Management Accounting Report: Prime Furniture, BTEC Assignment

This report delves into the core principles of management accounting, offering a detailed examination of financial reporting techniques, budgetary control, and financial problem-solving strategies. The report begins with an introduction to management accounting and its significance in handling financial transactions, emphasizing the importance of internal reports for effective data management. It then explores the application of marginal and absorption costing techniques, presenting income statements and cost calculations for Prime Furniture. The report further analyzes various planning tools, including capital budgeting and cash budgets, and their advantages and disadvantages in budgetary control. It also addresses financial problems such as minimum sales and high operating costs, proposing management accounting approaches like benchmarking and KPI to mitigate these challenges. Overall, the report provides a comprehensive overview of management accounting's role in business analysis and financial management, offering practical insights and strategies for sustainable success.

Management Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 2............................................................................................................................................3
P3 Income statement under marginal costing:.............................................................................3
M2 Range of management accounting techniques and produce appropriate financial reporting
documents....................................................................................................................................7
D2 Financial reports that accurately apply and interpret data for a range of business activities.8
P4 Advantages and disadvantages of different types of planning tools used for budgetary
control..........................................................................................................................................8
M4 Use of different planning tools and their application for preparing budgets and forecasts...9
P5 Management accounting systems to respond to financial problems....................................10
M4 Responding to financial problems, management accounting can lead organizations to
sustainable success.....................................................................................................................11
D3 Planning tools for accounting respond appropriately to solving financial problems...........12
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is defined as the process of handling and managing transactions
associated with finance. There are different type of transactions involved in business and it is
necessary to have a proper analysis of managing it in order to record and track all the financial as
well as non financial data and information. Internal reports are made for managing the financial
reports and data effectively (Napitupulu, 2020). There are non monetary as well as monetary
resources available within organisations which is used for managing the organisational activities.
Following report is based upon company naming Prime Furniture that is based on London.
Basically, there are three parts in this report. Part 1 includes information of management
accounting reports and systems. Part 2 includes financial techniques and practical
implementation for the data of company. Last part discusses about planning tools involved in
management accounting systems.
TASK 2
P3 Income statement under marginal costing:
Microeconomic techniques:
Cost: It is delineated to value of money which business uses for producing something as
well as delivering a service (Alabdullah, 2019). Fixed, variable and semi variable as different
costs on which working ny managers are performed in Prime Furnitures. Within the company,
Cost analysis is used as it determines true cost of each programs for analysing services and
products. Absorption costing and marginal costing are two cost analysis techniques which are
used by junior strategic managers of Prime Furniture so that income statement are prepared and
future planning is undertaken.
Product costing:
Fixed costs refers to unchanged rates that is generally negotiated for particular time frame
and it is static at all levels of production. Likewise, variable costs is seen as corporate expense
that changes with production output. Within Prime Furnitures, there are certain other costing
types that are used by managers. One is normal costing that is applied for derivation of cost. The
another is standard costing which is a practice to substitute predicted cost for real cost in records
related to accounts.
Cost on inventory:

Inventory costs refers to kind of cost that is related to procurement, storage as well as
managing organisational inventory effectively. Within Prime Furniture, it comprises of cost
associated with order and holding stock. Through this, managers administer concerned
paperwork (Amir, Rehman and Khan, 2020). Various categories related to inventory costs
includes ordering costs, storage costs, spoilage costs, holding costs and hence forth. When
inventory costs are reduced in an organisation then it benefits in saving multiple kinds of costs
that are essential in managing warehouse facilities. It eliminates obsolete stock that is not sold or
is of complete wastage or drains cash flows.
There are different accounting techniques used to prepare the financial reports mention below:
Marginal costing- This is principle whereby the variable costs are charged to the cost
units and also fixed cost attributable to necessary period is to be written off against contribution
for that time period. This technique is related with preparing the income statement through
including the variable expenses as main cost and the fixed expenses as the periodical cost.
Absorption costing- This technique is related with developing the income statement
through including fixed expenses and variable expenses as main cost. This method of calculating
product cost or company through taking into an account the indirect expenses and direct costs.
Both cost are beneficial for company in managing expense that may contributes in
maximising the profitability level (Tekathen, 2019). Thus, it is crucial for management of
business organisation to effectively analysis the financial reports for calculating the overall cost.
Within the assistance of this, Prime Furniture can improving their performance level and attain
competitive growth are market place.
Calculations of costs for Prime Furnitures through costing techniques:

M2 Range of management accounting techniques and produce appropriate financial reporting
documents
In business organization various accounting techniques that used by company to develop
or prepare a financial report that help in maintaining the whole financial information of business.
As it provide proper framework that contributes in attaining desirable outcomes. In this context,
there are two type of techniques such as absorption and marginal costing that used to prepare an
appropriate income statement. With the help of this techniques, organization can maximize their
profitability level and at the same time also evaluate their actual performance. One of the main
advantage preparing financial report is to determine the losses and income level of the company.
In context to Prime Furniture, managers could opt marginal and absorption techniques for

staying ahead in competition and improvising brand image promptly. This also have chances of
reducing errors or mistakes for future planning.
D2 Financial reports that accurately apply and interpret data for a range of business activities
In above part, there are two different income statements produced interpreted in detailed
manner. From preparation of income statement under the marginal costing, it can examined that
profits of Prime Furniture for Quarter 1 is £ 1900 and 4700 respectively. At same time, the
company have made constant profit in next quarter also. Financial reports in the company are
formal records of finance related practices together with position of brand in the market.
Statement of financial position is named as balance sheet that includes information about
organizational liabilities, assets and owners equity for particular time period (Gamayuni, 2019).
P4 Advantages and disadvantages of different types of planning tools used for budgetary control
Use of budget for planning and control
Budget refers to a prediction of expenses and revenues for particular future period that is
re-evaluated on periodic context. All organisations whether small, medium or large prepare
budget. In Prime Furnitures, budget are devised because they aid to control business spending,
saving more money as well as tracking expenses. It also guides managers and administrators to
frame better financial decisions, getting out of debt, emphasising on long term financial
objectives as well as preparing for emergencies.
Budgetary control- This is a technique used for managing budgeting and accounting
problems that are involved in the business process. There is need to manage the work of the
company and have financial budget and data that will help in making effective decisions. There
are several techniques used for managing the budget and money related factors which are
affecting the profits and finance of the company. There is need to evaluate and manage the
functioning as it helps in developing effective budget which will lead the managers to take good
financial decisions. It is important for Prime Furniture to manage the finacial planning
effectively so that goals can be attained effectively (Zandi, Khalid, N. and Islam, 2019). This is
important for Prime Furniture to manage the planning if financial budget so that organizational
goals are achieved. This technique has a link with all forms of business entities in order to
manage financial performance of companies by finding different types of variances. In the
context of Prime Furniture limited, following planning tools of budgetary control can be applied:

Capital budgeting- This is defined as the budgeting process in which there is need of
measuring the importance of effective financial planning and budgeting (Bhimani, 2020). The
projects are accomplished on the basis of different methods including net present value, payback
period etc. The budgeting process in involved in developing effective budget and financial plan
that can be used by the company. In context of Prime Furniture, it is seen that financial managers
are managing the budgets properly.
 Advantages- This approach is beneficial for companies to protect them from future
financial risk as it guides managers to choose best alternative among different alternatives
(Le and et. al., 2020). As well as it is useful for companies to keep adequate control over
expenses related with an investment.
 Disadvantages- The techniques that used for measuring efficiency of project are based on
assumptions which may lead to wrong estimation. Along with this cannot be applied in
small companies and for tiny sized projects.
Cash budget- It is a type of budget that includes costing data and information. There are
card inward and card outward involved within accounting period. This is essential for the leaders
and managers that cash is managed properly. Budget management is important as it leads to
development of cash activities.
 Advantages- It provides help to Prime Furniture in order to allocate cash in accordance
of budgeted activities. Disadvantages- The drawback of cash budget is that it does not provide accurate
projection of cash receipts and payments.
Pricing strategies:
The term pricing strategy refers to a tactic that is adopted by an organisation for selling a
commodity (Bhimani, 2020). For the purpose of determining pricing strategy, administrators of
Prime Furniture are required to first determine pricing position of entity, segment pricing and
then devise suitable reaction strategy. At same time, competitors of Prime Furniture determine
their prices through comparing strategies related to prices and production costs of other so that
prices are set accordingly.
M4 Use of different planning tools and their application for preparing budgets and forecasts
The planning tools related to budgetary control can be useful for the managers to develop
the budget effectively. This can be possible because the different planning tools for an instance

capital budget and cash budget which provide the detailed information regarding estimation of
the financial values (Johanson and Madsen, 2019). In regards to this, data can be used through
the managers to make projections of the other budget type. In this report, there have been Capital
budgeting, Cash budget and Static budget used which contribute to the managers and accountants
in order to forecast the financial values.
P5 Management accounting systems to respond to financial problems
Financial problem is said to the issue that an organisation experience in managing finance
(Napitupulu, 2020). In context to Prime Furniture, mentioned below are some financial problem
that are been faced:
Minimum sales: When an organisation fails to meet its sales target then it result in a
financial problem. In relevance to Prime Furniture, managers failed in maintaining minimum
sales in last accounting year which have resulted in adverse financial problem.
High operating cost: Operating cost is cost that is related to maintenance and
administering of business on daily basis. In Prime Furniture, financial managers have analyses
high operating costs that is another financial problem for the company.
There are certain management accounting approaches that are adopted by managers of
Prime Furniture in order to deal with financial problems. Some are as follows:
Benchmarking: An approach which comparing business processes and performance
metrics to industry bests and best practices from other companies is benchmarking. By using the
approach, managers of Prime Furnitures solves financial problem of minimum sales through
comparing strategies with best companies and making changes in existing one.
KPI: It is an approach that involves measurable value that demonstrates how effectively
a company is achieving key business objectives. In case with Prime Furnitures, use of KPI
approach helps in determining performance indicators so that problem of finance that is high
operating cost is managed.
Financial governance: It is delineated to way wherein an organisation collects,
manages, monitors together with controls financial information (Tan, 2019). In Prime Furnitures,
Financial governance includes the ways for tracking financial transactions, manage performance
and control data, compliance, operations, and disclosures.
The comparison is given below:
Base for Prime Furniture limited George’s drinks limited

comparison
Financial
issue
Prime Furniture limited faced issue
related to the minimum sales in its
last accounting cycle. This resulted
in reduced growth and development
in its all perspectives (Horvat and
Mojzer, 2019).
This company faced problem regarding
high operating cost of performing
various business operations. As
consequences, sales revenue began to
minimize with the net margin.
Technique to
recognize
issue
The managers of Prime Furniture
limited used the benchmarking
approach to make the comparison
related to financial performance
with the average sales revenue of
industrial companies’ average sales
revenue.
Management of this firm used the Key
performance indicator approach in
order to determine the financial issue.
This was done by focusing on financial
aspects related to revenues, expenses
etc.
MAS Prime Furniture limited mainly used
the price optimization system with
an aim of solving the financial
problems. In relation to the
accounting system, they mainly set
the cost of goods at level on which
the the consumers are mainly
satisfied. It has been done through
examining feedback of customers.
As outcomes, consumers began to
show interests in goods that resulted
in enhance the sales revenue.
Manager of company used the cost
accounting system. On the basis of
accounting system, they are mainly
compare the actual expenses with the
estimated values. They are mainly
confronted on activities which
consuming the unwanted cost as well as
resolved the financial issues (Zandi,
Khalid and Islam, 2019).
M4 Responding to financial problems, management accounting can lead organizations to
sustainable success
There are various kinds of accounting system have proper integration with process of
company as well as operations. It helps to the organizations in aspect to solve the financial

problems in an effective manner. In the above sections, there are two different financial issues
solved with the help of using price optimization as well as the cost accounting system.
D3 Planning tools for accounting respond appropriately to solving financial problems
Main aim of the budgetary control planning tool is to providing the detailed information
to managers concerned with estimation of expenses and income. This can mainly used through
the administrative to solve all the financial issues (Amir, Rehman and Khan, 2020). Company
rely the various planning tools like capital budgeting, cash budget etc. in order to deal with the
financial obstacles.
CONCLUSION
As per above mentioned report it has been evaluated that management accounting play a
significant role in business organization. The main reason behind this is that it support in
implementing as well as running business activities in an effective manner. In addition to this,
management accounting system and MA reports are also consider as an important aspect that
used by company with the aim of attaining competitive success at market place. It may assist in
determining the actual expenses and income of the company. Thus, it is significant for
organization to effectively manage and integrate all the report and system of management
accounting so that profit can be easily maximized. In addition to this, financial techniques also
refers to the important aspect that contributes in producing the financial reports to effectively
maintain the positive performance of company.

REFERENCES
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