The objective of this report is enhance knowledge of learner in the context of accounting practices that can assist in preparing a financial report for UCK furniture. This report will be going to consider some major aspects of accounting practices as:
- Provide an application of management accounting techniques.
- Discuss the planning tools that can be used in management accounting practices within UCK furniture.
- Provide a comparison that determine how management accounting can respond to financial problems of UCK furniture.
1.2 Range of management accounting techniques
There are various techniques of management accounting which are helpful in carrying out to enhance overall financial position. Cash flow statement is one of the main technique by which business is able to analyse cash position in the best possible manner. Moreover, there are various activties such as operating, investing and financing activities which outlines whether adequate cash balance is available or not (Cooper, Ezzamel and Qu, 2017). Another technique is cost variance which is used to analyse difference between budgeted and actual costs. Thus, it is an essential technique in generating financial reporting documents. On the other hand, revaluation accounting is helpful in order to adjust current market and book value of asset in effectual manner. Hence, this management accounting techniques are helpful for UCK Furniture to enhance financial health in effective way.
1.3 Interpretation of both absorption and marginal costing and merits and demerits
Marginal costing is a technique of management accounting wherein data related to cost such as variable and fixed costs are provided to personnels for effective decision-making. The effect on profit can be judged when there is change in volume of output. In marginal costing, firm may be able to analyse cost of production and as a result, higher production can be achieved by reducing unnecessary costs.
1. It is advantageous as valuation of stock is correctly ascertained and no illogical carry forward of the same is made in proportion of fixed overheads of current year.
2. This method is helpful in short-term planning by effectively taking break-even and profitability aspect (Kolb and Kolb, 2011).
1. It is not easier to bifurcate variable and fixed costs and as a result, conclusions drawn from the same are misleading.
2. Another disadvantage of marginal costing is that long-term planning cannot be possible as it is useful only in short-term planning.
This costing is effective as it computes cost of particular product by considering indirect expenses and direct costs. In simpler words, manufacturing expenses are effectively absorbed by units produced.
1. It is advantageous as fixed costs are taken into account and is helpful in determining adequate pricing policy in effective way (Agarwal. 2018).
2. It is useful in preparation of external reports and correct valuation of stock can be made.
1. Absorption costing do not classify fixed costs whether it relates to manufacturing or administration.
2. It is not useful in controlling costs as allocation of indirect expenses is difficult task.
2.1 Ascertaining the advantages and disadvantages of planning tools used in budgetary control
The advantages of planning tool in management accounting is that it brings the clear understanding and analysis over the profitability of the prosed plans of business. However, there will be various techniques winch will be effective and brings better budgetary control. Such as:
Net present value: This is the technique which helps in bringing the present value of the future cash flows. Therefore, this estimation will be indicative and helpful as to bring the most adequate and appropriate determination of the analysis that the projected plan will be helpful to the firm in bringing the most appropriate and reliable information. This is the technique which in turn will be effective and helpful to the firm in terms of analysing the profitability over the analysed data set. Additionally, it can be said that the implication of such techniques will be beneficial for the business as to have suitable gains and income bring forth. Moreover, it will be helpful to UCK Furniture in terms of implicating such techniques into operational practices on the basis of its advantages and disadvantages: