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: