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Management Accounting- A Crucial Aspect for Every Business Organization

Organization Selected : UCK Group

INTRODUCTION

Management accounting is of utmost crucial aspect for every business organization. It is helpful for the better results and development of the UCK group everyday financial transactions. The main aim of managers is to make use of appropriate resources that are helpful for the company for the longer period of time. This project module aims to delivery better under understanding of costing methods those are useful for calculating net profit for the UCK furniture. Advantage and disadvantage of adapting various types of planning tools that are used for the budgetary control are mentioned under this report. Use of management accounting systems in order to resolve financial issues are examining and discussed effectively under this report (Bro

TASK 1

1.1: Calculation of net profit by using various costing methods

It is crucial for companies like UCK Furniture to make use of better resources so that maximum profits can be attain in near future time. The role of manager is to organise necessary information that are needed for the calculation of net earnings generated by UCK furniture within an accounting period of time. Basically, they are related with the production of products and wide verities of furniture as per the demand of the people. In this process, certain costs are incurred those are needed to be paid by the project manager on its daily manufacturing. Some of them are either directly or indirectly make impacts on goodwill as well as productivity at the same time (Amoako, 2013). It is said that cost is the value that is paid by the manager in order to attain something. It happens to be more reliable in which overall calculation of total costs for production of product in context to record information about cost of inventory in appropriate format such as profit and loss statement, balances sheet and cash flow statement.

This would be useful for delivering better understanding of cost behaviour and other vital financial aspects those are suitable for the company in longer period of time. Costing consist of detail information about fixed cost in which all those cost that are applied in the same or irrespective with the level of activities are taken into account in proper manner. There are various types of costing methods that are helpful for finance managers in respect to calculate total net profit during the time. Some of them are discussed underneath:

Fixed and variable cost: It is known as one of the effective cost that would remain constant and unchanged with an increment or reduction in total number of products or services sold or manufactured by the company. While variable cost is said to be corporate expenses those are changed in relation with the production capacity. Certain examples are fuel, repair, salary etc.

Historical cost: This seems to be effective measure of total value that is being utilise in accounting for the evaluation of cost of assets on balance sheet. It is entirely based on nominal or real cost of production.

Absorption costing: It is known as one of the effective method which is used during production of product and services. It consists of both variable and fixed cost because of this it need to be full costing (Klemstine and Maher, 2014). It is not taken into account as that much effective in decision making.

Marginal costing: It refers as the utmost effective method which will be used by the managers in production of one additional units of product. It includes only variable cost because of this, it is known as period costing. In steed of this, management used to make use of this costing method more effective for future decision making.

NET INCOME AS PER ABSORPTION COSTING:

Particular

January

February

Sales (35per units)

315000

402500

Deduct:

Cost of Production

295020

254790

Gross Profit

19980

147710

LESS:

Fixed and variable expenses:

Variable sales overheads (@1 per unit)

9000

11500

Fixed selling expenses

2000

2000

Total costs

11000

13500

NET INCOME

8980

134210

Calculation of net profit by using marginal costing

PARTICULARS

January

February

Sales (35 per unit)

315000

402500

less:

Cost of Production (12+8+5)

275000

237500

variable selling overheads (1 per unit)

11000

9500

variable cost

286000

247000

Contribution

29000

155500

less: Fixed cost expenses

Production overheads

20000

20000

Administration & selling cost

2000

2000

Total fixed costs

22000

22000

NET INCOME

7000

133500

1.2: Various types of management accounting techniques

In order to get more reliable benefits for an organisation, it is essential to make utilisation of accounting tools and techniques for the purpose of increasing their overall growth and efficiency at the same point of time. It is important to make proper analysis of their overall scope and nature of UCK furniture in order to attain better results in near future time. Few tools and techniques for effective use of financial planning. Marginal costing is considering one of the reliable method which will be taken into account because the decisions are made on the basis of contribution per units that are done during the time. Some other are standard costing and historical cost techniques are also reliable techniques of accounting.

1.3: Data interpretation by using costing method

According to the above used various costing techniques that are taken into account for calculating net profit for UCK furniture. It is important to select right method which will easily be able to provide better results for the company. In case they are using marginal costing, the results collected for the month of January and February is 7000 and 133500. While in case they are going to consider absorption costing the results get increase with 8980 to 134210 respectively. For effective decision making they need to take into account absorption costing is more effective as compare to marginal costing method.

  • Advantage of using marginal costing: It is used to make certain analysis under which only a single person or objects can remain variable.
  • Disadvantage: The most tough task of using accounting techniques is that only variable costs are considering during calculation of net profit (Jiles, 2014).
  • Advantage of absorption: It used to analyse benefits of fixed costs that are associated with the production process.
  • Disadvantage: It can cause UCK furniture profit level and difficult to make comparison and control of costs those are incurred during the time of production (Absorption costing, 2012).

TASK 2

2.1: Advantage and disadvantages of various types of planning tools

Planning is an essential aspect that assist an organisation in attaining future aims and objectives in effective manner. It is utilising to management in discharged of their basic operations during forecasting, planning and communicating overall financial transaction. This used to analyse various ways for effective control of business operations through undertaking a appraisal of physical and financial targets of the company. All the effective activities that are needed to be taken into account for overall expenses that are related with the UCK furniture. The primary motive of the company is helpful to make ensure that expenses cannot reverse their total earning that are incurred through the company before making budgets. Some crucial planning tools are:

Forecasting tool: It is important for an organisation to make use of strategies in order to determine future cost and expenses those are going to be incurred by the UCK group. This will be helpful to control additional cost that are done at the time of production process.

  • Advantage: The utmost crucial benefit of quantitative forecasting approach those are related with projections that depends on strength of past data.
  • Disadvantage: It is based on proper estimation so that it is hard to make better outcomes.

Contingency tool: It is known as organisational theory that used to claim that there are no any other ways that make company to take better decision. This is simply helpful for analysing business risks that are occur in the department (Huber and Scheytt, 2013).

  • Advantage: This seems to be control losses that are major concern for an organisation. It is more comprehensive for the managers to use this tool.
  • Disadvantage: Because of the uncertainty, it is hard to control and deal with unseen risks that are arises in an organisation.

2.2: Analysis of every expenditure for the month of July and August

In order to get better outcomes in accordance with the variable cost incurred by UCK furniture. It will be examining that high and low activity procedure is taken into account as more reliable task. To calculate total expense incurred during the month of July and August are discussed underneath:

(Total expenses of high activity – Expenses from low activity)

Total cost=

(Highest activity per hour spend – Lower hour spend)

Total expenses (Per units): (9820-7410) / 795-505) = 8.31

Month

Calculation expense

July

= 650*8.31= 5401.5

August

= 750*8.31= 6232.5

TASK 3

3.1: Calculation of accounting system to analyze financial problems

It is vital for UCK furniture company to make evaluation of working orders to develop effective problems that would be easy to lead with all impacts that are related with the organisation. It has been found that some of the financial problems are affecting the entire production process of the company. few of the issues are related with the profitability and cash flow management (Otley and Emmanuel, 2013). In respect to evaluate overall performance of the department, it is crucial to make use of financial ratios. These ratios can easily be able to provide profitability and liquidity position of the company. On that basis this, manager can properly be able to reach a certain level in near future. This seems to be right track for attaining aims and objectives.

Financial ratios

UCK Furniture UCK Woodworks

ROCE

Operating profit/Capital employed*100

3198890.156

8.562107596

17.24513902

0.0856

0.1724

Operating profit margin

Operating profit / sales *100

2490000.73

8.562107596

0.2503

0.0856

Assets turnover

Revenue / Net assets

44931.07764

0.10033239

=0.68 times

=0.100 times

UCK Woodworks

UCK Furniture

They are held responsible for providing all the essential requirements that are needed for the desks.

It has been found that they are trading into two parts, Table division and Drawer division.

They are getting maximum return on the resources they are supplied to furniture.

While they are not so effective in terms of ROCE which is only 0.174.

In case of operating profit they are getting only 0.85 out of total sales.

The results are showing 0.25 % of total operating gain out of the total sales.

3.2: Analysing the measures to reduce financial problems in both the company

It has been currently seen that for better analysing, it is necessary for UCK Woodwork to have detailed information about the financial downfall that are making huge impacts on the market share of UCK furniture. Henceforth, it is significant for them to determine financial tools and method with the motive of resolving financial issues. Some financial tools are mentioned underneath:

  • Key performance indicators (KPI): This seems to be effective tools and techniques in determining and evaluating overall performance of staffs by making comparison on past data with present one.
  • Financial governance: It is known as all the rules and regulations that are made by the government in order to run their business in more effective and efficient manner for the long period of time (Speklé and Verbeeten, 2014).

3.3: Analysis of planning tools used in the company

There are various tools that are discussed in the above report. All of them are having certain benefits and limitations. This will assist the department to make better understanding of business and their future growth. Some of them are:

Contingency tools are more reliable and effective tools that is used for the purpose of hedging all those business risk that are making huge impacts on the overall performance of the company. while forecasting tools can be helpful for estimating future losses by preparing specific kind of budget such as sales and operations. This will guide the manager to operate in better manner in the department.

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CONCLUSION

This project report used to conclude that there is a various crucial method which are taken into account for calculating net income of UCK furniture. Utilisation of planning tools with the merit and demerit are also discussed those are beneficial for the company for the long time basis. All the analysis is done to make better growth and sustainability in near future time.

You may also like: Organisational, Transformation And Management Changes of Marks and Spencer and H&M

REFERENCES

  • Amoako, G.K., 2013. Accounting practices of SMEs: A case study of Kumasi Metropolis in Ghana.International Journal of Business and Management.8(24). p.73.
  • Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years on.Management Accounting Research.31. pp.1-9.
  • Huber, C. and Scheytt, T., 2013. The dispositif of risk management: Reconstructing risk management after the financial crisis.Management Accounting Research.24(2). pp.88-99.
  • Jiles, L., 2014. Management accounting career readiness: Shaping your curriculum.Strategic Finance.96(2). p.38.
  • Klemstine, C. F. and Maher, M., 2014.Management Accounting Research (RLE Accounting): A Review and Annotated Bibliography. Routledge.
  • Otley, D. and Emmanuel, K.M.C., 2013.Readings in accounting for management control. Springer.
  • Speklé, R. F. and Verbeeten, F. H., 2014. The use of performance measurement systems in the public sector: Effects on performance.Management Accounting Research. 25(2). pp.131-146.
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