting and crucial necessary requirements its multiple systems:............3
1.2 Management Accounting Reporting:.....................................................................................5
1.3 Evaluation of benefits of Management accounting systems:................................................5
1.4 Critical evaluation about how MAS and MA is united within organisation’s processes:.....6
Section Two.....................................................................................................................................6
2.1 Cost card using marginal costing:..........................................................................................6
2.2. Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs:..........................................................................9
2.3 Accurately apply a range of management accounting techniques and produce a financial
reporting document:...................................................................................................................11
(a)...............................................................................................................................................11
(b.)..............................................................................................................................................12
3.1. Define and explain the purpose of budget:.........................................................................13
4.1 Compare how organisations are adapting management accounting systems to respond to 19
financial problems:....................................................................................................................19
4.2. Analyse how management accounting can help improve the financial performance of both
...................................................................................................................................................22
companies to achieve the sustainable success:..........................................................................22
4.3 Evaluation of the planning tools:.........................................................................................22
REFERENCES..............................................................................................................................25

INTRODUCTION
Management Accounting contains the procedure of summarising management reports as
well as statements that support to offer reliable and prompt budgetary and fiscal information
needed by senior management to undertake important financial choices. Apart from financial
accounting, which offers annual accounts, management accounting offers regular accounting
updates within the company for users on a regular basis like administrative executives and
managing director (Akbar, 2010). The study report discusses about multiple core elements of
management accounting and its systems in relation to UCK furniture. It also involves
calculations and explanation about planning tools along with comparison of two entities as to
adoption of MA systems.
TASK
Section one
1.1 Management Accounting and crucial necessary requirements its multiple systems:
Managerial Accounting is method of bringing financial reports into the framework. This is
dedicated to information actually required by organizational administration. In simple words,
management accounting is collection of procedures and processes targeted at presenting
information for the managers, taking decisions effectively and retaining good control of
enterprise resources (Callahan, Stetz and Brooks, 2011). Through this
mechanism entity's internal financial dept exchanges records and details (like balance sheets and
payslips) with managers of the organization. The managers use these reports and details to render
informed and reliable business operations, organization, and business productivity decisions.
Main perquisite of management accounting is adoption of systematic framework which
consists of several key processes which enable managers to take effective business decisions.
This also require collection, processing and transmission of critical information for managerial
decision making.
MA is mostly important in providing timely, relevant and effective information to top
management and other key managing personnel. By offering guidance on future expenses and
sales, management accounting makes important contributes to the business's funds forecasts and
long term of fiscal planning. This also provides mentor the cycle of planning, tracking and
managing the budget according to defined strategies and processes. Management

accounting helps to align performance expectations and organization expectations or forecasts
for actual results/outcomes, and evaluate any variances. It is achieved by means of a technique
recognized as the analysis of variation.
The organisations can maximize their degree of efficiency in handling the business
records and records in a smarter way with aid of management accounting
systems. Different system renders the information processing simpler for corporation. MA
system leads to the creation of successful strategic strategies. This lets the organization create
more realistic strategies so that they could better strengthen their performance levels. MA system
is quite helpful when it comes to properly managing the actual expenses of the company. This
specific program helps to recognize the companies 'perfect cost management including cost
controlling approaches which helps to boost the enterprises' performance level.
Inventory management system: It is mainly a practice that defines the configuration and
placement of the raw materials, finished goods, processed goods in storage. It is feasible to
implement the normal and prescribed path of operation and storing of products promptly at
different locations with aim to safeguarding these stock items. This is a system cantered on
a technical method like LIFO, FIFO etc. that are used to track manufacturing levels, orders,
shipments and sales (Hopper and Bui, 2016). In certain scenarios, this method is utilized in the
manufacturing field to generate a purchase order, bills of items, as well as other product-relevant
services. For UCK Furniture it is primarily necessary to use this system in order to suppress
over-storage and often under-stocking concerns throughout inventories handling processes.
Job costing system: This is regulated system of evaluating the costs or expenses they pay
on a single job which is relevant for organization. The framework is widely employed
for allocation of expenses for particular projects of a company. Many companies utilizing this
accounting method to fix specific costs for every job which is effectively needed to lower
manufacturing costs that further lead to optimizing UCK Furniture business's competitiveness as
well as increasing profitability.
Price optimisation: This approach is employed against buyer desire to pay to achieve the
optimal spot pricing or demand maximisation. Company devotes a substantial period to demand
control and ensuring that their products are distributed effectively at the appropriate prices while
also making rational profits. Complying with commercial priorities is necessary for UCK

Furniture to match its customer expectations related to price and demand. In UCK this by this
system entity can fix effective price of products at which demand and profit margin is maximum.
1.2 Management Accounting Reporting:
Cost Report: Costs are determined under this report based on the charges of materials,
wages, overhead costs and other costs/expenses. The overall costs involved in the processing
or manufacturing are divided by the amounts of units processed to come at unit cost. Cost reports
incorporate all details to help managers determine the cost per unit of manufacturing goods to
include an internal accountability framework. In UCK furniture this report is used by production
managers to asses the cost of each manufactured furniture item.
Job Cost Reports: Job cost reports usually imply costs on a particular kind
of job/task that company is undertaking. These are commonly paired with revenue forecasts such
that managing staff can measure the effectiveness of the task/job. In UCK furniture, it allows
them acknowledge the company 'greater-earning zones so that it should concentrate more
attention on tasks with minor earnings levels rather than wasting efforts and energy there.
This report used to review costs as specified job is under way so that excess factors can be
corrected until costs grow out of grasp.
Inventory Report: This essential report is used by almost all the organisation specially
manufacturing concerns like UCK which have wide amount and range of inventories. This
contributes in managing each single items of inventory within entity. This report classifies all the
inventories items based upon their specific importance, cost and process or division. It also
defines basis of measuring of cost of different inventories. In UCK, this report is used by
different units of manufacturing to assess the ultimate value of stock left at the end of a certain
period which may be daily, weekly, monthly or yearly as per the requirement of corporation.
1.3 Evaluation of benefits of Management accounting systems:
Systems Major benefits
Inventory Management System In UCK, this system benefitable for managers
to assess or evaluate the accurate cost of
different range of inventories as well as to
recognise the need of placing order. This also
helpful in pointing out areas which are leading

to increased cost of different inventories.
Job Costing System In UCK, this system is beneficial in several
units which are working on project basis to
establish accountability and asses the cost of
different jobs lined with project.
Price Optimisation This is quite beneficial of UCK in setting
effective and efficient prices for its products
that also ensure maximum demand and
sustainability in profitability margin. It also
provides competitive advantages by assisting
in determining prices’ effect on specific
product item demand (Lavia López and Hiebl,
2014).
1.4 Critical evaluation about how MAS and MA is united within organisation’s processes:
Multiple operations and processes act as core ground of different systems of MA as
organisational processes develop base for adoption of these systems. Outcomes of different
processes of organisation are essential requirements of aforementioned systems. As in UCK,
production, accounting and finance processes are carried out by managers which provides key
information and reports to price optimisation systems and inventory management system like
cost details, inventory status, demands and other accounting or fiscal information (Leitner,
2013). Thus, is essential to integrate all the processes with MA systems.
Section Two
2.1 Cost card using marginal costing:
January February
Particulars Amounts
(GBP)
Particulars Amounts
(GBP)
a) Units Produced
(11000)
Units Produced
(9500)
b) Sales Price Per Desk 35 Sales Price Per Desk 35

c) Variable cost per desk:
Direct Material
(4kg X 3 pounds/desk)
Direct Labour
(4 hrs X 2 pounds/hr)
Variable Overhead
Variable Sales Overhead
12
8
5
1
Direct Material
(4kg X 3 pounds/desk)
Direct Labour
(4 hrs X 2 pounds/hr)
Variable Overhead
Variable Sales Overhead
12
8
5
1
d) Contribution 9 Contribution 9
Total Contribution 99,000 Total Contribution 85,500
e) Fixed Costs:
Production Overhead
(NOTE 1)
Sales Overhead
22,000
2,000
Production Overhead
(NOTE 1)
Sales Overhead
19,000
2,000
f) Profit (d-e) 75,000 Profit (d-e) 64,500
Cost card using absorption costing:
Particulars January February
Sales (A) 315000 (9000*35) 402500 (11500*35)
Cost of Goods Sold:
Direct Material 132000 (12 * 11000) 114000 (12 * 9500)
Direct Labour 88000 (8 * 11000) 76000 (8 * 9500)
Variable Production cost 55000 (5 * 11000) 47500 (5 * 9500)
Fixed production cost 22000 (2 * 11000) 19000 ( 2* 9500)
Over absorption (2000) (2000)
Loosing stock (27 * 2000) (54000) (54000)
Total (B) 241000 200500
Profit (A-B) 74,000 202,000
Working note 1

Production overhead is considered taking into account average production each month, i.e. 10000
units.
Therefore, for the month of Jan. overhead would amount to = (20,000 / 10,000) * 11000
Thus, for the month of Feb., the overhead would amount to = (20,000 / 10,000) * 9500
(b)Explain the potential merits and demerits of the both methods.
Marginal costing method- This can be understood as a type of accounting technique
which is linked to taking fixed cost as cost of period and variable cost as cost of product. It has
some benefits and drawbacks such as:
Benefits: This reduces the level of expenses recover or under recovery because fixed overheads
are separated from production costs (Renz, 2016).
Drawbacks- Cost division into fixed and variable is a challenging task. Fixed costs should not
allow into consideration semi-variable or semi-fixed expenses.
Absorption costing method- It is variant in nature as compared to marginal costing method. In
this fixed cost and variable costs are taken as cost of product. Underneath, its benefits and
drawbacks are mentioned:
Benefits- One of the major benefits of taking absorption costs is that GAAP is compliant and
essential in this method.
Drawbacks- It is not beneficial for operational efficiency (Otley and Emmanuel, 2013).

2.2. Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs:
For the period ending February
Revenue
Revenues for January 385000
Revenues for February 332500
Total revenue (A) 717500
Cost of goods sold
Cost for January 308000
Cost for February 269000
Total Cost of goods sold (B) 577000
Net income(C= A-B) 140500

Descriptions Descript
ions
Amount
(GBP)
Descript
ions
Amount
(GBP)
Units produced 11000 9500
a) Direct Material
(4kilo-
gramx3p
ound/kil
o-
gramx11
000)
132000
(4kilo-
gramx3p
ound/kil
o-
gramx95
00)
114000
b) Direct Labour
(4 hours
x
2pound/h
ours
x11000)
88000
(4 hours
x
2pound/h
ours
x9500)
76000
c) Variable Overhead
(5GBP/d
eskx110
00)
55000
(5GBP/d
eskx950
0)
47500
d) Prime Cost 275000 237500
e) Production overhead 20000 20000
f) Cost of goods produced 295000 257500
g) Variable revenues cost
(1pound/
deskx11
000)
11000
(1pound/
deskx95
00)
9500
h) fixed selling cost 2000 2000
i) Cost of Goods sold 308000 269000
Workings- Cost of Goods sold January February

In accordance of above prepared income statement under marginal costing, this can be
finding out that value of net profit is 75000 pounds for month of January and 64500 pounds for
month of February. On the other side, under absorption costing method profits are 74000 and
202000 for similar time span.
2.3 Accurately apply a range of management accounting techniques and produce a financial
reporting document:
The MA has a broad variety of accounting methods and reports that fit with the method
and activity of the firms. The techniques which are used under report are absorption and
marginal. Each of them is useful for preparation of income statement. Though both have
different way to consider the costs (Kotas, 2014).
(a)
Month Hours
Spent Expenses
January 630 7960
February 505 7410
Mar 705 8285
April 555 7535
May 780 9110
June 795 9820
Highest number of hours = June =
795
Lowest number of hours = February
= 505
Variable cost= (9820-7410)/(795-
505)
Variable cost= 8.310345 GBP per
unit

fixed cost= 9820 - (795x8.31)
fixed cost= 3213.55 GBP
expenses for july= 3213.55 +
(650x8.31)
expenses for july= 8615.05 GBP
expenses for august= 3213.55 +
(750x8.31)
expenses for august= 9446.05 GBP
(b.)
Opening
Inventories
0
Purchase 100
Units
10 1000
200
Units
11 2200
130
Units
13.84615 1800
LIFO
130 13.84615 143.85
200 11 2200
70 10 700
Cost of Goods Sold 3043.85
Value of closing stock (30 x 10) 300
FIFO
100 10 110
200 11 2200