Report on Management Accounting Systems at Prime Furniture Ltd

This report examines the management accounting practices of Prime Furniture Ltd., a medium-sized manufacturing firm. It defines management accounting, discusses various management accounting systems such as cost accounting and inventory management, and outlines the differences between management and financial accounting. The report delves into methods of management accounting reporting, including performance reports, budget reports, and inventory management reports, and explores the integration of these systems. It includes detailed cost calculations using both absorption and marginal costing methods to prepare income statements for two quarters, along with a reconciliation of the profit differences. The report also identifies various planning tools used for budgetary control and their advantages and drawbacks, and it compares how organizations adapt management accounting systems to address financial problems. The analysis provides a comprehensive overview of management accounting principles and their practical application in a business context.

Management Accounting

Table of Contents
INTRODUCTION.......................................................................................................................................3
TASK 1.......................................................................................................................................................3
P1 define the term Management accounting & also discuss various forms of systems.`related to MA?.3
P2 discuss various methods that are commonly used for the purpose of management accounting
reporting?................................................................................................................................................5
TASK 2.......................................................................................................................................................7
P3 make calculation of costs using suitable techniques of cost analysis to prepare an income statement
through adopting different cost related to absorption and marginal costs?.............................................7
TASK 3.....................................................................................................................................................12
P4 name various types of Planning Tools along with advantage and drawbacks Used For the pupose of
Budgetary Control?...............................................................................................................................12
TASK 4.....................................................................................................................................................16
P5 Make comparision that how organizations are tends to be adapting management accounting
systems for the purpose to respond various financial problems?...........................................................16
CONCLUSION.........................................................................................................................................18
REFERENCES..........................................................................................................................................21

INTRODUCTION
Every organization must evaluate all management accounting practices, which are
defined as a strategic procedure that is advantageous to maintaining internal data and aiding in
decision making for the company's welfare. All internal stakeholders, such as employees,
management departments, and leaders, are primarily concerned with whether or not the
organization maintains each and every operation and performance properly through adequate
management accounting. The main purpose of this report is to discuss the management
accounting system of Prime furniture Ltd., a medium-sized manufacturing firm that was
founded in 1992 and provides a diverse range of manufacturing products such as doors,
windows, table, chair , and other products in a variety of attractive designs. This London-based
firm serves the entire market. This report will examine management accounting, as well as its
effective system and reporting, as well as the proper application of cost approaches. This paper
also identifies the benefits and drawbacks of the various planning tools utilized in budgetary
control.
TASK 1
P1 define the term Management accounting & also discuss various forms of systems.`related to
MA?
Management Accounting
It is a systematic method that can aid in the performance, management, monitoring, and
control of all accounting functions. Managers can use management accounting to efficiently
analyze, discuss, and implement facts and information that will help them improve the
company's performance (Brierley, 2017). Prime furniture employs management accounting to
make it easier for the organization to keep track of and analyze relevant data.
Management Accounting System
It is a type of internal management accounting system that may be used to analyze crucial
data in order to make informed business decisions. Prime furniture Ltd. is a manufacturing firm
that primarily uses this system to manage process costing.

Difference between management and financial accounting:
Management Accounting Financial Accounting
 MA supply important data to
management as it helps to frame rules,
as well as formulate strategies that will
allow the organization to run smoothly.
 It has the ability to focus on the
company's internal operations.
 It includes both monetary and non-
monetary data.
 Such method of accounting is primarily
concerned to the statements that are
related to finance as it tends to assist in
the provision of financial information.
 • It may be more concerned with the
company's external sector.
 It just contains financial data.
Different Management Accounting System
Prime furniture Ltd considers a variety of management accounting systems, which are detailed
below:
 Cost Accounting System - This is a structural set of systems that can assist in recording
and reporting cost measures in the context of providing suitable service. This system is
used by Prime furniture Ltd to track and keep track of direct and indirect costs (Englund
and Gerdin, 2014).
 Inventory Management System -This is a methodical technique through which a
management may efficiently track product records throughout the whole supply chain,
from purchase to manufacture to final sales. LIFO, FIFO, and AVCO are three different
types of inventory management systems. All of these forms of inventory management
systems were evaluated by Prime furniture Ltd as ways to help maintain inventory in a
manufacturing organization.
 Price optimization system -This approach is mostly used to optimize the price of the
company's manufactured items. The system is primarily used by prime furniture Ltd, and it aids

in the preparation of a record for managing the pricing of products that are ready to be sold to
clients. The company established a certain pricing that will match the clients' expectations
(Ferramosca and Ghio, 2018).
 Job order costing system - This approach is mostly used to optimize the price of the
company's manufactured items. The system is primarily used by Prime furniture Ltd, and
it aids in the preparation of a record for managing the pricing of products that are ready to
be sold to clients. The company established a certain pricing that will match the clients'
expectations (Ferramosca and Ghio, 2018).
Benefits of Management Accounting System
 Planning – The primary objective of management accounting is accurate planning for the
future. During the planning phase, the manager of Prime furniture Ltd keeps track of all
product, market, and other pertinent information. Managers can define a clear goal using
particular facts.
 Goal setting - This is also thought to be the most important advantage of management
accounting. The management of Capital Joinery Ltd sets his or her goals and works hard
to keep his or her employees motivated in order to achieve them.
 Problem solving and decision making - Major may efficiently address their problem
about products, information, and other resources that can aid in the decision-making
process by using a specific Management accounting system (Fullerton, Kennedy and
Widener, 2014).
P2 discuss various methods that are commonly used for the purpose of management accounting
reporting?
Management Accounting Reporting
It is a systematic framework that can assist in the collection and maintenance of
management accounting reports, which primarily contain particular information about business
performance. The Prime furniture Ltd. uses a variety of management accounting reporting
methodologies, including budget reports, performance reports, and other managerial accounting
reports.
Methods of management accounting reporting

 Performance Report - The major purpose of this report is to keep track of the overall
performance. In a performance report, a company can keep track of its employees'
performance so that managers can make strategic decisions about their pay, incentives,
and compensation. This report is being considered by the management of Prime furniture
Ltd in order to improve the company's efficiency and effectiveness.
 Budget Report -. This is an internal report that keeps track of the company's entire
functioning and operations. Prime furniture Ltd mostly uses this reporting approach since
it is a vital way for evaluating employee performance by department. The company
creates a budget based on its earnings, investments, expenses, and other resources. The
company established a budget in a suitable manner so that the management may
efficiently handle day-to-day operations. Account Receivable Report –This strategy was mostly utilized to keep track of their own
client count. The corporation devised this reporting approach so that they could know
what products they were offering to their customers or clients. This strategy is used by
Prime furniture Ltd because it allows them to keep track of their clients and effectively
identify any amounts owed to them. This strategy aids in the maintenance of the credit
policy, allowing the organization to lower the risks of a late payment from a client.
 Inventory Management Report - The major goal of such report method is to look at the
inventory records kept by manufacturing organizations on a date-by-date basis. Prime
furniture Ltd used this strategy to keep track of inventory and be aware of what was on
hand so that they could efficiently transport and distribute their products to their
customers (Kaplan and Atkinson, 2015).
Integration of Management Accounting Systems & Its Report In Organization Process
The organization is considering a number of management accounting systems that can
aid in the proper maintenance of management accounting reports. In terms of the management
accounting system, it is widely agreed that the Pride optimization system is extremely
advantageous and valuable to Prime furniture Ltd. The system's primary goal is to determine an
appropriate price for the clients. According to the explanation above, accounting dependable
reports are highly beneficial since they can assist in tightening credit rules, allowing the

organization to quickly acquire the total amount from various clients without any payment
uncertainty (Kaya and Yazan, 2019).
TASK 2
P3 make calculation of costs using suitable techniques of cost analysis to prepare an income
statement through adopting different cost related to absorption and marginal costs?
Cost: The quantity or price spent by the manufacturer or vendor to market the company's
goods, i.e. goods and services, is characterised as an expense. This includes all expenditures and
overhead expenses, including operating costs, from the procurement of raw materials to sale and
delivery. As shown elsewhere on this website, costs come in a number of shapes and sizes:
Direct cost:: Direct labour, direct material, and working capital are examples of expenses
that may be traced back to the manufacturing process.
Indirect cost: Indirect costs include impairment, operational expenses, and other costs that are
difficult to link to a specific manufacturing line or cost item.
Fixed cost: A fixed cost or obligation is one that does not change or fluctuate in relation to the
volume of production. Even if the corporation does nothing, these costs must be covered, such as
interest, labour, and rent.
Contingent cost: Salaries and bonuses are examples of variable expenses that change
significantly with the quantity of output and appear to be zero when there is no change.
Here are the calculation of net profit by using both marginal and absorption costing
method:

Quarter 1
Particulars
Amount (in
￡)
Sales 66000
Less: Cost of sales
Opening inventory 0
production cost (78000*0.65) 50700
Less: Closing stock (12000*0.65) 7800
42900 42900
Contribution 23100
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit 1900
Quarter- 2
Particulars
Amount (in
￡)
Sales 74000
Less: Cost of sales

Opening inventory (12000*0.65) 7800
production cost (66000*0.65) 42900
Less: Closing stock (4000*0.65) 2600
48100
Contribution 25900
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit 4700
Reconciliation
Working note Q1 Q2
Variable costing profit 1900 4700
Opening inventory 0 7800
Closing stock 7800 2600
Absorption costing profit 4300 3100
Opening inventory 0 10200
Closing stock 10200 3400
Absorption costing for Quarter 1:
Particulars
Amount (in
￡)
Sales 66000

Less: Cost of sales
production cost (78000*0.65) 50700 0
Semi-variable (78000*0.20) 15600
Total Variable cost 66300
Less: Closing stock 10200
56100
Gross profit 9900
Less: -400
9500
Selling and distribution as fixed 5200
Net Profit 4300
Absorption costing for Quarter 2:
Particulars
Sales 74000
Less: Cost of sales
Opening stock 10200
COGS (66000*0.20) 13200
production cost (66000*0.65) 42900
Total Variable cost 66300
Less: Closing stock 3400
62900
Gross profit 11100
Less: selling expenses -2800
8300

Fixed expenses 5200
Net profit 3100
Working note
Fixed costs 16000
Budgeted cost of production
80000 per
units
Budgeted fixed cost 0.2
Variable cost per units 0.65
(b): Reason for analysing variations in profit
From the above calculation, it has been seen that both costing method are presenting
valuable differences in net profit. The main aspects which is vital to be taken into accounts is
related with the fixed overhead expense because of that these difference are arises. The same is
been presented underneath:
For the first quarter:
Overhead absorbed= (66000*0.20)= 13,200
Fixed overhead costs= 16,000
Under absorption: (2,800)
For Second quarter:
Total absorbed expenses: (74000*0.20)= 14,800
Fixed costs= 16,000
Under absorption= (1200)
(c): Reconciliation Statements:
It needs to be done by taking crucial difference those are arises in a project that can help
in reducing those gaps.
Particular Q1 Q2

Profit from absorption 4700 5900
-2800 -1200
Profits as from marginal 1900 4700
Working notes:
Fixed charges= 16,000
=66000*0.20= 13,200
Under absorption=(2800)
= 74000*0.20= 14,800
Fixed expenditure: 16000
Under absorption= (1200)
TASK 3
P4 name various types of Planning Tools along with advantage and drawbacks Used For the
pupose of Budgetary Control?
Budget
A budget is a financial plan and a financial forecasting tool that may be used to estimate
future income and expenditure. Essentially, a budget is created for a specified time period,
during which the corporation can examine the cost and margin of all goods and resources. Prrime
furniture Ltd creates a budget that can be used to determine financial transactions and track the
budgetary control system transaction and monitor the budgetary control system.
Types of Budget
The capital Joinery Ltd company considers many forms of budgets and discusses their benefits
and drawbacks, which are as follows:

 Capital Budget -This budget is an investment analysis that aids in the planning of long-
term investments such as new machinery, plants, items, and other resources. This budget
contained a significant capital investment for a specific time period in order to meet
future needs.
 Advantages - A capital budget is important for keeping track of all project investments
so that the manager can account for them. With the support of the budget manager and all
stakeholders, they may assess their company's performance in a proper manner.
 Disadvantages - Capital budgets comprise long-term decisions that are, by their very
nature, sometimes irreversible. The capital budget is entirely reliant on assumptions for
future forecasting, however the future is unclear
 Operating Budget - Operating Budget - This budget is derived from the projected and
estimated income and expenditures, which are entirely dependent on the company's
forecasted sales and profits. This budget was examined by Prime furniture Ltd in order to
determine the company's financial resources.
Advantages - It can assist the manager and guarantee that financial resources are used
properly. This weather is ideal for planning your company's routine operations.
Disadvantages - This budget required more time and had a more strict decision-making
process. In this budget, making changes to the figures and amounts is much easier (Maas,
Schaltegger and Crutzen, 2016).
Alternative Method of Budgeting
The description of alternative method of budgeting context of Capital Joinery Ltd are discussed
below-
 Zero Based Budgeting - ZBB budget starts from the ground up. Every spending is
fundamentally justified in a new period in this budgeting. Prime furniture Ltd employed
budgeting to reduce costs associated with their operations, which is why justification of
costs recorded and maintained in the book is important.
Advantage: It helps to eliminate unproductive and redundant activities. It is also
advantageous to identify opportunities in a more efficient and cost-effective manner.

Disadvantage - Because records might be tampered with by the firm manager, this
budgeting is not ideal for short-term goals.
 Cash only or traditional budgeting -Cash-only budgeting, also known as classic
budgeting, considers the inflows and outflows associated with cash payments and
receipts. Prime furniture Ltd considers this method of budgeting to maintain and keep
track of monetary resources.
Advantage - This method of budgeting makes it simple to analyse the loss in the
company's financial accounts.
Demerit- It has a limited ability for credit transactions, which is a disadvantage.
Behavioral Implications of Budget
Budget outcomes primarily evaluate the efficient allocation and utilisation of resources
because they can primarily comprise actual data and information rather than budget calculations.
Budgets are useful for increasing coordination and communication among all employees, which
can aid in the smooth operation of the business.
Pricing Strategies
It is vital to study and establish a specific pricing strategy in order to set a certain price for
the product and services. Prime furniture Ltd employs a number of strategies, which are detailed
below:
 Penetration Pricing Approach - This pricing strategy entails setting a very low and
minimal price at the start to help boost sales (Mohr, 2017).
 Premium Pricing Strategy: The firm uses this pricing strategy to set a high price for
units that are about to be sold to customers. In order to maximise earnings, the
corporation provides high-quality products at a premium price.

In the context of Prime Furniture Ltd, it is examined why corporations use penetration
pricing strategy for developed homes and other items.
How Competitors Determine Their Price
competitors, Like Howden's Joinery Ltd., set their cost of product according to the
current market scenario. Competitive pricing entails looking into a company's price strategy,
comparing it, and making changes to attract customers.
Supply & Demand Consideration
There are various suppliers and demand considerations to which Prime furniture Ltd
should pay more attention in order to achieve more beneficial outcomes. The market
environment, changes in social elements, and the country's economic status are the key factors
that influence supply and demand.
PEST Analysis
 Political - Political instability, taxation policy, trade regulation, and trade barriers are all
factors in this aspect. Prime furniture Ltd must pay greater attention to this element and
strictly adhere to government rules and regulations in order to have easy access to all
corporate operations and activities in terms of government policies (Oppi and et. al.,
2019).
 Economical - This element primarily consists of, inflation, economic growth,
employment rate, recession and various other factors, all of these are impact to the
business of Prime furniture Ltd. It also helps to develop a specific pricing strategy and
earn a higher profit margin.
 Social - Age, gender, education, religion, cross-cultural activities, customer purchasing
power, and customer preferences all have a role in this aspect Prime furniture Ltd
considers all of these elements and conducts market research to better understand client
preferences and needs (Petratos and Faccia, 2019).
 Technological - This aspect takes into account the most recent technology and
advancements that can benefit the company's marketing in a good way.
SWOT Analysis

Strengths Weaknesses
;
 The company has a successful pricing
penetration strategy that attracts
customers.
.
 The corporation considers low investment
in research and development activities to be
a factor affecting the company's
effectiveness.
Opportunities Threats
 The company can expand their
operation to another location, which
might be a tremendous opportunity for
growth.
 The manufacturing sector has a lot of
competition, which has an impact on the
company's performance.
Balance Scorecard
It is a method and approach for measuring performance management. This is a semi-standard
report that is largely used by management to maintain and track the executive's tasks. This
technique can help with the management and monitoring of the results of these specific acts.
TASK 4
P5 Make comparision that how organizations are tends to be adapting management accounting
systems for the purpose to respond various financial problems?
Essentially, a financial difficulty is a situation in which a corporation may encounter a
variety of challenges due to a lack of financial resources. It is important for the organisation to
investigate the sources of furniture difficulties and devise a viable strategy for resolving the
issue. Prime furniture Ltd is dealing with a number of financial issues, which are detailed below:
Sudden expenses

Prime furniture Ltd is mostly affected by this financial crisis as a result of inadequate
planning. Unplanned expenses can be considered by a manager to prevent proper resource
utilization.
Late payments by the customers
This difficulty also causes a slew of financial concerns that could make impact to Prime
furniture Ltd's operations. Customers refuse to pay, posing a threat to the company's regular
operations (Quattrone, 2016). It is vital to pinpoint the exact issue that is most prevalent in the
Prime furniture Ltd company. In terms of financial concerns, it has been determined that the
company has occasionally experienced late payment from their clients. To deal with these
problems, financial advisors developed a variety of approaches, which are detailed below:
KPIs
The term "key performance indicator" refers to a metric that is used to assess the overall
performance of a market. There are two ways to use these techniques: one is financial, in which
the company examines specific problems in the supply chain and other operations, and the other
is non-financial, in which the company examines specific problems in the supply chain and other
operations. Prime furniture Ltd made good use of these resources (Renz, 2016).
Benchmarking
It is the company's most influential measurement tool for analysing the performance of
their home theatre. This technology was used by Prime furniture Ltd to discover issues such as
late payment by customers. The company can devise a plan and strategy to address this issue.
Budgetary targets
It can aid in budgeting for the coming fiscal year. This technique is used by Prime
furniture Ltd to identify the difference between the real and standard figures in order to solve a
specific financial problem.
Financial governance

It consists of a collection of numerous financial rules that Prime furniture Ltd must
adhere to in order to lower the company's level of issues (Senftlechner and Hiebl, 2015).
Characteristics of an Effective Management Accountant
• Forecasting and planning skills are required of management accountants in order to develop
key solutions to specific problems.
• An effective management accountant should possess decision-making abilities as well as
critical problem-solving abilities in order to tackle any situation effectively.
Comparison
Basis Capital Joinery Groups Howden's Joinery Ltd.
Financial issues Inventory cost is so much high
which tends to raise overheads
expenses.
It is analysed that due to
insufficient amount of money
financial problems arise.
Techniques adopted to
sought the issues related
to finance
Key performance indicators used
by company to sought out
financial issues and also it tends to
become beneficial to measure the
actual stratus of organisation.
financial governance are
adopted by company and they
use the techniques to overcome
financial problems.
management accounting
role to resolve problems
In context of this company,
inventory management & price
optimisation system helpful to
resolve the problems in an
effective way.
This company adopt the
specific cost accounting system
that can help to understand the
main cause of the problems.

CONCLUSION
According to the research, management accounting is a vital component of today's
business since it provides important data and knowledge for decision-making, as well as
numerous methods and procedures for developing an appropriate strategy over the course of the
accounting term. Different types of MA systems are developed, such as price optimization and
cost accounting systems, in order to analyse the company's condition and create various reports
such as performance reports, budget reports, and so on.

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