Management Accounting Assignment: UCK Furniture Management And Reporting Strategies

Question

Assignment Brief and Guidance

Task 1: Apply a range of management accounting techniques You must answer the following:

1.1 Calculate costs using appropriate techniques of cost analysis to prepare an income statement using marginal and absorption costs.

UCK Furniture produce one product – desks.

Each desk is budgeted to require 4 kg of wood at £3 per kg, 4 hours of labour at £2 per hour, and variable production overheads of £5 per unit.

Fixed production overheads are budgeted at £20,000 per month and average production is estimated to be 10,000 units per month.

The selling price is fixed at £35 per unit. There is also a variable selling cost of £1 per unit and fixed selling cost of £2,000 per month.

During the first two months X plc expects the following levels of activity:

(a) Prepare a cost card using absorption costing and marginal costing

1.2 Accurately apply a range of management accounting techniques and produce a financial reporting document.

1.3 Produce financial reports that accurately apply and interpret data for a range of business activities. Make the interpretation of the both costing methods and explain the potential merits and demerits of the both methods.

Task 2: Explain the use of planning tools used in management accounting. You must answer the following

The UCK Furniture has noticed considerable fluctuation in its amount of time spent and expenses incurred, as shown below:

You must answer the following:
2.2 Using the high-low method estimate the expenses if the number of hours required for July and August is 650 and 750 respectively.

2.3 Explain the purpose of budget and prepare a cash budget with the given information for coming months.

I. The cash balance at the beginning of September is £ 9,000

ii. Actual sales for July and August and expected sales for September are as follows:

iii. Sales on account are collected over a three-month period as follows: 10% collected in the month of sale, 80% collected in the following sale, and 7% collected in the second month following sale. The remaining 3% is uncollectible.

iv. Purchases of inventory will total £ 24,000 for September. 20% of month’s inventory purchases are paid for during the month of purchase. The accounts payable remaining from Augusts’ inventory purchases total £ 15,000, all of which will be paid in September.

v. Selling and administrative expenses are budgeted at £ 13,000 for September. Of this amount £ 4,000 is for depreciation.

vii. The company maintains a minimum cash balance of £ 5,000. An open line of credit is available from the company’s bank to bolster the cash position as needed.

Required:
(1) Prepare a schedule of expected cash collections for September

(2) Prepare a schedule of expected cash disbursements for merchandise inventory purchases in September.

(3) Prepare a cash budget for September. Indicate in the financing section any borrowing that will be needed during September.

Task 3: Compare ways in which organisations could use management accounting to respond to financial problems.

3.1 Compare how organisations are adapting management accounting systems to respond to financial problems

The UCK Furniture is trading its two divisions the Table Division and Drawer Division. UCK Woodworks manufactures components and parts used in desks. UCK Woodworks sells the components to UCK Furniture and the rest of the world. Both companies are part of a group named as UCK group of companies

The financial results for the two companies for the year ended 31 May 2015 are as follows

Compare the Performance of UCK Woodworks and each division of UCK Furniture, calculating and using the following three performance measures:

(i) Return on capital employed (ROCE)
(ii) Asset turnover
(iii) Operating profit margin

3.2 Analyse how management accounting can help improve the financial performance of both companies to achieve the sustainable success.

3.3 Evaluate the planning tools used in management accounting to reduce the financial problems to achieve the success. (Guide lines learner should evaluated the use of the following techniques. E.g. budgeting, budgetary control, Project Appraisal or Evaluation, Standard costing and Analysis of Cost Variances, Ratio analysis)

Answer

Executive Summary
Management accounting is an essential component of the organisation as it helps in attainment of the goals of the organisation. Management accounting does not pertain to the old data rather it is in the form of creation of new reports and budgets that helps the management to perform with precision. The story will shed light upon the organisation name UCK Furniture and the manner in which the management accounting helps the undertaking in the attainment of the goals. Different ranges of techniques are applied where a cost card is prepared using the absorption and marginal costing. Furthermore, different types of planning tools are utilised for the case of budgetary control. As the UCK furniture has witnessed major fluctuations, therefore, various devices have been used in consideration for the same.

Introduction
When it comes to the business, it is imperative that every dollar matters and hence, it is pivotal that every penny should be treated with utmost concern. Managerial reports will enable UK Accountants and managers to be well versed with the latest news and hence will lead to cost reduction, the reward will be provided to people who work strongly, elimination of the lines of product and ensure investment in the goods that provides the highest return for the business (Emmanuel, 2014). With the aid of different reports, UCK Furniture can gather a strong response as the story will shed light upon the differences if any noted. The reports can be created quarterly, weekly, monthly or even daily reports.

Application of management accounting technique

Application of management techniques

The above is a financial reporting document. Management accounting techniques are strategies used for business analysis purposes and thereby enabling management to make sound and ground business decisions. These techniques help in getting a holistic view of business and developing the forward plan of business. There are numerous techniques used for management forecast. Following are the various management accounting techniques:

1. Cost reporting- A cost report involves details of all direct, indirect, variable, and fixed and semi-fixed costs.

It incorporates all costs involved in bringing the product to a saleable condition, however, subjective to valuation method of values which depends from organisation to organisation.

It details the prime cost, the selling, administrative, and all costs and also shows the profit for each product. It describes the excellent value, the sale, administrative, and all costs and also shows the gain for each product.

2. Budgeting- A budget lays a benchmark for organisations as the minimum achievable target. Budgets can be for different cost elements. They can be for purchases, sales, cash, and credit and so on, the list goes on. Budgets help in better planning and enforcement of plans. Budgets help in forecasting of costs and revenues; they also contribute as a cushion to sudden business shocks (Becker et. al, 2010).

3. Ageing reporting. Receivables, and payables, these are the two significant elements of a business that runs the show mostly. An ageing report of both of these elements helps a lot in management decisions (Becker et. al, 2010). These reports assist in understanding the various profitable areas, the loss areas of the business and a massive shock to market can be prevented using these reports.

4. Project Decision Making- The accounting reports are used for management decision making project wise.

Production of financial reports

2.1. Advantages & disadvantages of planning tool
Planning tools and techniques include forecasting, budgeting, performance measurement, decision making, developing charts and graphs for a pictorial analysis to name a few out of an exhaustive list. Budgeting and budgetary controls are steps taken to create an effective management plan and fiscal plan (Drury, 2011). The tools used for fiscal planning and control helps in the measurement of organisational performance, and it’s potential to grow. Deep business analysis can be done using these planning tools involved in budgeting. The various advantages and disadvantages of these tools are as follows:

1. Where on the one hand, budgeting helps in planning, and effectively controlling the activities, they may also result in chasing short-term goals and thereby neglecting the long-term organisational goals and may hamper the corporate goal chasing (Emmanuel, 2014).

2. They are very elaborate processes and take a lot of time effort and resource. But once they are formulated properly using all the tolls of planning in place, they can act as great coordination catalysts.

3. Where on the one hand, they provide a way forward to proceed in the path of efficiency, it to a great deal also block the path for innovation.

2.2. High low method estimate

2.3. Preparation of cash Budget

3.1. Organization comparison that adapt to management accounting systems to answer the problem of finance
Organisations are adapting management accounting systems like marginal costing, standard costing, absorption costing, budgeting, budgetary controls, etc., in order to better respond to financial problems (Merchant, 2012). Without using management accounting techniques, it becomes difficult to identify financial problems. Naturally, when problems itself can’t be identified, it is not possible to come up with solutions to financial problems (Drury, 2011). On utilizing the management accounting techniques, a business is able to precisely and correctly identify areas of concern due to which financial problems are arising. Not only this, management accounting also helps in solving those problems effectively, efficiently and economically (Witherite & Kim, 2006).

3.2 The manner in which the management accounting can influence the performance of companies to head towards sustainable success
ROCE measures the profitability of the company concerning the capital invested in the company. In another way, it shows the profits of the company as a percentage of the capital employed. The greater this percentage, the better it is for the company (Henderson et. al, 2015). Here, UCK Furniture Design Division and GearBox Divison have ROCE of 25.49% and 11.27% respectively while UCK Woodworks has a ROCE of 8.56% only. This means that UCK Furniture Design Division earns the maximum profits per pound of capital invested in it followed by UCK Furniture GearBox Divison and UCK Woodworks. Assets turnover ratio indicates the revenue that a company is being able to generate per unit of total assets (Deegan, 2011). Here, UCK Furniture GearBox Divison has the best Assets turnover ratio at 0.7798 followed by UCK Furniture Design Division at 0.5627 and UCK Woodworks at 0.1918. This means that UCK Furniture GearBox Divison can generate maximum revenue per unit of its assets.

Operating profit margin is the percentage of profit that a company earns on its sales. The greater this percentage, the better it is for the company. Here, UCK Woodworks has the best Operating profit margin at 44.64% followed by UCK Furniture Design Division (45.30%) and UCK Furniture GearBox Divison (14.46%). This means that UCK Woodworks can earn the maximum amount of profit from its sales.

Thus, the study of management accounting can help improve the financial performance of any company as it reveals important facts and figures relating to business which when improved upon can prove beneficial for the company.

3.3. Evaluation of the planning tools
Planning techniques that are present in management accounting like budgeting, budgetary control, Project appraisal, standard costing, evaluation of the variance of cost and ratio analysis helps in reduction of the financial issue to attain sustainable success.

Budgeting is a technique in which budgets, i.e., estimated statements are prepared for various items such as sales, cash, expenses, production, purchase, etc. This helps in estimating the desired levels of activities. It also helps in comparing the estimates with the actual performance (Almeida & Cunha, 2017).

Budgetary control refers to the process by which managers compare the budgetary goals with the actual performance and then analyse and try to reduce disparities between the estimates and the actuals (if any). This helps in fixing problems due to which the differences (between actuals and estimates) are arising (Emmanuel, 2014).

A particular task/ project should be evaluated at reasonable intervals of time to find out whether everything is proceeding as per pre-determined goals and estimates. This process of evaluating the project at reasonable intervals of time is known as project appraisal or evaluation (Kieso et. al, 2010). This helps in maximising efficiency and ensuring that the pre-decided objectives are met on time and the actual results are as per desired standards (Askarany et. al, 2007).

At reasonable intervals of time, the cost incurred on the project in the particular period is compared with the standard pre-decided cost to find out the variances (if any). The cost variances are then studied and analysed to find out the causes for the variances and to determine the remedial measures needed to be taken to fix them (Almeida & Cunha, 2017).

Analysis of financial ratios is another very useful technique of management accounting. Key financial ratios like current ratio, quick ratio, proprietary ratio, assets turnover ratio, debt coverage ratio, etc., are calculated and analysed to judge the performance of the business and to determine the remedial measures (if needed) to be taken to fix poor ratios (Horngren, 2011).

Thus every tool of planning utilized in management accounting enables to enhance financial performance and to reduce financial problems to achieve success.

Conclusion
On a concluding note, the observation that is made is that the role of management accounting plays a pivotal role in shaping the destiny of the organization. The above study done on UCK furniture is a glaring example of the powerful tools and technique of UCK furniture. Managerial accounting is the area that deals with the planning, as well as controlling of money. Hence, managerial accounting system enables the organization to consider the future course of action and leads to potential benefits. Beyond question, it is a resource planning tool and helps to predict the future course of activities. The managerial accounting surpasses the process that is essentially needed to control and plan the operation that leads to n effective decision making.

Bibliography

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