Management Accounting Report: Financial Analysis for Prime Furniture

This report provides a comprehensive analysis of management accounting techniques applied to Prime Furniture. It begins by introducing management accounting and its importance in decision-making, then delves into cost calculation methods, specifically marginal and absorption costing, highlighting their advantages and disadvantages. The report then explores various planning tools, including fixed, flexible, and sales budgets, evaluating their benefits and drawbacks. Furthermore, it analyzes the use of these planning tools within the organization to develop short, medium, and long-term plans. Finally, the report examines financial problems faced by Prime Furniture, such as high job costs and low profits, and proposes solutions using KPIs and benchmarking, comparing Prime Furniture's approach to that of other organizations like Asda and Aldi. The report emphasizes the importance of financial reports in summarizing financial information and achieving organizational goals.

Management
Accounting

INTRODUCTION
Management accounting refers to use of Analysis and Interpretation in such a manner so
that the decisions can be taken in the future by an organization by ensuring that the financial
information, facts and figures are used appropriately (Alao and Gbolagade, 2020). This is quite
useful for the future. For this report, Prime Furniture has been considered. It is a company which
provides products and services related to Furniture to the different types of customers. In this
report, detailed and specific focus will be made on application of a range of Management
accounting techniques, explanation of the use of planning tools. Additionally, comparison of
ways in organizations is adapting Management accounting systems so that the response to
financial problems can be provided will be discussed as a part of this assignment.
TASK 2
P3: Calculation of costs
It is quite important that the calculation of the costs can be carried out within the
organizations because it will help in determining profits and thus the future goals and objectives
can be attained (Brito and Jorge, 2020). Therefore, the use of the following techniques is
recommended for this particular purpose-
Marginal costing-
This technique is useful in ensuring that the management is able to calculate the Break-
Event Point (Jackson and Meek, 2021). It is a point where an organization does not earns profits
and neither incurs losses. In an organization like Prime Furniture, it is a useful technique because
it will help a lot in ensuring that the profitability level can be determined quite properly.
Advantages-
 This technique is quite easy to use and is quite simple. Therefore, for an organization like
Prime Furniture this creates an advantage as the level of profitability can be ascertained
with the required ease.
 With the use of this method the Break-Even Point can be ascertained. Thus, it creates an
advantage for Prime Furniture because in this way it can help a lot in facilitating
comparison.
Disadvantages-
 Overheads cannot be treated when this technique is used in the organizations. Thus, in
this way this creates a disadvantage for an organization like Prime Furniture.
 Calculation of the overall costs in the organization cannot be done by using this
technique. Therefore, in this way this leads towards a disadvantage for Prime Furniture.

Absorption costing-
Through this technique, ascertainment of a wide variety of costs in the organization can
be made (Jia, 2020). For an organization like Prime Furniture, it can be useful so that the
costs are calculated effectively and efficiently.
Advantages-
 The use of this technique can be helpful in treatment of the overheads. In a company like
Prime Furniture, this method can create an advantage.
 With the use of this technique, the ascertainment of the different types of costs in the
organization can be carried out. For Prime Furniture, this can lead towards an advantage.
Disadvantages-
 The use of this method requires a lot of time and money. Therefore, for an organization
like Prime Furniture this can lead towards a disadvantage.
 Using this method can lead towards the application of higher-level of skills and
competencies and thus in this way can create an impact on the organizations. This can
impact Prime Furniture also.
Prime Furniture’s managers are required to ensure that they make the use of both of these
techniques because this will be quite helpful for them in ensuring that they are able to
attain the wide variety of goals and objectives. Therefore, when they use these techniques
the profitability level can be ascertained in a proper manner effectively and efficiently.

M2: Accurate application of Management accounting techniques
Management accounting techniques can be applied within the organization to make sure
that the determination of the profits can be carried out in a proper way. In the context of Prime
Furniture, it can be used in a proper way so that the ascertainment of the efficiency and
effectiveness of the company can be carried out.

D2: Producing of financial reports
Financial reports are useful because they summarize the information which has been
provided in the financial statements of the organization. Goals and Objectives can be attained by
an organization like Prime Furniture in the future quite effectively and efficiently if it makes the
use of these reports. This will also be helpful for it in managing its financial figures, facts and
information in an appropriate way.
TASK 3
P4: Advantages and Disadvantages of Planning Tools
Planning tools are quite useful for the different organizations (Karami, Samimi and
Ja'fari, 2020). An organization like Prime Furniture can make sure that the use of following
Planning Tools can be made by it-
Fixed Budget-
In this budget, the figures do not change with a change brought in the activity level and
thus this leads towards ensuring that its use can be made so that the management of the finances
can be made properly (Klein and Speckbacher, 2020). Thus, in this way it can be said that Prime
Furniture is required to make sure that it uses it and is able to perform the required Analysis and
Interpretation.
Advantages-
 It can be prepared by the organizations when their revenues are quite predictable (Omoro,
2020). Thus, in this way it provides an advantage to the organization.
 It can lead towards a higher-level of stability in the firms. Therefore, in this manner this
can lead towards the creation of an advantage.
Disadvantages-
 There can be a lack of accuracy while making the use of this particular technique.
Therefore, in this way this can create a disadvantage for the firm.
 This is not useful for the organizations that are operating within a dynamic market.
Therefore, in this way this can lead towards the creation of a disadvantage.
Flexible Budget-
It is a Budget which should be used in the firms in order to make sure that they can
ensure that they are able to ensure that they can effectively and efficiently bring the
changes in the Budget as and when required (Oosthuizen and et.al., 2020). This will help
organizations like Prime Furniture to be able to ensure that they are able to make the
required level of adjustments with the change in the market.
Advantages-

 It can be helpful as it helps in performing the calculations according to the activity level
(Plaskova and et.al., 2020). For the company, this can definitely lead towards an
advantage.
 This budget is useful for the organizations because through its use they are able to make
the required changes according to the activity level. This creates an advantage for the
organization.
Disadvantages-
 The use of this budget can create a disadvantage as it requires the use of higher-level of
skills. Thus, in this way it creates a disadvantage for an organization like Prime Furniture.
 Preparation of a Flexible Budget is an expensive affair and involves a higher-level of
expenditure. For the company, this can lead towards a disadvantage.
Sales Budget-
This is a Budget where the level of sales in the future is determined. Thus, in this way for
an organization like Prime Furniture it is quite useful as it can use it for the purpose of
ascertainment of the sales which will help it a lot.
Advantages-
 This is a Budget where the ascertainment of the sales in the future can be done quite
properly. In the organization, this can create an advantage as it will help in forecasting
the revenues to be earned in the future.
 Through the use of this Budget through which comparison with the past data can be done.
For the firm, an advantage can be created due to this reason as it will lead towards the
drawing of the conclusions and recommendations for the future effectively and
efficiently.
Disadvantages-
 There can be a lack of accuracy in the preparation of this budget. For the organization
this can thus create a disadvantage.
 There can be a lot of unforeseen expenses which can incur which are not included as a
part of the Sales Budget. They are required to be accounted for because it is quite
necessary to include them so that the results are determined accurately. For the firm this
can therefore create a disadvantage.
M3: Analysis of the use of planning tools
Organizations can make the use of a wide variety of planning tools. Prime Furniture can
therefore make sure that through making their use it is able to ensure that the creation of the
short-term, medium-term and long-term plans for the future can be done in an appropriate
manner. The use of finances can be made in the best way so that the different types of needs and

requirements of the organizations in relation with these funds can be fulfilled. In this way better
management of the funds can be done.
TASK 4
P5: Comparison of organizations
Financial problem- It is a situation in which the management of the organizations face
difficulties in managing their funds and thus this affects their financial condition (Salsabilla and
Ayuntari, 2020). Like other organizations, Prime Furniture also faces Financial Problems. These
are explained as follows-
 Higher-level of job costs- In Prime Furniture, there are higher-level of job costs and thus
this is impacting the organization because their overall level of expenses are increasing.
This is impacting the overall assessment of the profitability level of the company and
therefore in this way it can affect the overall processes of the organization.
 Low profits due to the setting of lower prices- Prime Furniture’s profits are reducing
because of setting of lower prices. Therefore, in this manner this can create an impact on
the company as it can go behind its various types of competitors in the market.
The use of different types of techniques is recommended for the company to solve its
financial problems (Shin and Hong, 2020). The techniques which can be used by it are
explained as follows-
 KPIs- These refer to the Key Performance Indicators. Their use is recommended in the
organizations so that they are able to make sure that they can measure the performance
and bring the required level of improvements quite effectively and efficiently. For Prime
Furniture, it is quite useful because it will help in solving the Financial Problem related
with job costs as the management of the job costs can be done by identifying the scope
where these costs can be reduced quite effectively and efficiently in a proper manner.
 Benchmarking- It refers to a technique where the use of different types of benchmarks
and standards can be made quite properly so that the organizations are able to make sure
that the required level of improvements can be brought in the processes and functioning
(Taibi, Antheaume and Gibassier, 2020). In the context of Prime Furniture, it is quite
important that the use of this method can be made so that the company is able to ensure
that it can solve its financial problem related with profits because it will be able to set the
prices according to the benchmarks and standards and earn higher-level of profits.
Comparison of organizations

Basis Asda Aldi
Financial problem Asda has higher-level of
overheads within the
company which is creating
an impact on it.
Aldi is facing issue of
mismanagement of the
inventory items which is
creating an impact on it.
Management accounting
system used
Asda is making the use of
Cost accounting system to
solve this problem.
Aldi is making the use of
Inventory management
system to solve this
problem.
Application of the system Asda is ensuring that the
application of this system
can be done so that the
excessive costs can be
identified and therefore
they can be reduced.
Aldi is ensuring that the
application of this system
can be done so that the
management of the stock
items can be done in an
appropriate manner.
Thus, it can be said that the use of Management accounting systems is recommended for
the managers of Prime Furniture to solve financial problems. They can use Job costing
system to solve problem of job orders. Also they can make the use of Price optimization
system to solve problem related with the prices.
M4: Analysis of response to financial problems
It is important that an appropriate response to the financial problems can be provided
within the organizations. Therefore, for an organization like Prime Furniture it is essential that it
is able to solve the financial problems through ensuring that the use of the appropriate techniques
and management accounting systems is made. This will be helpful in assessing the problems and
therefore taking a right action so that these problems can be resolved. Thus, in this way it is
important that the management of the company is able to ensure that their application is made in
a proper way quite effectively and efficiently.
D3: Evaluation of the use of planning tools
It is important that the use of planning tools is made in the firms so that the application of
the plans can be made quite appropriately. In a company like Prime Furniture, it is quite
important that the identification of the planning tools which can be used is made and thus their
use can be made so that the attainment of a higher-level of efficiency and effectiveness can be
attained in the level of operations. Thus, it is quite crucial for the managers of the organization
that they identify the scope through which the use of these planning tools can be made and
therefore the attainment of the future goals and objectives can be made through the preparation
and application of the plans in a right way.

CONCLUSION
The above report concludes that Management accounting is a process through which
managers take decisions which are for the benefit of the organization. It is crucial in deriving of
the conclusions and recommendations. Management accountants should be trained to make its
use so that the managers are able to ascertain the profitability level and take decisions which are
for the benefit of the organization which will help it a lot in the future. Attainment of higher-
level of efficiency and effectiveness can be done through its use so that the managers are able to
make sure that they can manage the finances in a better way. Thus, crucial decisions can be made
which will improve the overall financial position of the organization in the future.

REFERENCES
Books and Journals: