Management Accounting Project: UCK Furniture Financial Analysis Report

This report delves into the application of management accounting principles within UCK Furniture, focusing on various costing methods and financial planning techniques. The report begins by examining marginal and absorption costing, comparing their advantages and disadvantages to determine the most effective method for cost analysis. It further explores the application of different planning tools, including budgetary control, forecasting tools, and scenario analysis tools, discussing their benefits and drawbacks. The analysis extends to the estimation of expenses based on activity levels and the preparation of a cash budget. Finally, the report addresses financial problems faced by UCK Furniture, such as profitability and cost efficiency, and suggests management accounting systems, including Key Performance Indicators (KPIs) and financial governance, to mitigate these issues. The report provides a comprehensive overview of management accounting practices, offering insights into cost analysis, budgeting, and financial problem-solving for the furniture company.

MANAGEMENT
ACCOUNTING
(PART 2)

Table of Contents
INTRODUCTION...........................................................................................................................3
PROJECT 2......................................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Few costing methods considered in management accounting..............................................3
1.2 Application of various techniques of management accounting............................................6
1.3 Advantages and disadvantages of Marginal and Absorption costing...................................6
TASK 2............................................................................................................................................7
2.1 Advantages and disadvantages of different type of planning tools......................................7
2.2 Estimation of expenses if change in number of hours..........................................................8
2.3 Preparation of cash budget....................................................................................................9
TASK 3............................................................................................................................................9
3.1 Enterprises are adapting management accounting systems to respond financial problems..9
3.2 Contribution of management accounting to improve financial performance.....................10
3.3 Planning tools for accounting respond to solve financial issues.........................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting can be defined as a procedure which is being carried out in
companies so as to efficiently manage all the finances of the company. It is very important for
every company to implement these kinds of processes inside the company so that their work can
be effectively managed and company can find various options to increase their funds as well
(Kotas, 2014). The company referred in this report is UCK Furniture who is starting a new
training course in order to train their employees. This part of the project will discuss about
various techniques of analysing the cost implemented by the company, advantages and
disadvantages of various types of planning tools and along with this various ways of adapting the
management accounting system in their financial statements.
PROJECT 2
TASK 1
1.1 Few costing methods considered in management accounting
It is very important for every company to analyse their cost time to time so that they can
come to know that whether they are selling their products at correct price or not. It is really need
to be taken care of while manufacturing the products and services. So companies have to choose
a technique of management accounting while preparing their income statements. The main
techniques involved in this type of accounting is Marginal costing and absorption costing. Both
these are very effective but the latter one is more used. These methods are discussed as under:-
 Marginal Costing – In this type of costing , cost of manufacturing and production
process is being used. Here both fixed as well as variable cost is being used together so as
to calculate the cost correctly. This technique will be used to calculate the cost of
products and services by taking in concern direct cost and overheads as well (Laudon and
Laudon, 2016).
 Absorption Costing – It is called as the cost of one extra unit of production and it is
being used by companies like UCK Furniture. If the company will charge extra per unit
of the product then this will be very effective for the company as they will be able to
manufacture the units more.
Comparison of Marginal Costing and Absorption Costing is done as follows:-

Absorption costing Marginal costing
Here, managers at UCK will measure their cost
through gross cost for proper production of
time.
In this, cost is being calculated by considering
the cost of margins during the process of
manufacturing.
Through this they can reduce their per unit in
cost of products they are selling to their
customers.
Since extra units is involved here so there is no
changes in per unit cost.
It is having a link with long term planning and
costing.
Here, short term planning is done in order to
achieve the goals and objectives.
It is considered effective for decision-making
purposes.
This method is mostly used by the companies
while taking any important decisions.
Calculation as per Absorption costing.
Working notes:
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £2
Fixed cost £3
Total £16
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*19 = £13300 100*16 = £1600
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £2100
Fixed overhead: £2000
Total £100(over absorbed)
Administration Cost: In this budgeted cost is £800 and Actual cost is £700

Selling cost: In this budgeted cost is £400 and Actual cost is £600
Net profit using absorption costing £ £
Sales
(-) Cost of Sales:
Opening stock
Manufacturing
Closing stock
(Under)/ Over absorbed fixed prod.
O/h
Gross Profit
Less Expenses
Variable sales expenditure
Fixed administration expenses
Fixed selling expenditure
Over absorption
Net Profit
0
11200
(1600)
600
700
600
(100)
21000
(9600)
11400
(1800)
9600
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production O/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*14 = 9800 100*14 = 1400
Net profit using marginal costing £ £

Sales value
Less: Variable costs
Opening stock
Manufacturing
Closing stock
Contribution
Less Fixed costs
Variable Production expenses
Administration cost expenditure
Selling cost
Net Profit
0
9100
(1300)
2000
1300
600
21000
(7800)
13200
3900
9300
From the above calculation it gets cleared that they should make use of absorption
costing method while doing their cost analysis. This decision is taken because it is giving the
company the net profit of £9600 whereas through marginal costing profits will be around £9300
only. The another influence in this treatments is linked with the closing stock.
1.2 Application of various techniques of management accounting
Both Marginal costing and absorption costing are two different techniques which is
helping in finding out the valuation of inventory (Liao, Chu and Hsiao, 2012). Marginal cost is
not including any elements of fixed cost and it is considered as one of the best method for taking
important decisions of the company within short duration of time. It has also been assessed that
stock of the organisation is undervalued whereas in Absorption costing elements of foxed cost is
available. They are also providing the correct value of stock.
1.3 Advantages and disadvantages of Marginal and Absorption costing
After applying the marginal and absorption costing, the advantages and disadvantages of
UCK furniture is being mentioned here:-
Advantages and disadvantages of Marginal costing

ADVANTAGES DISADVANTAGES
 It helps in planning the profits which is
associated with completion of the
project.
 It is effectively used for management
reporting.
 It is helpful in planning the production
process.
 Separating cost is very difficult here.
 Because of this the cost becomes
undervalued as fixed cost is not
involved here.
 It is for a short duration of time.
Advantages and disadvantages of Absorption costing:
ADVANTAGES DISADVANTAGES
 No process is conducted here which
separates fixed cost and variable cost.
 It is effective in determining the prices
of the products.
 The profits of the company is having
effect by production volumes.
 Difficult to take good decisions
regarding operational efficiency
TASK 2
2.1 Advantages and disadvantages of different type of planning tools
A budget can be defined as a tool which is being used to forecast the financial results and
the position of the company for the future period of time (Lukka and Vinnari, 2014). It can be
mainly used by the management of UCK furnitures which is planning and performance
measurement.
Budgetary control:- it is a kind of management control system which is very effective in
comparing their actual income and expenses with the planned ones. UCK Furnitures is making
sure that their employees are working according to these standards so as to earn large amount if
profits.
The steps which are required to be conducted in budgetary control are :-
 Establishment of plan: It is very important for the organisations to implement these
kinds of plans in the company and the manager s required to implement these. It helps in

developing the opportunities for understanding various departments and bringing
coordination in them as well.
 Record actual performance: It is the duty of the managers of the company to record the
actual performance of the employees which is following these plans (Macintosh and
Quattrone, 2010).
 Comparison with budgeted: Here, the actual budget is being compared with the planned
one and then in case of any errors corrective actions is required to be taken.
 Calculation of variations: Under this, reason and consequences of deviations are
identified (Otley and Emmanuel, 2013). Remedy of situation: In this appropriate actions is being provided so as to achieve their
targets more easily.
Planning tools: It will help in conducting right actions which will help the company in
implementing their targets in an effective manner.
 Forecasting tools: It is very effective determination of internal and external factors
which is having a bad impact on the business activities and is also very effective in
growing the company across the market.
Advantages: It is very effective in managing the risk of the company.
Disadvantage: There is large no. of chances of failure.
 Scenario analysis tool: This tool helps in identifying the fear in open and application of
logical and professional model through which capabilities can be known about
completing the task of the company.
Advantages: Helps in planning of schemes and finding of uncertainties. It gives the opportunity
regarding development of contingency plan.
Disadvantage: Incorrect recognition of situations often results in negative results.
2.2 Estimation of expenses if change in number of hours
Calculation of variable cost per unit using identified high and low activity level:
Total cost= (Expenses of high activity- expenses of low activity)/(Highest activity hours
spent -lowest hours spent)
Total expense per units = (9820-7410)/(795-505)=8.31
Total expenses for July: 650*8.31=5401.5
For August:750*8.31= 6232.5

2.3 Preparation of cash budget
Cash budget Amount
Particulars September
Opening balance 9000
Cash sales 39000
Sale on account 5648
Total Cash collected 53648
Purchase -16800
Selling and administration
expenses -13000
Equipment cost -18000
Dividend paid -4000
1848
Add: minimum cash balance 5000
Expected cash in the end of
September month 6848
TASK 3
3.1 Enterprises are adapting management accounting systems to respond financial problems
There are so many issues which is being faced by the management of UCK furniture
while performing their activities in the company. Through this, stress is being created at the
company and in between the employees as well (Petty and et. al., 2015).
UCK woodwork's is a company which is manufacturing little components of desk and the
they supply it to UCK furniture and other furniture company as well. Since they are having their
operations in various parts of the world so this creates several financial issues.
Financial problems in UCK Furniture:
 Profitability: UCK furnitures is dependent upon the resources of UCK woodwork's and
thus it is reducing the profitability of the company as their work is interdependent which
is stopping them to earn large no. of profits.

 Performance and control: This is affiliated with the financial performance of company
during a particular period of time.
 Cost efficiency : It is having relation with the production of the company.
Measure to overcome with these issues:
 KPI – It helps the providing information regarding actual performance of the various
departments of the company. Various financial indicators like Income and P&L
statements will help in taking decisions in short term (Roy and et. al., 2011).
 Financial governance – It is also a very effective tool which helps in solving issues
about following the rules and regulations while providing the services.
 Benchmarking - It helps in improvement of the performance and accomplishment of
targets within stipulated period of time.
Ratios Formula UCK furnitures UCK woodwork's
ROCE(Return on
capital employed):
Operating profit/Capital
employed*100
5890+3600/23100+
31930*100
=9490/55030*100
=17.24%
6955/81230*100
=8.56%
Assets turnover Revenue / Net assets 13000+24900/2310
6+31930
=0.68 times
8150/81230
=0.100 times
Operating profit
margin
Operating profit / sales *100 9490/13000+24900
*100
=25.03%
6955/81230*100
=8.56%
3.2 Contribution of management accounting to improve financial performance
The contribution can be described as follows:-
 If standard costing tool will be used then it will help the management in knowing the risk
which is attached with the project. It is helpful in estimating the budgeted cost as well
(Stair and et. al., 2011).
 If management accounting process will be implemented then price optimisation system
will be implemented which will be very effective in satisfying the customers as well.

3.3 Planning tools for accounting respond to solve financial issues
The various planning tools like forecasting and scenario are being used by the financial
managers for recognising the issues and making strategies which will be helpful in completing
the targets of the company. Planning tools also helps in formulation of annual budgets and
standards which improves existent performance of worker (Wagner, Moll and Newell, 2011).
KPI, benchmarking and financial governance are important tools helps to respond financial
problems.
CONCLUSION
From the above report, it can be concluded that management accounting is one of the
most effective process which is being implemented by the finance managers of the company.
Through this, various business operations of the company is being managed in an effective
manner which helps the company in achieving their goals and objectives in a fast manner. In this
report as well UCK furniture's managers is also making use of various methods so as to analyse
the cost of their efficiency which will later on help them in performing nicely. In this
report,various methods of cost analysis is also been discussed here and various planning tools
along with its merits and demerits are also discussed.

REFERENCES
Books and Journals
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Laudon, K. C. and Laudon, J. P., 2016. Management information system. Pearson Education
India.
Liao, S. H., Chu, P. H. and Hsiao, P. Y., 2012. Data mining techniques and applications–A
decade review from 2000 to 2011. Expert systems with applications. 39(12). pp.11303-
11311.
Lukka, K. and Vinnari, E., 2014. Domain theory and method theory in management accounting
research. Accounting, Auditing & Accountability Journal. 27(8). pp.1308-1338.
Macintosh, N. B and Quattrone, P., 2010. Management accounting and control systems: An
organizational and sociological approach. John Wiley & Sons.
Otley, D and Emmanuel, K. M. C., 2013. Readings in accounting for management control.
Springer.
Petty, J. W. and et. al., 2015. Financial management: Principles and applications. Pearson
Higher Education AU.
Roy, A. and et. al., 2011, April. Energy management in mobile devices with the cinder operating
system. In Proceedings of the sixth conference on Computer systems (pp. 139-152).
ACM.
Stair, R. and et. al., 2011. Principles of information systems. Cengage Learning Australia.
Wagner, E. L., Moll, J. and Newell, S., 2011. Accounting logics, reconfiguration of ERP systems
and the emergence of new accounting practices: A sociomaterial perspective.
Management Accounting Research. 22(3). pp.181-197.
Online:
What is absorption costing? 2017. [Online]. Available through
:<https://www.accountingcoach.com/blog/absorption-costing>.
Budgetary control, 2017. [Online]. Available
through<http://www.fao.org/docrep/w4343e/w4343e05.htm>.