Management Accounting Report: UCK Furniture, Finance Module

This report provides a comprehensive overview of management accounting, focusing on its role in managerial decision-making and financial analysis. It explores various aspects of management accounting systems, including price optimization, inventory management, job costing, and cost accounting systems, highlighting their benefits and integration with organizational processes. The report delves into different methods of management accounting reporting, such as cost reports, stock reports, and accounts receivable reports. A significant portion of the report is dedicated to the application of absorption costing and marginal costing, with detailed cost cards and comparative financial statements for UCK Furniture. The analysis includes interpretations of the financial results, highlighting the merits and demerits of each costing method and their impact on profitability. The report also examines the potential benefits and drawbacks of both absorption and marginal costing methods, providing a thorough understanding of their implications in financial reporting and decision-making.

MANAGEMENT
ACCOUNTING

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
SECTION 1.....................................................................................................................................3
1.1................................................................................................................................................3
2.2................................................................................................................................................5
1.3................................................................................................................................................5
1.4................................................................................................................................................6
2.1................................................................................................................................................7
(a).................................................................................................................................................7
(b).................................................................................................................................................9
2.2..............................................................................................................................................10
2.3..............................................................................................................................................11
(a)...............................................................................................................................................12
(b.)..............................................................................................................................................13
SECTION 2...................................................................................................................................14
3.1..............................................................................................................................................14
4.1..............................................................................................................................................18
4.2..............................................................................................................................................20
4.3..............................................................................................................................................21
CONCLUSION..............................................................................................................................22
REFERENCES..............................................................................................................................23

INTRODUCTION
There are multiple accounting approaches in finance field that are used by organisations
and one of them is managerial accounting. It can be comprehended as a sort of accounting and
reporting in which accounting personnel evaluate fiscal and budgetary information for internal
management decision making. This is systematically designed framework which generally used
by corporations and business entities to collect key information and data to facilitate effective
managerial decision-making. This comprehensive approach which involve key techniques and
system to assist managing staff in managerial and financial task (Christ., 2014).
This study contains explanations about different aspects associated with management
accounting along with practical sum in context of UCK Furniture. This also discuss about some
core reporting methods of MA which help personnel within organisation to report major
information to top management.
MAIN BODY
SECTION 1
1.1.
Management Accounting: This is defined as a sort of accounting and managerial framework
method which generates quantitative and fiscal information for developing a base for managers
with aim to assist them in decision making. That leads to successful organization management.
Managers utilize accounting information by managers to select a method for communicating it,
and to decide how effectively to execute it (Bennett and James, 2017). They employ accounting
information from managers to organize their choices about design, development and promotion
of a good or service. This also consists of some systems which are employed and adapted by
managing personnel to generate information and ensure availability of meaningful information
which are lastly used by them in taking efficient and effective decisions.
Management accounting systems are utilized to track costs attributable to the different
products and services being produced. s There are distinct forms of MA systems which
are below:
 Price optimisation system: This system displays the connection between supply as well
as demands and is how pricing influences every item's demands and then integrates all
related data with stock levels and rates to determine the correct prices which can help

company to boost its income levels. This may also be utilized to check the consumers
'reaction to the actual pricing increases that arise if the commodity quality increases then
how the buyers will respond to it as well as that markets will be drawn in order to allow
potential choices on which demand to adjust in order to gain full profitability. This
system requires detailed analysis of cost, price and demand aspects and evaluation of
relation or trend between them.
 Inventory management system: This is a system where orders are managed, processed,
and then used to manufacture the products. This also controls the rate of saleable items. It
will assist with making correct quantity inventory decisions as well as with respect to
storage centres. This system is consistent with the cycle of maintaining control of all
products bought and shipped out by businesses over a given period/time frame (Hall, M.,
2016). In this, inventory valuation is performed in conjunction with specific techniques,
like the LIFO approach, the FIFO approach and weighted average costs methodology. All
of these strategies play a substantial role for corporations in monitoring precise amounts
of materials at the moment it is required. This system requires use of specific method or
technique for valuing stock, assumption used and information about process adopted by
entity regarding inventories.
 Job costing system: This is a method or system, in which all
crucial knowledge/information are to be collected in regard to the expense connected
with the manufacture of the particular commodity that is chargers. It can be tested with
the aid of corporations estimating framework. Accumulating direct content, labour, and
overhead costs in this information. The firm can quote rates that would help business gain
sustainable profits. Perquisites of this system involve detailed cost sheet which describes
cost related to each job and basis for identification of specific process as job and
allocation of costs to such job.
 Cost accounting systems: This is a method used by a company in which manufacturing
operations are to be documented using continuous inventory systems. There are
essentially five components of this device that are an input estimation base, an inventory
valuation process in which product calculation is made, then for aggregation of all cost
structure, the fourth is output flow inference, and the last is capacity at some stages of

product cost flow reporting. Knowledge provided by this program in the allocation
decision-making process and also in productivity review of the various agencies.
2.2.
Various method of MA reporting:
MA reports can be interpreted systematically as those reported reports consisting of
information on financial and organisational parts. Such reported data is commonly utilized by
business organizations 'management team in order to carry effective measures at the right time.
Cost reporting- This report is being produced by incorporation of the framework of cost
accounting. This kind of report provides detail on costs that result in the execution of critical
business and management tasks. Activities are classified according to their amount of
expenditures together with such report. The intention of this report is to concentrate on certain
components and factors that absorb higher cost quantities (Jacobs, 2012).
Stock report- This could be described as a form of report providing details on priced volume of
material contained in warehouses. The sole purpose of this sort of report is to assist the
production division in taking the appropriate measures on how many units are needed to be
produced. Within the background of the aforementioned business, their production department
produces drinks by absorbing essential information via this report in cost-effective manner.
Accounts receivable report- This report sets up in a reasonable manner details about amount of
debtors who are liable for business enterprises with settlement date. The purpose of drafting this
report is to assist the division of finance in keeping the reforms and policies effective. Their
finance team uses crucial details helps to create strategies to raise debts from different debtors.
1.3.
Benefits of management accounting systems:
Name of MAS Benefit
Price optimisation system This is helpful for undertakings to fix product prices in accordance
with the latest industry pattern. This system enables managers to
set a most efficient price at which company can enjoy maximum
profit at optimum cost.
Inventory management
system
The value of retained stock under this accounting system is
measured in an appropriate way. the main benefit of this

accounting system is optimizing aggregate inventory costs.
Job costing system It is helpful for business organizations to effectively allocate costs
to each specified job-process. This offer effective accountability
within organisational processes as due to this system it is easy to
allocate any cost creating process.
Cost accounting system By measuring correct degree of variances, it is combined with the
dimension of managing total costs of specific
operations. Company can employ this accounting system to
control the actual manufacturing costs and handle certain tasks
whose expense is beyond forecast.
1.4.
Integration of MAS and MA reports with organisational process.
Management accounting systems/frameworks & management accounting reports are typically
incorporated into the company's operations, because reports would include the necessary details
on the grounds of which appropriate documentation will be performed and related information
can be collected by management accounting systems. Because separate management accounting
systems supply information on multiple factors that are needed in the reporting process, it can
support reporting by offering advice and steps to address any problems that occur in the
organization in separate divisions and thus incorporating them for advantage of the organization
(Lavia López and Hiebl, 2014).

2.1
(a).
Descriptions Descriptions Amount
(Pound) Descriptions Amount
(Pound)
a) Units produced 11000 9500
b) Direct Material
(4kilo-
gramx3Pound
/kilo-
gramx11000)
132000
(4kilo-
gramx3Pound/kilo-
gramx9500)
114000
c) Direct Labour
(4 hoursx
2pound/hours
x11000)
88000
(4 hoursx
2pound/hours
x9500)
76000
d) Variable Overhead (5pound/desk
x11000) 55000 (5pound/deskx950
0) 47500
e) Prime Cost 275000 237500
f) Production overhead 20000 20000
g) Cost of goods
produced 295000 257500
h) Variable revenues cost (1Pound/des
kx11000) 11000 (1Pound/deskx95
00) 9500
i) fixed selling cost 2000 2000
j) Cost of Goods sold 308000 269000
k) Profit= l-j 77000 63500
l) Revenues
(35
POUND/des
kx11000)
385000
(35
POUND/deskx95
00)
332500
Cost Card under Absorption costing:
Month: January Month: February

Descriptions Descriptions Amount
(POUND) Descriptions
Amount
(POUND
)
a) units produced 11000 9500
b) Revenues price per
desk 35 35
c) Variable cost per
desk:
Direct material
(4kilo-
gramx3Pound
/desk)
12
(4kilo-
gramx3Pound/des
k)
12
Direct Labour
(4 hoursx
2Pound/hour
s
8 (4 hoursx
2Pound/hours 8
Variable overhead 5 5
Variable revenues
overhead 1 1
d) Contribution 9 9
Total contribution 99000 85500
e) Fixed costs
Production overhead NOTE1 22000 19000
Revenues overhead 2000 2000
Profit (d-e) 75000 64500
January February
NOTE1
Production overhead are regarded as average production for every month that is 10000 units.
Thus, for January, the overhead amount= (20000/10000)x11000
Thus, for February, the overhead amount= (20000/10000)x9500
Cost Card prepared Applying Marginal costing

(b).
Potential merits and demerits of absorption costing and marginal costing:
Marginal Costing:
Merits:
 The strategy is straightforward to comprehend and easier to execute as it removes the
complications of fixed costs distribution that is, in fact, subjective.
 This also prohibits the forwarding of a part of fixed overheads of the current cycle
to subsequent time. Thus, it does not vitiate expense and benefit. Comparisons of costs
have become quite meaningful (Ward, 2012).
 It displays relative contributions to income that each of a variety of items produces, and
indicates where sales initiative should be centred.
Demerits:
 For the cases of contract costs where value of work-in-progress is often substantial, this
method can't be enforced.
 Eliminating fixed costs makes it unfeasible to compare costs of jobs.
 The differentiation between fixed expenses and variable expenses only looks valid
in short term. Nevertheless, all expenses are variable in long-term.
Absorption Costing:
Merits:
 It eliminates cost separating into fixed and variability aspects that can't seem be done
conveniently and reliably.
 It tends to assist in adhering to accrual concepts and match concepts that encompass for a
given duration matching costs with income.
 It aids in separately measuring gross profits and net profit on income statement which
provide more clear presentation.
Demerits:
 Absorption costs may make a corporation's profitability level look quite better than it
really is over a set period. That's because, when manufactured goods of the corporation
are sold, fixed costs/expenses are not excluded from income. Besides distorting a
statement of profits and losses, this may potentially confuse both the managers of the
organization and the investors (Renz, 2016).

 Absorption costing allows it unfeasible to assess cost volume benefit (CVP), since the
fluctuations in product's variable costs are challenging to evaluate with introduction of
fixed expenses.
2.2.
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
Workings- Cost of
Goods sold
January February
Descriptions Descriptions Amount Descriptions Amount

(GBP) (GBP)
Units produced 11000 9500
a) Direct Material (4kilo-gramx3pound/
kilo-gramx11000)
132000 (4kilo-gramx3pound/
kilo-gramx9500)
114000
b) Direct Labour (4 hours x 2pound/hours
x11000)
88000 (4 hours x
2pound/hours x9500)
76000
c) Variable
Overhead
(5GBP/deskx11000) 55000 (5GBP/deskx9500) 47500
d) Prime Cost 275000 237500
e) Production
overhead
20000 20000
f) Cost of goods
produced
295000 257500
g) Variable
revenues cost
(1pound/deskx11000) 11000 (1pound/deskx9500) 9500
h) fixed selling cost 2000 2000
i) Cost of Goods
sold
308000 269000
2.3.
Interpretation and Analysis: compared to the aforementioned income statements as well as costs
reports gathered utilizing absorption and marginal methods, it's been determined that net profits
through marginal model are 75000 pounds and 64500 pounds during period of Jan and Feb
respectively, while net profits figures are 77000 pounds and 63500 pounds respectively
throughout Jan and Feb through absorption technique. There are variances in the reports for net
profits due to over/under fixed-costs.
(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