Prime Furniture: Management Accounting Systems, Reporting & Analysis

This report provides a comprehensive analysis of management accounting principles and their application to Prime Furniture, a private limited company based in London. It begins by defining management accounting and its role in supporting managerial decision-making. The report details essential requirements for management accounting systems, including cost accounting, inventory management, price optimization, and job order costing, highlighting their relevance to Prime Furniture's manufacturing operations. It then explores various methods used for management accounting reporting, emphasizing the importance of reliable, up-to-date, and accurate information for stakeholders. The report also discusses performance reporting, cost accounting reports, and inventory management reports, illustrating how these tools aid in cost control, performance evaluation, and inventory management. Furthermore, the analysis extends to advantages and disadvantages of planning tools used for budgetary control and concludes with a comparison of how organizations are adapting management accounting systems to address financial challenges. This document is available on Desklib, a platform offering a wide range of study resources for students.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK1.............................................................................................................................................1
P1 Describe about management accounting and give essential requirements of types of
management accounting systems...........................................................................................1
P2 Different methods used for management accounting reporting........................................4
TASK 2............................................................................................................................................6
P3 Calculation of cost using different costing techniques......................................................6
..........................................................................................................................................................8
..........................................................................................................................................................9
Part 2..............................................................................................................................................11
P4.Explain the advantages and disadvantages of different types of planning tools used for
budgetary control..................................................................................................................11
Task 4.............................................................................................................................................14
P5. Comparison of the way in which organisations are adapting management accounting
systems.................................................................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17
.......................................................................................................................................................18

INTRODUCTION
Management accounting refers as the procedure to develop reports about activities and
operations of business which assist managers in terms of making short and long-term decisions.
Management accounting supports business in terms of pursuing goals by identifying, measuring,
analysing, communicating & interpreting data to higher authorities. Management accounting is
important because it recognises the financial situation of the business. It is necessary because it
helps managers to make operational decisions and also support in terms of increasing the
operational efficiency of the company(Acharya and Ryan., 2016). It also support in terms of
planning, organizing, motivating, directing and performance evaluation as well. Prime furniture
is taken into consideration in the present report. Prime furniture is a private limited company
which has share capital company based in 20-22 Wen lock road London, United Kingdom. The
company has eleven to fifty employees. In the present report, the discussion is about
management accounting system requirements and and also about methods used for management
accounting reporting. In addition to this, the report covers analysis about techniques of cost
analysis to prepare an income statement. Moreover, the report covers analysis about advantages
and disadvantages of planning tools. The report also consist of organisation adapting
management accounting systems in order to deal with financial issues.
MAIN BODY
PART 1
Describe about principles of management accounting
There are basically four principles of management accounting that every business must
comply with it. It includes designing and compiling, management by exception, control at source
accounting and accounting for inflation
 Designing and compiling: Under this head, accounting information reports, records and
other evidence of present, past and future results that should be designed and compiled to
meet out the requirements of particular business and problem-solving
 Management by exception: It is followed when information has been presented to
management. It means that standard costing techniques and budgetary control system are
followed in the management accounting system.
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 Control at source accounting: Costs are basically controlled at that point when they are
incurred-control at source accounting.
 Accounting for inflation: It is important to assess the value of capital which is
contributed by the owner of business that is concerned in terms of real value of money
through revaluation of accounting.
Evaluate how management accounting is integrated within the organisation
The key way through which system of management accounting contribute towards
continuous improvement in an organisation through integration and development of cost
management systems.
The benefits of the function to the organisation.
There are various advantages of management accounting function to the organisation
which includes planning, controlling, service to customers. In addition to this, organising,
coordinating, motivate and communicate into effective manner as well.
Critically reflect the application of management accounting.
Application of management accounting basically includes record keeping, planning and
control and decision making as well. Accounting basically help in terms of maintaining the
records of a business into systematic manner but it somewhere makes the process complicated by
applying various kinds of rules and regulations in it with changing period of time and annual
budgets as well.
TASK1
P1 Describe about management accounting & provide essential requirements of forms of
management accounting systems.
Management accounting: It is described as providing financial information and
resources to managers in terms of decision making. It is the recording and presentation of
information for benefits of different stakeholders of an organisation(Andon and et.al., 2015).
Management accounting also support businesses in terms of pursuing goals by analysing,
measuring, identifying, communicating and interpreting information to managers.
Evolution and origin of management accounting: The concept of management
accounting has been introduced during industrial revolution. The evolution of management
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accounting is majorly driven by rapid innovation in information technology. It also perceived as
increase in competition in the business environment.
The system of management accounting first appeared in in the United States during
nineteenth century. The system of management accounting employed both complicated and
simple accounting methods.
Management accounting system: It refers to that system which is in the systematic form
of control used to influence members in organisation to achieve the firm's goals. There are
different kinds of system which every organisation has used in terms of analysing the actual
financial position in this competitive market(Azmitov and Korabelnikova., 2015). . It includes
cost accounting system, price optimisation system, inventory management system, job order
costing system etc. Prime furniture is basically a manufacturing industry due to which it is
important to consider under this system and implement the system accordingly.
Difference between financial and management accounting
Management Accounting Financial Accounting
Management accounting support in terms of
making profitable decision making for an
organisation. It provides information in the
form of monetary and non-monetary terms.
Financial accounting assist the management in
terms of analysing the actual financial position
of an organisation by preparing annual
financial records. It provides details related to
an organisation in terms of monetary aspect.
There are different kinds of management accounting system which are defined in the
following manner:
Cost accounting system: It is defined as system that provide data associated to
organisations cost that are invested within manufacturing of various goods as well as services.
With respect to prime furniture company, this system is most suitable in terms of adoption
parameter. This system provides relevant information of incurred cost in each manufacturing
activity. It also support the finance department in terms of making an effective budget for future
business activities(Chukwudi and et.al., 2018). There are different kinds of cost which include
direct & indirect cost. Direct cost refers to that cost or an amount which is directly allocated to
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manufacturing activity whereas indirect cost is that amount which is incurred in terms of
supporting the execution of manufacturing activity in direct ways.
Inventory management system: This system is engaged in terms of recording present
level of stock prevailing in company to meet customers requirements and needs. With respect to
prime furniture company, this system is required to maintain better relationship with their
clients(Dauth and et.al., 2017).This system is also helpful in terms of maintaining loyalty of
existing customers and retain them by having sufficient level of inventory in warehouses so that
orders which are pre-ordered can be deliver on time without any delay. Inventory management
system basically consist of three types which include LIFO, FIFO and AVCO. LIFO is that
concept where received inventory is used on primary basis for manufacturing activities. FIFO
means that products are purchased on earlier basis and it is first used in production activities.
AVCO means that it is the average cost which is distributed on the basis of units produced. With
respect to prime furniture company, the management is majorly responsible for gathering
information related to inventories which can be arranged and maintained through using this
particular kind of system.
Price optimisation system: This system basically provides information related to client's
actual perception towards pricing policy which is framed by an organisation. It is also helpful for
manager to bring new pricing policy in order to retain loyal customers (Dye and et.al., 2015).
This system is useful for Prime furniture company in terms of maintaining the existing customer
base by meeting all the expectations related with prices charged by them.
Job order costing system: It gives data regarding actual cost take place within
manufacturing of goods and services at workplace. This system is also supportive in terms of
keeping records of an organisation related to cost which makes easy for manager to estimate the
profitable unit which provides maximum amount in return(Ganyam, and Ivungu., 2019). Job
ordering cost system determines about the cost which is incurred in terms of manufacturing
furniture products and it is also helpful for managers to take decision into appropriate manner. In
this way, it help in minimising the cost and increases the income of an organisation.
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P2 Different methods used for management accounting reporting
Management accounting reporting: It is defined as an activity associated to
maintaining of business transaction that help management to take effective and profitable
decision for the company. This is used for purpose of regulating, planning, measuring
performance and decision-making. These reporting system includes cost accounting report,
inventory management report etc. The management of Prime furniture company have to produce
these types of reports in order to analyse the actual financial position and situation in the market.
Reason of relevance of information to the user, reliable, up to date and accurate:
Information recorded in the accounting reports should be authentic, genuine, up to date
and reliable as well(Griffin and Wright., 2015). So that trust and loyalty of stakeholders can
maintained into appropriate manner. For this purpose, it is required that transaction should be
recorded on daily basis with an accurate amount so that there should not be any mis-
interpretation with respect to data towards stakeholders.
Reason behind understanding and overall easy to comprehensive of reports:
Understanding and interpretation of reports must require by the management as it assist
them in making suitable and correct decision for the growth of business. Analysing the
information available in the accounting reports help stakeholders of Prime Furniture in
identifying their actual status in competitive market.
Types of managerial accounting reports:
Performance Reporting – It is an effective form of managerial accounting that help in
gathering data associated to work performance and other factors as well. In addition to this, it
also assist company to improve its performance by analysing as well as identifying the
requirements. Whereas senior manager can understand demands of employees which will help
in terms of reducing the workplace conflicts. Investors has the ability to understand the current
position of the business and in which direction it is heading. It is the parameter which generates
real time information about the performance of business and it supports in terms of setting real
targets. These targets can be achieved and it allows the management to focus into right direction
so that it lead towards increased productivity and profitability.
Cost accounting report: It offers about the summary of all costs related to articles which
are manufactured and it includes raw material costs, labour, overhead and added costs that are
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taken into consideration. The report offers about the capacity of Prime furniture to realise the
cost of prices of items versus their selling prices. Profit margins are monitored and estimated by
cost accounting reports that gives the real picture about all costs that went into procurement and
production of the articles (Jeter and Chaney., 2019). This report basically includes inventory
waste, overhead costs and labour cost on hourly basis. This report gives an exact understanding
of all expenses for better optimisation of resources among all departments. Cost accounting
report also support prime furniture in terms of making distinction between variable and fixed
cost that allows the firm to fix prices in different scenario. With support of cost accounting
reports, restocking of materials and control can be done on over materials.
Inventory management report: This report basically belongs to summary of all items
related to industry, business and organisation. It provides a comprehensive supply of different
items and account of stock for keeping the track record of goods. They move into the process
which includes serial numbers, cost of goods, lot numbers and dates(Jones and et.al., 2018). This
report also support in terms of discovering trends, identifying strengths and weaknesses and also
fulfils gaps and inefficiencies. Informed decisions with respect to Prime furniture has been made
with support of knowledge gained from this report(Jovanović and Vašiček., 2021). It shows all
the costs associated with holding, obtaining, inventory transportation and also ensure about
inventory stock into proper condition. It becomes necessary for an organisation with respect to
their survival that there should be good control over inventory otherwise the company lose
control over the profits.
Job costing report: It is defined as a report that is associated to the procedure of dividing
the overall expenses so that financial performance can be tracked in an effective and proper
manner. In addition to this, it is classified in to different forms that is material cost, labour cost,
field overhead cost and sub-contractor cost as well. It is analysed that job costing report is used
to accumulate the cost data. In relation to prime furniture, it make use of job costing procedure as
it help them to take effective decisions and attain higher profits as well.
TASK 2
P3 Calculation of cost using different costing techniques
Cost: It is referred as the amount that is invested in operation various activities of
business and is also includes efforts, time and so on.
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 Prime Furniture is engaged in manufacturing furniture products due to which it is
essential to examine cost which makes easy for manager to compare output with invested
cost.
 Cost consider two types such as direct and indirect cost. Direct cost relates with
manufacturing of furniture on direct basis whereas indirect cost relates with expenses
incurred in the process of manufacturing activities indirectly (Quattrone, 2016).
Cost analysis: It is the procedure to measure the overall advantages attained because if
actions and leads to high profitability.
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