Management Accounting Report: UCK Furniture - Costing and Budgeting

This report provides a comprehensive analysis of management accounting principles and their practical application within UCK Furniture, a wooden furniture manufacturing company. The report is divided into two main parts. Part 1 explores the essential requirements of management accounting systems, including inventory management, job costing, and price optimization, along with the methods used for management accounting reporting such as budget reports, cost accounting reports, and performance reports. It also delves into costing techniques, specifically marginal and absorption costing, including the preparation of cost cards and a discussion of their merits and demerits. Part 2 examines budgetary control planning tools, such as cash budgets and sales budgets, outlining their advantages and disadvantages. The report also evaluates how businesses adapt management accounting systems to address financial problems, providing a holistic overview of management accounting practices in a real-world business context.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
P1. Management accounting together with essential requirements of systems...........................1
P2. Methods used in management accounting reporting.............................................................2
P3. Calculation of costs through techniques................................................................................3
PART 2..........................................................................................................................................10
P4. Advantages and disadvantages of budgetary control planning tools...................................10
P5. Evaluation how businesses adapts management accounting system for responding certain
financial problems.....................................................................................................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is the concept and provision that is defined as systematic process to
provide resources addition to financial information to managers for framing business related
decisions. Its major objective is to utilise statistical data along with taking accurate decision for
development of business (Berry, Broadbent and Otley, 2016). To gain understanding about
Management accounting, UCK Furniture Company is selected which performs the operations in
manufacturing or constructing wooden furniture includes tables, desks and so on.
The assessment is prepared in two parts. Part One demonstrates about management
accounting systems as well as accounting reports. It also includes application of management
accounting techniques along with devising financial reporting documents. Part two of the
assessment explains about planning tools in management accounting and comparison between
organisations in context to the ways they could use management accounting for responding
financial problems.
PART 1
P1. Management accounting together with essential requirements of systems
Management accounting is mentioned to procedure of examining costs and operations of
company for preparing financial reports, accounts as well as records that assists managers to
frame suitable decision for attaining objectives and goals (Corrigan and Rixon, 2017). The
concept is used at UCK Furniture Company for managing performances, collecting and
evaluating information about different areas and operations, forecasting sales trends and figures,
financial planning and analysing return rates. The importance of management accounting in
the company is as follows:
 Management accounting is important at UCK Furniture as it helps managers to devise
make or buy related decisions
 It is also important for forecasting future fro analysing the upcoming trends and initiating
business practices accordingly to meet objectives of the enterprise.
 In UCK Furniture, other importance of the concept is to predict cash flows as well as
impacts that flows of cash have on entire performances. It helps in designing trends
charts and utilising same information to decide the ways for allocation of resources for
generating projected profit growth.
1

Prerequisite of management accounting: Following are considered as prerequisites of
management accounting within UCK Furniture:
 Financial data that is provided by different departments is prerequisite in management
accounting at the company. It is because it aids administrators to devise and implement
policies to manage daily operations.
 Controlling techniques such as budgetary control as well as standard costing are also
prerequisite in the concept. It is so as the techniques are majorly utilised by managers for
keeping proper check on the ways resources are utilised to gain objectives.
P2. Methods used in management accounting reporting
The main accounting systems that are adopted by finance department of UCK Furniture are
the following with essential requirements:
Inventory management system: The system that is combination of procedures, processes
and technology for overseeing, monitoring and maintaining entire stocked products is said to
inventory management system (Cooper, 2017). The managers of UCK Furniture have adopted
inventory management system for the purpose of tracking inventory level, deliveries and orders.
The essential requirement of the system in the company is to create various documents related
with work order, material bills and many more. Addition to this, it is also required for avoiding
situations like overstock and outages of inventory at workplace.
Job costing system: The system that aids in accumulating information concerned with costs
related to particular service job or production job is described as job costing system. To analyse
the costs or tracking cost materials associated with direct material, labour and overhead,
managers of UCK Furniture prefers to use job costing system at workplace. The system is
essentially required for setting separate costs for different jobs and tailoring certain costs as per
customer requirements. Furthermore, the system enables preparing overhead quotations, tenders
and so on by using reliable estimates. It also provides effective evaluation of all work in progress
related jobs at given duration.
Price optimisation system: Mathematical program which aids in collecting information
about variation in demands at distinct level of prices is termed as price optimisation system. The
main purpose of using price optimisation system at UCK Furniture is to determine how potential
audiences respond towards differentiations in wooden product prices through distinct channels.
2

Essential requirement of price optimisation system in the entity is to set prices which will help in
meeting customer satisfaction addition to maximising operation profit of company.
There are certain mechanisms that are used by managers of UCK Furniture in
management accounting reporting. Management accounting reporting are the set of reports that
are devised for different organisational department to gain efficiency in performances and
managing cash flows (Dekker, 2016). Following are some of methods that are used by finance
department of UCK Furniture for management accounting reporting:
Budget report: One of method that is adopted by managers of UCK Furniture in
management accounting reporting is budget report in which different kinds of budgets are
created from information or data of past years for helping in making certain changes to make
future predictions. It also assists in analysing performances of different departments and
controlling costs.
Cost accounting report: In this management accounting reporting method, costs of
products which are manufactures by using unprocessed data are computed and recorded in
systematic manner. It involves data related to costs of overheads, materials, products and others.
In UCK Furniture, managers use the method to plan along with monitor revenue margins.
Performance report: Other method in management accounting reporting that
management accountant of UCK Furniture uses is performance report. It is computed annually or
on monthly of quarterly basis to analyse substantive revenues along with expenditures to amount
which is allocated in different business areas. Further, it computes disparities and scrutinises all
information for deciding new budget. Moreover, performance report is needed by administrators
for forecasting organisational future in terms of increase on production and costs.
P3. Calculation of costs through techniques
2.1
A.
Costs are calculated through using different techniques as per the requirements. In case with
UCK Furniture, managers use suitable costing techniques of marginal costing and absorption
costing. The cost cards along with potential merits and drawbacks of each method are as follows:
Marginal costing: Costing technique in which variable costs are charged to unit costs is
termed as marginal costing (Hoque, 2018). Cost card for UCK Furniture through marginal
costing:
3

4

Absorption costing: Other costing method that is used by entities for valuing inventory is
defined to absorption costing method. At UCK Furniture, absorption costing technique is used to
capture all costs that are related to manufacturing specific product. Cost Card for UCK
Furniture through absorption costing method:
5

B.
Merits and demerits of costing methods:
Marginal costing method: The benefits of using the marginal costing to UCK Furniture
are it is simple to understand addition to easy to operate. It also makes cost comparisons
meaningful, provides more reliable aspects to make decision, shows relative profit contribution
and assist in maximising capacity utilisation (Katsikas, Rossi and Orelli, 2016). The drawbacks
of the method are it fails in segregating total costs, creates difficulties in forecasting variability
degree and do not involve variable overheads.
Absorption costing method: The merits of the method are that it helps in all stages of
preparing accounts of company, shows decreased sales cost along with increased revenues and
takes account of all the fixed overheads which are associated in entire manufacturing procedure
so that realistic product costs are presented, the drawback of using the absorption technique
includes difficulties in making cost volume profits and also creates hurdles in assessing
operational effectiveness and efficiency. It also makes performances of the entity look more
desirable and manipulate profitability status together with mislead managers in making
decisions.
2.2
To produce financial reporting documents, management accountants of UCK Furniture has
applied management accounting technique that is absorption costing technique as it recognises
all costs that are incurred for bringing its furniture in saleable situations. Financial reporting
documents of the company are as follows:
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2.3
a.
Preparation of financial reports for UCK Furniture is as follows:
7

Using high low method, estimated expenses for July are 8615005 pounds and August are
9446.05 pounds
b.
Application of inventory valuation technique for UCK Furniture, following are the
prepared reports with suitable methods:
8

9

PART 2
P4. Advantages and disadvantages of budgetary control planning tools
Preparation of budget:
10