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Planning Tools and Techniques Used in Management Accounting of the Katie Walker Furniture

University: Stanford University

  • Unit No: 2
  • Level: High school
  • Pages: 21 / Words 5180
  • Paper Type: Assignment
  • Course Code: ACC20007
  • Downloads: 464
Question :

This assessment will cover following questions:

  • Determine the use of planning tools which is used in management accounting of the Katie Walker Furniture.
  • Make comparison in ways in which Katie Walker Furniture could use management accounting in order to respond financial problems.
  • Katie Walker Furniture produces crafted wooden furniture. What are the range of management accounting techniques.
  • Generate an in-depth understanding of management accounting systems
Answer :
Organization Selected : Katie Walker Furniture

INTRODUCTION

The methodology related with determining the important and useful financial and non financial information into proper record to make valuable decisions is known as Management accounting (Carlsson-Wall, Kraus and Karlsson, 2017). It is a detailed process in which different types of MA system are applied by the manager of company to prepare important report which help in assessing the main information at different business situation. The report in based on Katie Walker Furniture that use to produce designer furniture in UK.

In this report, different sort of MA system and their effective benefits are defined which are used to prepare several important reports which are also discussed in this report. Report also cover different costing techniques which is used to prepare income statements and most importantly various planning tool is used within organisation to prepare budgets. In addition, MA system are used detect and overcome several financial problems faced by company.

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TASK 1

P1 MA and essential requirement of 4 MA system.

“Management accounting inform the elaborated and regular financial strength and status of company to leading parties” (Management accounting, 2020).

“Management accounting is a procedure of setting up management accounts and reports that give faithful and punctual non-financial and statistical data to administrator to form short and long term decisions”.

From the above two definition, it has been clearly started that MA is a method which is related with forming of crucial report that hold detail information about monetary and non monetary aspect of business in order to make better decision (Goh and Scerri, 2016). There are 6 important function of MA that are discussed underneath:

  • Presentation of Data: All the necessary components of P&L account, balance sheet are arranged and altered which support manager to make decision. For example in production companies manager present the data in most understandable manner which ease the process of making decision.
  • Modifies Data: The data presented is needed to be modified by the manager according to the expectation. Such as in respective firm manager modify the purchase figures on month wise, territory wise etc.
  • Forecasting and Planning: The accountant of company gives enough data which help in forecasting future situation of business. Like manager of any company forecast data to meet the business objective.
  • Analysis and Interpretation of Data:To make effective interpretation data is arranged into Comparative and common size statements. For example manager in any particular company use to determine the different ratio to estimate the profit trends.
  • Help in Organizing: This is the main function which is related withorganising of company resources and duties. Such as in company manager to organise the valuable resources which support in better functioning of operations.
  • Means of Communication:In last the useful data and relevant information is communicated and distributed to employees to maximise the results (West, 2018). In respective firm modified data is given to each member at different level in order to increase the total profit.

Difference between Management accounting and financial accounting.

Financial accounting

Management accounting

In this process reports are formulated which are used by external parties like stakeholders, investors etc.

It is related to preparation of reports which are used by internal manager to make better and sound decision.

Financial accounting is primarily concerned with reporting for the company as a whole.

Managerial accounting forces much more on the parts, or segments, of a company.

Management accounting consists of multiple systems that help fulfil multiple management and accounting standards for successful decision-making purposes. These are detailed discussed underneath:

Cost Accounting system: It is also regarded as a commodity pricing method which is utilizes by company for estimating cost of their products that help in cost regulation, profitability assessment and product assessment. In Katie Walker Furniture, this system can be used to estimate the total cost involved in different activities and processes. It can be also useful for company to minimise the additional cost and make better distribution of funds in profitable operation.

Inventory Management System: In this MA system, company inventory is effectively managed. The most benefited use of this system to company can be balance demand and supply throughout the year. This method can be used by respective company in order to meet the total demand of customer as they can maintain the detail information about total finished goods, raw material and goods in transit.

Job Costing Systems: This accounting system is important for those businesses where the range of products is broader and more and more job are required within different department (Golyagina and Valuckas, 2016). By using this system manager of Katie Walker Furniture can determine the actual cost involved on various operation and make certain plan to reduce these cost if results are not appropriate.

Price accounting system: This MA system is engaged with determining the faithful rates of service and product in response to feedback received from customers on different price points. By using this method manager of Katie Walker Furniture can fix the best and appropriate price of furniture which can easily increase the customer base and grow profit as a whole.

P2. Various method of management accounting reporting.

MA reports is described as a process for providing information about specific types of activities occurring within an entity (.Rodriguez-Ariza, Martínez-Ferrero and Bermejo-Sánchez, 2016). It is necessary for every report to be prepared in the current period as per the latest operation and business task which help to describe the actual functioning. All report must be relevant which do not confuse manager while analysing gathering to determine the key finding of business. Some of important reports are discussed underneath:

 Inventory management report: A specific information concerning the amount of storage material is included in this report that allows to project future needs. Likewise in Katie Walker Furniture, this report can be prepared on regular basis to record the total raw material is being used to produce different designer furniture. Furthermore, to record total product which are in production cycle and total furniture which are ready for sales.

Account receivable ageing report: This report includes details information about those borrowers who have not repay the outstanding amount after the deadline. With the aid of this businesses can determine whether or not they should allow card facility to consumers. In respective firm manager can use this report to record the total amount outstanding with customer and find out which customer have not have payment after last date (Mizikovsky and et.al, 2016). This can also help in strengthening the credit policy for company so that only those customer whose payment record s are better can get the advantage.

Performance report: It is identified as a report that involves expected revenue & expenditures that are contrasted with current revenue & spending. It also help in assessing the performance of different individual engaged on various job roles so that any dispensaries can be removed. Such in above mention company, manager can prepare this report to record the performance of every worker and current income and expenses on different operation. Furthermore, they can analyse the performance and determine the lacking factors and prepared strategies to reduce disparities within income and expense for a period.

Benefits of MA system

Name of management accounting system

Benefits

Inventory management system

It help in balancing the demand and supply within company.

It also support in maintaining sufficient quantity of finished good stored in ware house to meet the requirement of customers.

Price optimisation system

This system is implemented to make the most suitable price of good that can be used to increase customer base and maintain enough profit for company.

Cost accounting system

By using this system company can eliminate the operation which involve higher cost and results are not favourable.

Job costing system

This is consistent with the measurement of the expense, profit and loss performance of each work. In the above selected entity's company they can analyse each job and cost linked in different tasks.

Management accounting system and reporting integrated with organisational process.

Essential forms of MA systems like cost, job, inventory and price management system are associated with the operating framework of company and are integrated to develop valuable reports. Such as in Katie Walker Furniture, cost accounting system is used to determine the total cost utilised in various business task and these information are recorded in within cost accounting reports. Thus it help manager in assessing the information about cost and make decision either to minimise cost or remove unprofitable activity.

TASK 2

P3. Preparation of income statements with different costing scheme.

Income statement: This could be described a kind of disclosure statement compiled by corporations for the purpose of obtaining information relating to gross profit and net profit throughout they year. It is prepared using different types of costing strategies which are described underneath:

  • Absorption costing: It is a form of system in which fixed and variable expenses are known as product or service costs. It mainly shows that each production cost which is included in manufacturing different kind of designer furniture.
  • Marginal costing: This is treated as an additional cost which is being utilised by the company in producing an extra unit of output.

MARGINAL COSTING

Notes

Year 1

Year 2

Year 3

£

£

£

£

£

£

Sales

 2,52,000

 3,33,000

 3,06,000

Marginal cost of sales:

Opening Stock

 -

 4,086

 5,655

Add variable production costs:

Direct materials

 59,200

 64,000

 60,800

Direct labour

 37,000

 40,000

 38,000

Variable overheads

 14,800

 16,000

 15,200

Less closing stock

1, 2

 4,086

 5,655

 1,968

Marginal cost of sales

 1,06,914

 1,18,431

 1,17,687

Fixed manufacturing costs

 91,000

 91,000

 91,000

Gross profit

 54,086

 1,23,569

 97,313

Selling and distribution expenses

 5,600

 7,400

 7,000

Administration expenses

 10,100

 10,100

 10,100

Profit /(Loss) from operations before interest and tax

 38,386

 1,06,069

 80,213

Interest expense

 1,100

 1,350

 1,600

Profit /(Loss) from operations before tax

 37,286

 1,04,719

 78,613

 

Notes

1. Closing stock in units =

Opening stock + Production - Sales

Year 1 = 0 + 3700 - 2800 = 900 units

Year 2 = 900 + 4000 - 3700 = 1200 units

Year 3 = 1200 + 3800 - 3400 = 1600 units

2. Closing stock in £ =

(Units unsold/ Units produced) * Total variable costs

Year 1 = (900/3700)* (£5600 + £10100 + £1100)

4086.49

Year 2 = (1200/4000)* (£7400 + £10100 + £1350)

5655

Year 3 = (400/3800)* (£7000 +£10100 + £1600)

1968.42

 

ABSORPTION COSTING

Notes

Year 1

Year 2

Year 3

£

£

£

£

£

£

Sales

 2,52,000

 3,33,000

 3,06,000

Cost of sales:

Opening Stock*

 -

 49,135

Add total production costs:

Direct materials

 59,200

 64,000

 60,800

Direct labour

 37,000

 40,000

 38,000

Variable overheads

 14,800

 16,000

 15,200

Fixed manufacturing costs

 91,000

 91,000

 91,000

Less closing stock**

1,2

 49,135

 63,300

 21,579

Cost of sales

 1,52,865

 1,96,835

 1,83,421

Gross profit

 99,135

 1,36,165

 1,22,579

Distribution expenses

 5,600

 7,400

 7,000

Administration expenses

 10,100

 10,100

 10,100

Profit /(Loss) from operations before interest and tax

 83,435

 1,18,665

 1,05,479

Interest

 1,100

 1,350

 1,600

Profit /(Loss) from operations before tax

 82,335

 1,17,315

 1,03,879

 

Notes

1. Closing stock in units =

Opening stock + Production - Sales

Year 1 = 0 + 3700 - 2800 = 900 units

Year 2 = 900 + 4000 - 3700 = 1200 units

Year 3 = 1200 + 3800 - 3400 = 1600 units

2. Closing stock in £ =

(Units unsold/ Units produced) * Total production costs

Year 1 = (900/3700)* (£5600 + £10100 + £1100 + £91000)

Year 2 = (1200/4000)* (£7400 + £10100 + £1350 +£91000)

Year 3 = (400/3800)* (£7000 +£10100 + £1600 + £91000)

TASK 3

P4 Advantages and disadvantages of different planning tools used for budgetary control

Planning tool is a process and strategies applied by a manufacturing company to facilitate with budgetary oversight in their function (Qian, Hörisch and Schaltegger, 2018.). There are many types of budgets that are specifically connected to budgetary control mechanism within planning tools. This is also defined as a procedure for managers to set performance goals and a substantial budget, performance based alteration as per criteria, and actual comparison findings. Some description of these references together with some benefits and drawbacks are provided below:-

Zero based Budgeting – It is planning tool that, while designing budget, takes zero as a basis. In zero-based approach, it ensures that no prior data will be considered by the management planning the budget when preparing the budget. This method of budgeting allows organization manager to take decisions quickly without any prior data being involved. Based on current case manager, often find fresh assumptions which do not include any previous theories or information.

  • Advantages:It is a effective tool which is beneficial in making short term valuable decision. This also help manager to set a new budget every time easily as they do not have to consider previous budget information.
  • Disadvantages: As the budget is prepared on yearly basis so many time create difficulties for the team member to make decision (Saleem Salem Alzoubi, 2016).

Operating budget: This is a beneficial planning tool since all the small detail about companies operation and activity are included in operating budget. This can be said in short that the respective budget provides the facility to carry out all significant business task in one spot. In addition, all sub- or divisional should prepare during preparation of the operation budget.

  • Advantages: This budget help the manager of respective company to make a decision in more cosine manner about business task and activity as detail information is included in operating budget.
  • Disadvantages: Expertise is needed to plan operating budget that essentially means manager require proper ability and capability to plan spending.

Cash budget: It is a budget that plans as per a company's financial needs and give detail predicted information related with cash inflows and outflows. In Katie Walker Furniture, this budget can be used to estimate the total cash requirement to run production function and manager can record the total cash inflows form selling process.

  • Advantages : This budget can support for respective company by providing actual liquidity and cash detail from various operation (.Höglund and Sundvik, 2016).
  • Disadvantages: The major limitation was that the calculation resulting in loss can not be extended due to firms.

Different planning tools used in preparing and forecasting of budget.

Budgetary control planning techniques comprise of various types of budgets like cash operating and ZBB budget and many more. Such as cash budget provide the information about total cash inflows and outflows, operational budget gives detail about actual business process and task in a period. That's because such planning instruments comprise of financial data which can be a reliable structure for future earnings and expenditure prediction.

TASK 4

P5. Comparison between organisations regarding using of MA system to solve problems.

A kind of issue that comes up because of lack of sufficient financial means which can reduce the overall functioning and profitability of business activity is knows as financial problems (Jefrey, 2018). Through there is no particular reason why the financial problem occurs but some reason specific this like increasing operating cost, more spending than earning, lack of money management etc. There are different MA tool which can be effectively used by the Katie Walker Furniture to detect the financial problems. Some of these are discussed underneath:

  • KPI: Key performance measurement was the tool that helps the market company to assess both financial and non-financial results. In respective firm this tool can be implemented to analyse the performance of staff and operation at different level so that problem of weak performance can be determined.
  • Benchmarking: It was described as a technique of attributing the practices, techniques and financial results of an organization with that of another same industry company. With the help of this tool real problem of businesses are figuring out in different aspects. In Katie Walker Furniture manager can use this tool to detect the issues of increasing cost with other company dealing in furniture business in a year (Aouni, McGillis and Abdulkarim, 2017).

Financial governance: This method acts as a surveillance approach for firms in overcoming financial problems. It was defined as a sort of tool that systematically gathers and manages all business transactions of corporations. Such as in above mention company financial governance can be used to improve the performance of weak member by putting additional training support. Similarly it can be used to increase productivity of operation by making smaller projects so that each activity is monitored in well manner.

Example of Comparison between companies using MA system and Tool to resolve financial issues.

Basis

Fashion enter limited company

Continental clothing limited company

Financial issue

This company is facing the financial problem of inconsistency in sales.

The firm is having issue of less income and higher expenses.

Technique

Manager use KPI to detect the problem as they cab find out the exact reason for lower sales.

In this company benchmarking is used to make comparison with competitive firm which is spending on advertisement in a decent manner and return are higher.

Management accounting system

“Price optimisation system” can used in company to set the most suitable and faithful price of good which would increase sales and increase overall customer percentage.

“Cost accounting system” can be used to analyse the total cost which is used in different promotional activities. This can help to find the activity which is not providing better result to the company (Tracy, 2016).

Management accounting to solve the financial issues.

As in the sense of the above company to resolve the financial problem various MA system can be implemented for better results. By using inventory MA system the financial issue of higher inventory turnover can be reduced, price optimisation system is used make decent price that increase sales etc.

Planning tools to solve the financial issues

In terms of resolving financial difficulties, planning techniques are essential as the management accounting systems. The forecasting methods make it easier as these are related to future earnings and cost projections (Arunruangsirilert and Chonglerttham, 2017). Such as in Katie Walker Furniture, uses various kind of planning tools like cash, ZBB and operating budget. All these budgets are helping to solving the financial issues as they contain detail information about total financial and non financial dealing.

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Students also like to read - Management Accounting System and Its Types – Pavestone Company

CONCLUSION

In conclusion it is founded that management accounting is often referred as managerial accounting which is the practices for decision-making purposes by internal manager. Report is based on Katie Walker Furniture that is a business in the manufacturing sector that can use MA system, report, techniques and tools to make better and effective decision in future. MA system and report are essential and integrated together that support administrators when making decisions. Within project study, specific measurements are performed on the grounds of data given, like income statements per absorption and marginal costing system.

REFERENCES

Books and Journals:

Carlsson-Wall, M., Kraus, K. and Karlsson, L., 2017. Management control in pulsating organisations—A multiple case study of popular culture events. Management Accounting Research. 35. pp.20-34.

Goh, E. and Scerri, M., 2016. “I study accounting because I have to”: An exploratory study of hospitality students’ attitudes toward accounting education. Journal of Hospitality & Tourism Education. 28(2). pp.85-94.

West, A., 2018. After virtue and accounting ethics. Journal of Business Ethics. 148(1). pp.21-36.

Golyagina, A. and Valuckas, D., 2016. Representation of knowledge on some management accounting techniques in textbooks. Accounting Education. 25(5). pp.479-501.

Mizikovsky, I. E. and et.al, 2016. Basic accounting and planning aspects of the calculation of intra-factory turnover of returnable waste. Journal of Economic & Management Perspectives. 10(4). pp.340-345.

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