Detailed Report on Management Accounting for Prime Furniture Limited

This report provides a comprehensive analysis of management accounting principles and their application within Prime Furniture Ltd. It begins with an introduction to management accounting, emphasizing its importance in decision-making and improving company performance. The report then delves into various management accounting techniques, including cost variance, absorption costing, marginal costing, and activity-based costing, illustrated with examples specific to Prime Furniture. It explores planning tools like benchmarking, forecasting, and contingency planning, comparing and contrasting their advantages and disadvantages, and highlighting the role of management accounting in financial stability and problem-solving. The report also examines how Prime Furniture addresses risks and uncertainties using management accounting systems and compares its approach with other organizations. Furthermore, the report evaluates planning tools to maintain sustainable success and uses case studies to compare management accounting applications in different organizations. Finally, the report includes the preparation and interpretation of profit and loss statements using absorption and variable costing techniques, reconciling figures and explaining profit differences. The report concludes with a summary of findings and a list of references.

Management
accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 2............................................................................................................................................1
1. Introduction of management accounting and its importance in the decision-making process
for improving the performance of the company..........................................................................1
2. Explain the different types of management accounting techniques used in an organisation
and give some example in context of Prime furniture.................................................................2
3. Planning is the backbone for the success of any organisation. You need to compare &
contrast three different planning tools which Prime Furniture applies to ensure financial
stability and performance as well as ways in which management accounting has played a key
role in preventing and solving financial problems......................................................................3
4. Explain the advantages and disadvantages of different types of planning tools for Prime
Furniture......................................................................................................................................4
5. There are uncertainties and risks while running businesses, how does Prime Furniture use
management accounting systems to respond to these risks and uncertainties and other financial
issues. Compare it with some relevant organisation....................................................................5
6. Analyses and evaluate how management accounting planning tools that would help Prime
Furniture Ltd. to maintain a sustainable success.........................................................................7
7. Using specific case studies as example compare ways in which management accounting is
applied, the effectiveness of management accounting in dealing with financial problems and
preventing financial problems in organisations...........................................................................7
8. Using the Absorption and Variable costing techniques prepare and present two separate
Statements of Profit or loss (Income statements) based on the data given below for each of the
two quarters. You should clearly show how the costs were calculated under each of the
costing technique. You also need to reconcile both the figures and interpret data. Explain with
supportive calculations, why the profits under each technique are different..............................8

CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting is one of the most critical as well as crucial aspect for each and
every firm that is operational in the market as it helps in managing the accounts of the business
and the transactions that are done on a daily basis so that it can add value to the firm in the long
term scenario (Abou Taleb and Al Farooque, 2021). In this report there is a detailed discussion of
various factors that are related to management accounting for the firm named Prime Furniture
Ltd. Like its importance, decision making process, different techniques, comparing different
planning tools so as to ensure financial stability, advantages and limitations of various tools of
planning, comparison of the above mentioned company with other organisation so as to evaluate
the measures that it takes to overcome all the financial problem, and management accounting
tools of planning that helps the company to achieve sustainable success. Apart from the above
this report also includes an elaboration of the methods and techniques that it uses so as to prevent
problems that are related to the financial part of the organisation. Further the report also includes
calculation of facts and figures of the company by using appropriate and suitable technique so as
to evaluate and analyse the true financial position of the company in the long run.
TASK 2
1. Introduction of management accounting and its importance in the decision-making process for
improving the performance of the company
Management accounting is one of the most important tools as it helps in identification,
recording, summarising, and evaluation of important data so that the company can perform in a
systematic as well as in a sequential manner so that it can help the firm to grow and prosper in
the industry in which it is operational. Since the organisation that is mentioned above which is
Prime Furniture Ltd. is working on a large scale and thus it becomes even much more essential
for it to manage its accounts in an accurate and precise manner so that it can prove beneficial
from the company’s point of view. Thus the enterprise which is mentioned above gives a lot of
attention to its management departments and employs personnel’s with high qualification and
experience so that they can contribute in the working of the firm in the long term (Adams and
Larrinaga, 2019).
Decision making is one of the most essential aspects of management accounting and it is
very important too as it helps in taking appropriate decisions about the fund that is required in

the business and proper and precise allocation of the available resources so that it can help in
reducing the cost so that profitability level can be increased gradually. Prime Furniture Ltd.
managers use the financial information to analyse the requirements of the business so that
decision can be taken about various factors like the sources of funds, making accurate budgets,
etc. so that the company can improve its positioning in the market and that too within a short
time period.
2. Explain the different types of management accounting techniques used in an organisation and
give some example in context of Prime furniture
Different techniques that are related with management accounting are discussed below
briefly-
Cost variance- In this aspect the variance or deviation between the expected and the
actual is analysed and evaluated so that the reason can be find out so as to implement necessary
rectification measures that can lead in uplifting the firm mentioned above in the long run. There
are different methods that are included in it but the most important ones are discussed below in
detail with context of Prime Furniture Ltd-
 Absorption costing process- It is a process of costing that is related with the cost that is
incurred on manufacturing and producing goods and services that includes all types of
costs whether direct or indirect all are included in an accurate and precise manner
(Altukhov, Predeus and Predeus, 2019).
 Marginal costing process- It is a costing process which includes all the cost that is
incurred while producing a product and the cost is generally known as total cost that
includes three types of costs that is fixed, variable, and semi-variable in nature.
Costing of products- There are a number of different costs that are included in this aspect
and all of them are elaborated below in a systematic and sequential manner with reference to the
ones that are used in Prime Furniture Ltd-
 Fixed cost- This type of cost remains fixed no matter what is the level of production of
the firm since it incurs if there is no production and it doesn’t changes with time or the
output.
 Variable cost- This type of cost changes but in proportion with the output and it will
never incur if there is no production and its decreases with the decrease in output and
increases with the increase in output.

 Standard costing- In this type of costing method a standard is set so that all the activities
are directed towards the achievement of the desired goal and in case it is not then the
deviation and the reason for that is evaluated and analysed so that necessary adjustments
can be made within the organisation so that it can help the firm to grow in the market.
 Activity-based costing- It is a type of costing in which resources are allocated according
to the job performed by them so that unnecessary wastage can be reduce which can help
the company to increase its profitability (Barr-Pulliam, 2019).
Costing is very crucial for each and every firm since it helps in identification of the loop
holes within the business so that necessary steps can be taken which can help in accomplishing
the desired results and that too within a short time frame for Prime Furniture Ltd.
Stock cost- The different stock cost that is explained below-
 Inventory cost- It is a cost that includes all the expenses that are made on the stock over
a period of time starting from its procurement to its selling all the different natured costs
are included in this head. The company mentioned above analyses all these cost in detail
and set its price competitive so that it can survive in the market while making
considerable amount of profits.
Evaluating methods-
 First in first out method- This is related with selling the product that comes first in the
store as it is given high priority from all the others.
 Last in first out method- In this method the last one is given priority as in it the product
that arrives last will be sold first.
Weighted average costing method- This type of method is related with making an average of
all the products cost and then selling all of them at a same price level (Bloom, Sadun and Van
Reenen, 2016).
3. Planning is the backbone for the success of any organisation. You need to compare & contrast
three different planning tools which Prime Furniture applies to ensure financial stability
and performance as well as ways in which management accounting has played a key role
in preventing and solving financial problems
There are a number of different tools of planning that are used so as to ensure that the firm
is financially stable in its operation. The ones that are used by Prime Furniture Ltd in which
management accounting also plays a significant role are explained briefly below-

Benchmarking Forecasting Contingency planning
In this tool of planning a
standard is set so that all the
efforts are directed towards a
single goal and also helps in
development of Prime
Furniture Ltd. management
accounting also plays a very
crucial role in it as it helps in
formulating appropriate
budgets that can be used as a
base for evaluating the
performance in the long run
(Brink, Hobson and Stevens,
2017).
In this future forecasting is
done so that the firm can
manage to overall all the
challenges that will arise in
the near future and also Prime
Furniture Ltd makes
appropriate plans so that it can
deal with the future which is
uncertain nature. Management
accounting helps in preparing
a report of the past and the
current trends of the business
so that the future aspect can be
analysed and evaluated in an
appropriate manner.
This is a tool of planning in
which a certain reserve out of
the profit is remained so that
in case of uncertainties it can
be used accordingly which can
help Prime Furniture Ltd to
grow and prosper in the
market. Management
accounting helps in
determining the financial
forecast so that the reserves
can be made according to it
leaving no scope of error in its
operations.
4. Explain the advantages and disadvantages of different types of planning tools for Prime
Furniture
Advantages and disadvantages of different tools of planning are explained below in context
of Prime Furniture Ltd-
Benchmarking Forecasting Contingency planning
Advantages Its main advantage is
that it helps in
maintaining focus on a
single objective and thus
enabling that to finish
with the requisite time
limit. Apart from that it
enables to identify that
which one department is
not performing up to its
The main advantage of
this type of tool of
planning is that it helps
in forecasting the
future so that activities
can be performed
according to that
reducing the loop holes
in the business. Also it
helps in making the
Advantage of this
planning tool is that it
helps in determining
the future so that
appropriate reserves
can be made that can
help the firm to sustain
and survive in the
market. Also it enables
the company to earn

standards so that
appropriate measures
can be implemented to
that only so as to save a
lot of time, effort, and
money on the process.
individuals that are
working with the firm
more innovative since
innovative methods are
used to analyse and
evaluate the tool of
forecasting (Fleischer,
2021).
more so as to reserve a
part of their profit so
that contingencies can
be met in an accurate
and precise way.
Disadvantages The major limitation of
this type of tool of
planning is that it cuts
down the scope of
improvement and
innovation. Also skills
of the individuals are
not used in an
appropriate manner in
this tool of planning.
The main disadvantage
of this planning tool is
that it is highly rigid
and apart from this it is
also very costly in
nature and adds to the
cost of the company
which is ultimately
bear by the customers.
The limitation of this
type of tool is that it is
not feasible for small
firms since they does
not have enough profits
to keep a part of that
reserve for the near
future.
5. There are uncertainties and risks while running businesses, how does Prime Furniture use
management accounting systems to respond to these risks and uncertainties and other
financial issues. Compare it with some relevant organisation
The company that is operational in the market faces a lot of different types of uncertainties
while operating in the industry since the market is highly competitive as well as dynamic in
nature. The uncertainties and risks that every business firm faces is mainly the change of trend
and preference of the customer which downgrades the market in no time and thus causing big
losses to the owners of the company. There are a number of different skills that has to be
developed in order to face all the challenges in an effective and efficient manner and they are
explained in detail below-
 Skills of communication with others in an impactful manner
 Leading the whole team s that the desired goal can be achieved

 Evaluation of the financial accounts and statement so as to analyse the true financial
position of the company
All the above skills if developed it can prove beneficial as they can help in accomplishment
of the targets within a limited time frame (Hyndman and McKillop, 2019).
Comparison of companies in order to solve financial issues-
Basis London beer factory Orbit beers
Monetary
issue
There are a number of different issues
in the firm but the major one among all
of them is the irregularities that the
business firm is facing as it has no
fixed profit over the years and net
profit fluctuates every single year.
Thus it is the major problem that the
company is facing over the years.
The problem that Orbit beers
company is facing is that the assets of
the organisation are not valued on a
correct basis and thus it hampers the
overall productivity of the enterprise
in the long run concept. Thus a lot of
attention has to be given to this aspect
so that it can help the business firm to
earn considerable amount of profits in
the market.
Accounting
system
The system of accounting of the
company is not up to the standards as it
is old and rigid that does not gives
much scope for improvement and
innovation and thus it is very important
as well as essential to change it so that
the firm can perform in the industry in
a better way (Khajavi and
Mohammadian, 2018).
The main problem in the firm Orbit
beer that is relate with the system of
accounts is that the inventories of it is
not recorded properly and thus it acts
as a barrier in the improvement in the
performance level of the employees
that are working with the firm.
Techniques to
solve issues
The technique that the company must
use to solve all the issues that are
happening in the firm is benchmarking
since it helps in setting standards and
then comparing it with the actual one
The technique that can be used by the
above mentioned firm is the predictor
technology so that necessary and
appropriate rectification measures can
be taken well within a limited time

so that the reason for deviation can be
known which can prove useful from
the organisation’s point of view.
period which can help the company to
grow in the current market
circumstances.
There are different problems that Prime Furniture Ltd. also faces starting from bad
management to insufficient funds and limited sources of finance available to generate funds.
Thus all these issues can be solved by using appropriate management accounting system. The
system of accounting that can be used by Prime Furniture Ltd. is to analyse and evaluate the
financial accounts so that errors and frauds can be minimised that can result in improvement in
the overall performance of the company. Also it can use different techniques like benchmarking
and predictor technology so as to analyse the current market environment of the business so that
appropriate plans can be formulated well within a short time period (Kogut, Janshanlo and
Czerewacz-Filipowicz, 2020).
6. Analyses and evaluate how management accounting planning tools that would help Prime
Furniture Ltd. to maintain a sustainable success
There are different tools of management accounting that helps Prime Furniture Ltd. to
maintain a sustainable success and the major one of them are explained in detail below-
 Capital Budgeting- It is very important for Prime Furniture Ltd. as it helps in analysing
the inflow and outflow o funds that are of capital nature and also proves beneficial for the
firm in taking appropriate decisions regarding the same so that it can grow in the market.
 Operating Budgeting- It deals in the transactions that are performed on a daily basis and
helps Prime Furniture Ltd. to take allocate resources according to the needs and
requirements so that it can maintain success that is of sustainable in nature in the long
run.
7. Using specific case studies as example compare ways in which management accounting is
applied, the effectiveness of management accounting in dealing with financial problems
and preventing financial problems in organisations
There are different aspects of management accounting that are used in order to achieve
sustainable success and the important ones are explained in detail below-
Budgetary target- This aspect is related with the budget that a company makes in order to
reduce the unwanted and unnecessary expenditure that is incurring in the business firm. It helps

in dealing with the financial problem of insufficient funds and low level of performance since it
increases both the factors and that too at the same time so that it can add value to the firm in the
long term concept.
Key Performance Indicators- It is a very important concept as it is related with the
improvement of the organisation in the market in which it is operational. Management
accounting develops KPI’s that supports sustainable as well as strategic goals so that the market
value of the company can be increased and that too within a short time period that can help it to
sustain and survive in the market for a longer time frame.
8. Using the Absorption and Variable costing techniques prepare and present two separate
Statements of Profit or loss (Income statements) based on the data given below for each of
the two quarters. You should clearly show how the costs were calculated under each of the
costing technique. You also need to reconcile both the figures and interpret data. Explain
with supportive calculations, why the profits under each technique are different
There are different techniques of micro economics that impacts the working of the
company that is mentioned above and all of them are discussed below in detail-
Cost- It is the expenditure that is incurred while producing a particular goods or services
according to the requirements of the citizens that are living in a society so that they can fulfil
their desires in an impactful manner and that too within a limited budget level. There are
different costs that are included in it like variable cost, fixed cost, real cost, semi-variable cost,
etc.
Analysis of cost volume- It is an aspect that is responsible for determining the level of
profit as well as sales so that the company can sustain and survive in the industry for a longer
time period as compared to its rivals (Kouaib, Jarboui and Mouakhar, 2018).
Calculations- Prime Furniture Ltd. calculations of income statement by using
appropriate costing methods that is marginal and absorption costing.
Absorption cost per unit-
Particulars Quarter 1 (GBP) Quarter 2 (GBP)
Variable manufacturing cost 52000 52000
Fixed manufacturing cost 16000 16000
Fixed non-manufacturing cost 5200 5200
Total cost of goods sold 73200 73200

Number of units produced 78000 66000
Per unit cost 0.94 1.11
Income statement using marginal costing
Particulars Quarter 1 (GBP)
Sales revenue 44220
Less- marginal cost of sales 40000
variable manufacturing
cost 52000
opening stock 0
closing stock 12000
Contribution 4220
Less- fixed cost
Fixed non-manufacturing cost 5200
Fixed manufacturing overhead 16000
Net profit -980
Particulars Quarter 2 (GBP)
Sales revenue 58460
Less- marginal cost of sales 60000
variable manufacturing
cost 52000
opening stock 12000
closing stock 4000
Contribution -1540
Less- fixed cost
Fixed non-manufacturing cost 5200
Fixed manufacturing overhead 16000
Net profit -6740
Marginal cost per unit
Particulars Quarter 1 (GBP) Quarter 2 (GBP)

Variable manufacturing cost 52000 52000
Number of units produced 78000 66000
Per unit cost 0.67 0.79
The two techniques of costing that are explained above are both exceptionally well in the
market as they help the company to grow and prosper in the current market circumstances that is
highly competitive as well as dynamic in nature but for Prime Furniture Ltd. the best suitable one
is absorption costing since it is more beneficial than the other one.
The company that is Prime Furniture Ltd. is performing very well in the market as its net
sales was £ 840 for the first quarter whereas it rose in the second quarter to £ 940. While in the
first quarter the loss was pegged at £ 980 but it increased to £ 6740 in the second quarter which
shows the degrading position of the organisation and thus it have to implement appropriate
measures so that it can help the firm to overcome all the losses and earn good rate of profitability
in the industry in which it is operational (Li, 2018).
CONCLUSION
It can be concluded from the above that management accounting is one of the most
important aspect for Prime Furniture Ltd. and has to be dealt in that way only so that it can help
the firm to grow and prosper in the industry and also to add market value in the existing firm.

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