Accounting Practices For Preparing A Financial Report of UCK Furniture

1.3 Interpretation of both absorption and marginal costing  and merits and demerits

Marginal costing    

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. 

Advantages 

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).

Disadvantages

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.

Absorption costing

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.

Advantages 

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. 

Disadvantages

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 a difficult task. 

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TASK 2

2.1 Ascertaining the advantages and disadvantages of planning tools used in budgetary control

The advantage of a 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: (Buy assignment at the lowest price)

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