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D02_ Management Accounting.docx - Management Accounting...

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Management AccountingTask 2
ContentsIntroduction2LO23P3 Cost Estimation usingAbsorption Costs and Marginal Costs3Income and Loss Statements4LO37P4 Benefits and Drawbacks of Different Budgetary Control Planning Tools7LO410P5 Comparison of Enterprises and Their Usage of Management Accounting Systems toAddress Monetary Issues10Conclusion13References141
IntroductionManagement accounting is the systematic process of analysing and distributing financial datawhich guides business managers in making proper decisions for their business organisations(EDMONDS, 2020). It is also regularly used as a crucial tool, sometimes called costsaccounting, to properly track each and every expenditure and costs of a certain businessentity (Drury, 2017). This also helps manager make estimations and help shape futureinvestment and expansion decisions of a business. This report aims to demonstrate howdifferent business entities use this tool to calculate their business costs. It will also showcaseseveral advantages and drawbacks of different planning methods with the use of this tool andhow the UK-based Prime Furniture can make the most use of these budgeting systems tocreate the most accurate budget for them. This report will also try to showcase the contrastwithin Prime Furniture and P&G on how they regularly utilise these accounting tools toresolve different monetary issues.2
LO2P3 Cost Estimation using Absorption Costs and Marginal CostsEvery commercial enterprise has always kept track of its operational expenditures to managethe expenses behind each of its investments, profit, revenue or losses (Innes and Mitchell,1990). Operational costs can mainly be categorised as two different types of costs. They are:absorption cost and marginal cost.A company always calculates its operational expenditures frequently. This helps it keep trackand monitor every expense of the company in projects or to calculate revenue and losses(Venkataraman, 2018). Operations costs are usually the combination of a commercial entity’sabsorption cost and marginal cost.Absorption Cost:This type ofcost mainly deals with the production phaseof anycommercialenterprise. Mainly, allexpenses occurreddue to acompany’s productionpipeline directly are fitted in this type of costing (Moles, 2011). It gives a companynecessary insights about their product or services by analysing labour and rawmaterial costing. It also helps managers to calculate the pricing of a product based onits labour, raw material, transportation, tools and other variable factors. Overall it isthe calculation of the raw material and labour cost of a company.Marginal Cost:Marginal cost depends on thefixed cost and variable cost of abusiness. A business entity may fix a cost behind a specific product and its production.

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Term
Summer
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Prime Furniture

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