Advanced Management Accounting

This report discusses advanced management accounting tools and techniques for better decision-making. It analyzes case studies and explores the financial and non-financial consequences of closing a department. The weaknesses in the restaurant section of Modern Limited are also highlighted, along with problems in the management accounting and MIS system. Recommendations for improvement are provided.

Running head: ADVANCED MANAGEMENT ACCOUNTING
Advanced Management Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Executive Summary:
Management accounting is the process of analysing various accounting and financial
information and helping in various managerial decision making process. There are various
advanced tools and techniques of modern management accounting, which can be applied in
the business to generate meaningful and helpful information for a better application of the
managerial tools and techniques. In this report, some of such management tools have been
analysed and illustrated with the help of some practical case studies. Application of such cost
and management tools and techniques can give an optimal solution to the business for their
decision-making problems and complexities.

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Table of Contents
Introduction:...............................................................................................................................3
Marginal Cost Analysis:.............................................................................................................3
Financial and non-financial consequences of closing the Restaurant Department:...................6
Weaknesses in the Restaurant Section of the Modern Limited:................................................8
Problems of Management Accounting and MIS System:..........................................................8
Implementation of MIS:.............................................................................................................9
Setting up of a budgetary planning and control system for the store:......................................10
Conclusion................................................................................................................................11
References and bibliography:...................................................................................................12

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Introduction:
Accounting is a wider concept of recording, classifying, summarising and reporting
the financial transactions of a business organisation. Management accounting is a part of the
accounting system aiming at producing management information for helping in various
managerial decisions making. Budget, budgetary control, investment analysis and assets
valuation are some of the methods of such management accounting and managerial control.
Various situations are there, where, the business organisation needs to take an optimal
decision from various alternative available. In the following part of this report such a
situation have been analysed and based on such analysis the recommendation have been
made for the business (Kaplan & Atkinson, 2015).
Marginal Cost Analysis:
Marginal cost is the increase in total cost for an increase in the units of the output or
volume of output. In other words, increase in total cost for a single unit increase in the
volume of output or production is known as the marginal cost. Marginal costing statement
can explains each and every component of the total costs and income which can help in better
cost control and decision making. On the assumption that the costs for this trading period will
not change significantly from those of the previous period, prepare marginal costing
statements to show contributions for each department and contribution and profit for the
Store overall on the basis of all departments remaining in operation and the closure of the
Restaurant Department (Kaplan & Atkinson, 2015).

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Contribution at Department Level if All Department Continued
Marginal Costing Statement
Particulars Furnishing Kitchenware Restaurant Menswear Toys
Sales 550,000 970,000 400,000 420,000 670,000
Less: Purchases for resale 400,000 680,000 325,000 229,000 560,000
Less: Opening stock 250,000 63,000 24,500 27,000 197,000
Add: Closing stock 263,000 53,000 24,000 25,500 229,500
Less: Non-management wages 65,000 45,000 101,000 65,000 95,000
Less: Departmental expenses 20,000 10,000 16,500 4,000 20,000
Less: Sales promotion cost 14,000 2,000 - 1,000 20,000
Contribution Margin 64,000 223,000 -43,000 119,500 7,500
Contribution Margin (%) 12% 23% -11% 28% 1%
Fixed Cost 80,000 80,000 60,000 140,000 40,000
Net Profit -16,000 143,000 -103,000 -20,500 -32,500
Per cent of floor space occupied
by department 20 20 15 35 10
Contribution and Profit at Store Level if All Department Continued
Marginal Costing Statement
Particulars Furnishing Kitchenware Restaurant Menswear Toys Total( Sto
re)
Sales 550,000 970,000 400,000 420,000 670,000 3,010,000
Less: Purchases for resale 400,000 680,000 325,000 229,000 560,000 2,194,000
Less: Opening stock 250,000 63,000 24,500 27,000 197,000 561,500
Add: Closing stock 263,000 53,000 24,000 25,500 229,500 595,000
Less: Non-management wages
65,000 45,000 101,000 65,000 95,000 371,000
Less: Departmental expenses
20,000 10,000 16,500 4,000 20,000 70,500
Less: Sales promotion cost
14,000 2,000 - 1,000 20,000 37,000
Contribution Margin 64,000 223,000
-
43,000 119,500 7,500 371,000
Contribution Margin( %) 12% 23% -11% 28% 1% 12%

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Fixed Cost 80,000 80,000 60,000 140,000 40,000 400,000
Net Profit -16,000 143,000
-
103,000
-
20,500
-
32,500
-
29,000
Per cent of floor space occupied
by department 20 20 15 35 10
100
Contribution at Department Level if Restaurant Department Closed
Marginal Costing Statement
Particulars Furnishing Kitchenware Menswear Toys
Sales 550,000 970,000 420,000 670,000
Less: Purchases for resale 400,000 680,000 229,000 560,000
Less: Opening stock 250,000 63,000 27,000 197,000
Add: Closing stock 263,000 53,000 25,500 229,500
Less: Non-management wages 65,000 45,000 65,000 95,000
Less: Departmental expenses 20,000 10,000 4,000 20,000
Less: Sales promotion cost 14,000 2,000 1,000 20,000
Contribution Margin 64,000 223,000 119,500 7,500
Contribution Margin (%) 12% 23% 28% 1%
Fixed Cost 94,118 94,118 164,706 47,059
Net Profit -30,118 128,882 -45,206 -39,559
Per cent of floor space occupied by
department 20 20 35 10
Contribution and Profit at Store Level if Restaurant Department Closed
Marginal Costing Statement
Particulars Furnishing Kitchenware Menswear Toys Total( Stor
e)
Sales 550,000 970,000 420,000 670,000 2,610,000
Less: Purchases for resale 400,000 680,000 229,000 560,000 1,869,000
Less: Opening stock 250,000 63,000 27,000 197,000 537,000
Add: Closing stock 263,000 53,000 25,500 229,500 571,000

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Less: Non-management wages 65,000 45,000 65,000 95,000 270,000
Less: Departmental expenses 20,000 10,000 4,000 20,000 54,000
Less: Sales promotion cost 14,000 2,000 1,000 20,000 37,000
Contribution Margin 64,000 223,000 119,500 7,500 414,000
Contribution Margin (%) 12% 23% 28% 1% 16%
Fixed Cost 94,118 94,118 164,706 47,059 400,000
Net Profit -
30,118 128,882
-
45,206
-
39,559 14,000
Per cent of floor space occupied
by department 20 20 35 10
85
Financial and non-financial consequences of closing the Restaurant Department:
In making such decision regarding closure of a particular department of an
organisation, various parameters need to be considered. The overall profitability analysis
must be considered for such decision. The fixed cost of an organisation do not depend on the
volume of the production, hence, after the closure of a department, it will continue to occur.
Therefore, the effect of total fixed costs on the total profit must be considered (Kaplan &
Atkinson, 2015). Based on the above marginal costing analysis the consequences can be
discussed. The closure of restaurant department will definitely have positive financial impact
and immediate adverse impact when seen non-financial, which is as explained below
Financial:
The decision regarding closure of an existing unit of an organisation have some
financial impact on the total profitability and cash generation of the company. In this part
some of such financial implications and impact for the given case study have been analysed.

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The closure of Restaurant Department will benefit Modern Limited avoid negative
contribution margin of $ 43,000 which this department incurring.
The Modern Limited, which was at Net Loss of $29,000 will turn into profitable by
netting profit of $14,000.
All these financial implications ad impacts on the overall business profitability and
cash generation for the closure of the said department must be considered while making such
a closure decision. if it goes in favour of the company then only such decision can be taken
viably.
Non Financial:
Non financial impact or implication of any such decision includes other effects on
some nonfinancial parameters and performance measures of a company. It includes the
customer satisfaction or customers’ perspective, employees’ perspective and social
perspectives. The closure of the said department of the company in the given case study will
create negative image on customers’ part and to some impact will effect employees of
Modern Limited, which is usual when organisation shuts part of operation.
The Modern Limited will be left 15% are as vacant which needs to utilised optimally
for the existing business or finding new avenues.
Past goodwill, which was created through customers who were regular at restaurant
used to love French cuisine, will be lost.
Based on such the above analysis and discussion, it can be concluded that, before
making such an important decision of closure of a running department of the company
various analysis must be conducted applying various management tools and techniques and
must be taken a conscious decision in order to increases the net wealth of the business.

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Weaknesses in the Restaurant Section of the Modern Limited:
The case study has been analysed in terms of monetary parameters as well as non
monetary parameters and based on such analysis weaknesses of the restaurant department of
the given company and many other reasons for closure decision of the department can be
discussed. The weaknesses in the restaurant are evident, which is also visible in their negative
contribution margin. Such lists of weaknesses are as follows
From the explanation it was noted there is lot wastage of food when it did not meet certain
standard, this rather should have been avoided by way providing trainings to staff.
There is no proper mechanism of ordering stock and no re order levels are defined for
ordering stock.
No proper stock keeping system present.
There is no proper book keeping system which keeps records of purchases, stock, costing of
foods offered etc.
Frequent changes in Menu will never be beneficial for retaining customer.
The Kitchen equipment systems were not maintained properly.
The prices in the menu are not at all adequate to achieve profitability.
Problems of Management Accounting and MIS System:
Management accounting is the process accumulation of various managerial
information and application of those information in the decision making fields to take various
important managerial decision making and to give an optimal solution to the business
problems. On the other hand, the management information system is the communication
process and information creation and sharing system of such information so that it can be

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used for decision making purposes. There are various demerits of the management
information system of the given company which helped less in solving all those business
complexities and making conscious decisions. Those areas of management accounting system
and the recommendation for improvement in those areas can be outlined as follows.
Proper Accounting system need to be developed
Analysis of contribution margins of each department need to presented to management for
taking right decision.
Special focus on stock management which include i) developing stock re ordering levels ii)
Stock Management iii) Stock counting when in warded iv) Budgetary planning
Presenting Management the details of cost/expenses which are avoidable such as brakeage of
equipment’s, wastage of foods etc.
Doing cost benefit analysis if food keeping facilities are upgraded owing to new regulation
and enabling management in taking right decision.
Implementation of MIS:
Management information system is an integrated process of information creation and
information sharing and a proper communication network which enables an organisation to
solve various business issues and make an optimal solution by making efficient and effective
decisions. There are various factors that needs to be considered carefully while implementing
the management information in the business. Factors which will influence the design and
implementation of a Management Information System for Modern Ltd are as follows-
No control over stock keeping
Absence of control over stock entry/receipts.

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Identifying profitability at department level to ascertain the profit/loss of each department.
No Budgetary planning.
Since there are no control in entering the area where stocks are maintained, there is high
chances of mismatch of stock/inventory.
To check unnecessary leakages such as, too many food wastage.
Fixing up the Menu prices basis MIS in order to achieve profitability.
Therefore it can be concluded that, there are various tools and techniques which can
be applied considering some important internal and external factors, an efficient and effective
management information system can be constructed within a business to facilitate the
management with various important business information in time for their decision making
purposes.
Setting up of a budgetary planning and control system for the store:
Budgetary planning is the process of constructing a budget and then utilizing it to
control the operations of a business. The purpose of budgetary planning will be to mitigate
the risk that the Modern Limited’s, financial results will be worse than expected. We will
construct/prepare a budget by engaging a) Management in strategic directionb)Sales Targets
c) setting internal controls over cost and operation d) Preparing policies and procedure
around it e) Final sign off from the management f) constant monitoring of budgets vs actual
g) corrective action in regular intervals (Lavia & Hiebl 2014).
Behavioural problems that we may encounter are as follows-
People might feel that they are being pressurised

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People may not like the idea of having an budgetary planning and control and feels this is not
helpful.
They are comfortable working in existing manner
People might feel that this will waste too much of time hence does not pay too much of
attention
Let us know if you need further detailing on any information or clarification on any of
the above point.
Conclusion
Based on the above analysis and discussion, it can be concluded that, every business
organisations faces certain challenges and they need to address those challenges to overcome
the situations and to survive in the market and to be ahead in the competition. There are
various management accounting tools and techniques which can help an organisation to
analyse all those complex situations and help them by providing various meaningful data to
achieve at an optimal solution thereby taking a conscious decision. In the given case study
also some of such outcomes of the application of managerial accounting technique can be
noticed. Lastly, it can be recommended for every business organisation to formulate such
strategies which will lead to a managerial efficiency and a good managerial control over the
resources of the company.

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