Unilever Case Study: Management Accounting Systems and Reporting

This report provides a detailed analysis of management accounting systems and reporting methods, focusing on their application within a manufacturing company, Unilever. It explains different types of management accounting systems, including cost accounting, inventory management, job costing, and price optimization, highlighting their advantages and disadvantages. The report also examines various management accounting reporting methods such as cost accounting reports, budget reports, and performance reports, detailing their benefits and drawbacks. Furthermore, it includes calculations using marginal and absorption costing techniques to assess profitability. The report also touches on planning tools used in budgetary control and compares how organizations can use management accounting to respond to financial problems, providing a comprehensive overview of management accounting practices and their impact on business decision-making. This document is available on Desklib, a platform offering study tools and solved assignments for students.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Explaining management accounting and different types of management accounting systems. .3
Different methods used for management accounting reporting..................................................5
Calculating the cost techniques using marginal and absorption techniques...............................7
Planning tools used in budgetary control and its advantages and disadvantages.....................10
Comparing ways in which organisations could use management accounting to respond to
financial problems.....................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is a systematic process which provides financial information and
related business resources to the managers of the company so that they can make important
decision. Management accountants of the firm can handle the important data by managing the
accounting which benefit the various stakeholders. They look at the financial events that happen
in and around the business while considering the business needs. The main purpose of
management accounting is to guide management team of firm so that they can efficiently
perform business function such as planning, directing, organizing, budgeting and controlling.
The present report is based on famous manufacturing company, Unilever- food, personal
care and household company. The company is owning brands like ben and Jerrys and Dove and
has successfully achieve its market position in the competitive market. The present report will
provide information about different types of management accounting systems and methods used
for reporting. Furthermore, it will provide highlights on planning tools used in budgetary control
and financial problems.
1.Explaining management accounting and different types of management accounting systems
Management accounting
Management accounting is all about the process in which company manage their business
operations and provide important financial information and resources to the top level
management team so that they can make decision making process successful. Mostly
management accounting is used by the internal department of the company, and thus this is the
only thing which makes management account different from other accounting such as financial.
All the financial information and reports which is beneficial for decision making process
such as cash flow and invoice balance sheet is shared by finance team with the team of the
company (Rikhardsson and Yigitbasioglu, 2018). The main purpose of management accounting
is to use the important data and information and take make better and accurate decision and
controlling process which is beneficial for company’s development. In other words, this process
is the presentation of financial data and business activities for the internal management of the
firm.
The essential requirements of different types of management accounting systems

Cost accounting system- This accounting system used by company in order to determine the
cost of products which includes all the cost such as variable cost and fixed cost (Management
accounting, 2022). The management team of company used this system for checking out the cost
of financial goods or services. So that they can make important decisions about cost of products.
It will guide in focusing on those services and goods of firm which are beneficial for the firm’s
performance.
Advantages- With the help of cost accounting system company can predict future
expenses and make important decision and adjustment about cost accordingly. Also, the cost
system is helpful to control the project cost and maintenance cost. By analysing the long term
business trends company can achieve its goals and objectives. By understanding the concept of
cost accounting system, company can also analyse the business health and its position in the
market. the major benefit of this system is to improve cost efficiency and reduce costs without
decreasing the production level.
Disadvantages- The major drawback is this system is expensive in nature, because it
requires a double set of account books and so, company has to maintain books of accounts to
make major decisions. At the time of installation, this system consumes a good amount of
finance. Another disadvantage includes this system cannot be applied to many types of industries
such as small size business cannot use because sometimes they cannot afford it.
Inventory management system- An inventory system is used by company in order to track
products and services throughout their entire supply chain, such as from buying to production to
final stage that is sales. With the help of this system company can understand about inventory
approach for business.
Advantages- The major benefit of inventory system is it reduce risk of overselling which
is beneficial for company for cost savings. By adopting this method, Unilever can improve
business negotiation so that it can create better goods visibility and also avoid excess stock.
Disadvantages- Before deciding about implementation of inventory system, it is
important to understand the disadvantage and consider it. The drawback includes this system is
more time consuming process hence this cannot be maintained manually by the firm. Therefore,
in order to continuous use of this system, a company must first adopt better techniques and
install software. This step required a high cost for implementation especially in big companies
with multiple various locations.

Job costing system – this method is used by company when they want to track the cost of
individual jobs, task and projects. Which means they need to look into indirect and direct costs,
classified into three categories such as raw materials, labor and overhead.
Advantages- The benefit of using this system includes profitability of each project or job
can be determined at individual level. With the help of this system company can analysis the cost
of overheads, raw material and labour whenever required.
Disadvantages- This system requires lots of paper work and sometimes creates a lot of
complications. Therefore, firms have to recruit and employ a lot of employees to work on this
process. By adopting ERP systems that is enterprise resource planning, the company can manage
their paperwork load faster and achieve their target.
Price optimisation system- It is the mathematical program that is helpful to calculate how
demand for product various at different levels of price (Bedford and Speklé, 2018). This system
allows businesses to make important decisions on the basis of market data and information about
customer’s details in order to find out the most effective point of price.
Advantages- with the help of this method, company cam eliminates the need of manual
business work and reduce the number of mistakes which can harm
Disadvantage- The major drawback of this system is that it prevents the customer who
cannot afford the basic things they need on daily basis. For example- when customers cannot
afford to buy basic necessities, their willingness to buy that thing is reduced and hence they are
denied access to those products.
2.Different methods used for management accounting reporting
Cost accounting report- The accounting report which provide detailed information for
checking business health and referring profit and loss from several business activities. Before
selling of any products or service, this report assist in calculating all the business expenditure.
This can be done after comparison with the income from selling of goods or services. Therefore,
it is said that when the expenses are less than income it will be profit for the firm on the other
hand, if income are less than expenses it will be loss for the company. Although, Unilever utilize
cost accounting report with the aim of analysing loss and profit as well as also for taking
important decisions and future policies.
Benefits- with the help of this report, company managers can form the foundation of an
effective budget plan. It can determine the actual cost of all business operations and the cost of

each business department, operating costs and production level cost. With cost report, top level
management of Unilever can evaluate all strategies within business such as profit analysis,
investment related terms and profitability of goods. By understanding this report structure can
improve decision making abilities, decisions of financial terms can also be determined.
Drawbacks- the major drawback of this report includes when there is delay in receiving
and sending important information or data about cost does not result in taking better decision by
top level management. Thus, this can create issue within the team and does not able to achieve
goals or purpose. Another disadvantage includes this report requires a good knowledge and
better software installations in order to maintain costing records, this results in heavy
expenditure.
Budget report- with the help of budget report, company can estimate actual performance
and make important decisions about budgeting. This report assist in comparing estimated with
actual productivity of the firm. Furthermore, it also aids in designing future business policies as
well as business strategies. By maintaining budget report, firm can easily reduce its necessary
expenses and more focus on profitability.
Benefits- By maintaining proper budgeting report, company can find out error or mistakes,
make adjustment whenever required or if necessary. This mistakes may be corrected by top level
management advices; hence the budget can be revised by them if necessary.
Drawbacks- This report requires a lot of time to complete, thus it can be very time
consuming process to create accurate budget. Also, if the departments in the firm does not
receives proper data and budgeted results, then they may blame for outcomes. This will create
conflicts between team members or management team.
Performance report- In simple language, this report is that which is used by company for
measuring the overall performance. It involves the analysis and collection of important decisions
or data involving a task’s overall production process (Bayer, 2018). It will show the performance
of staff, departmental team other working staff in the firm.
Benefits- The major benefit of this report is to help promote a continuous improvement,
which provides very important data to allow for the best possible process known as decision
making process in the planning cycle of business. In order to get effective reporting about overall
performance, it should be understandable, relevant, timely and comparable so that proper
decisions can be taken.

Drawbacks-This report need time and sometimes can be overwhelming to leaders of the
company with many staff members. This report is basically based on human assessment and are
subject to mistakes or errors (Ulandari and Widajantie, 2021). If not done properly, this can
create conflict between employees of the firm. Although, Unilever is focusing on its performance
appraisals reporting in order to balance the work flow of business and employees.
By evaluating the above mentioned reports, it has been determined that management
accounting and its systems contribute to continuous improvement in the company. With the help
of this report, companies can measure or monitor the costs of inputs and decrease or reduce those
costs that add no value to company or which is not beneficial for firm.
3.Calculating the cost techniques using marginal and absorption techniques
January February
Actual units
produced 900 850
actual units sold 800 900
SP 20
VC 5
FC 4000
fixed selling and distribution cost per
month 3000
January February
production cost
VC 5 5
FC for
manufacturing 0.2 0.2
total 5.2 5.2
Marginal costing is associated with change in the total cost that has been incurred for
increasing quantity produced when incurred. In addition to this, it can be specified that variable
cost is charged to the units of cost whereas fixed cost for period is completely written off against
the contribution (Abdusalomova, 2019). From the below calculation regarding the expenses
incurred by Cottage Ltd manufacturing in turn profitability & contribution can be obtained.

Income statement as per marginal costing
Particulars January February
£s £s £s £s
sales revenue 16000 18000
VC 4000 4500
Contribution 12000 13500
Fixed cost 4,000 4,000
Fixed Selling and
distribution
3000 7,000 3000 7,000
Net profit 5,000 6,500
From the above calculation it can be specified that net profitability for the two period
such as January and February for two period involves 5000 and 6500. It has been derived by
computing contribution through deducing the variable cost from sales. Fixed cots has been
deducted from the contribution in respect to obtain the net profitability. There are several
expenses which are incurred by the company for selling the product. On the basis of this, it can
be identified that there is inclining trend. It is helpful in understanding that company is making
profits by covering the fixed and variable cost. This aids in understanding that firm is performing
quite well to accomplish its overall objectives.
working note
January February
Sales revenue 800*20 16000 900*20 1800
VC 800*5 4000 900*5 4500
Absorption costing is one of the significant method that is helpful in having information
regarding the full cost by capturing the overall costs associated with producing a particular good
(alih Chichan and Alabdullah, 2021). It is widely taken into consideration by the manufacturing
companies as provides various kinds of advantages in planning. The reason behind this is
involves that it allocates fixed overhead cost to product whether not sold in period. Below
illustrated table provides assistance in gaining the crucial information related with fixed and
variable cost associated with manufacturing process. In addition to this, indirect expenses that

are executed to meet the objective of selling commodity to customer has been involved in
particular enumerated income statement.
Income statement as per absorption
Particulars January February
£s £s £s £s
sales revenue 16000 18000
cost of sales
Opening inventory
production cost 4703 4441
closing stock 261 4441 4441
gross profit 11559 13559
Fixed Selling and
distribution cost per
month
3000 3000
profit 8559 10559
On the basis of illustrated information in the income statement it can be identified that
the profitability which is derived from the particular statement for two continuous months such
as January & February includes 8559 and 10559. In addition to this, it can be specified that
profitability is having upward movement which indicates good financial position. On the basis
of this, it can be specified that Cottage Ltd manufacturing is functioning effectively. It is modern

technique of computing the figures so that significant insights to achieve the higher accurate,
reliable, etc. kind of information in turn fair expenditure incurred can be assessed.
working note
January February
Sales revenue 800*20 16000 900*20 1800
production cost 900*5.2 4703 850*5.2 4441
closing stock 50*5.2 261 - -
Reconciliation statement January February
£s £s
Profit as per marginal costing 5000 6500
Adjustment of differences of valuation of
stock 3559 4059
Opening stock - -
Closing stock - -
Profit as per the absorption costing 8559 10559
On the basis of provides information from the recitation statement it can be identified
that there is difference in profitability derived from the income statement prepared as per the
absorption and marginal. The reason behind attaining the difference is that fixed cost distinction.
In addition to this, it can be specified that both the period such as January & February has
positive outcomes.
4.Explaining planning tools used in budgetary control and its advantages and disadvantages with
application in company
There are different types of planning tools used in the budgetary control are as follows:
Zero-based budgeting: The zero-based budgeting is the method of budgeting in which
the all the expenses are justified in every new period of transactions. This was developed by the
Peter Phyrr in the year 1970’s which says that the budget should be start from the each period by
having the zero as the base (Ibrahim, 2019). This helps in making the budget useful and helps to
analyse the needs of cost in the organization and work accordingly with the available funds.
The advantages of the zero based budgeting are as follows:

 Accuracy: The budgeting of this type helps the company in order to properly
evaluate the funds of the every department and make the appropriate funding of each
department.
 Efficiency: This type of budgeting helps in order to judge the exact numbers rather
than imaging the budget on the numbers.
 Reduced waste: By doing this type of budgeting, it makes the company to reduce the
waste and makes them to use the efficient use of resources in the organization.
The disadvantages of the zero based budgeting are as follows:
 Bloat: In this type of budgeting managers used to make the budget according to their
needs and activities in the business.
 Time-consuming: In order to make the budget it takes the lots of time. As the
company has to make the budget for the each department.
Activity based budgeting
It is the system which records, researches and analyses activities that lead to the cost for
the organization. There are various reasons for which it is taken into consideration so that depth
understanding regarding its process. It provides several advantages and drawbacks which are
needed to be evaluated so that proper information in respect to get higher profitability & stability
through making appropriate planning can become possible.
Advantages
 The one of the crucial benefit which can be attained through applying this particular
planning tool includes that it allows to evaluate non crucial components in turn
eliminating can become possible.
 The company with help of this technique can get competitive edge by improving
relationship so that higher profitability can be derived
Limitations
 It requires higher level of understanding which makes it a complex process and suitable
for short term only.
 This is highly costly method which needs enterprise to possess greater amount of
resources which leads to cost consumption. It can impact the planning of firm in adverse
manner by influencing efficiency & accuracy.
Cash budgeting

 This is one type of planning tool that allows the firm to achieve information regarding in
and out flow of cash so that proper liquidity of business can be managed. It is largely
utilized method as considered to be realistic method for making strategic planning.
Unilever can gain the ability to identify the prevailing capacity to deal with significant
aspects of business via taking crucial measures on time. There are several benefits and
limitations which can be achieved by fir, through making planning via this particular
technique of budgetary control.
Merits
 There are various kinds of benefits which can be achieved through applying particular
method of strategic planning such as avoid debt via making elimination of debt
(Maheshwari, Maheshwari and Maheshwari, 2021.). It can be done by identifying the
lacking areas so that higher stability by applying suitable course of action.
 Unilever can become more resourceful through making proper compliance with reality
so that better competitive edge in planning formulated to boost both financial & monetary
resources can become possible.
Demerits
 Each method has few limitations which are required to be evaluated so that relevant level
of functioning through maintaining accuracy and efficiency (Ameen and et.al., 2018).
 Cash budget is one of the significant method that has one of the biggest drawback that it
limits the power of spending which bounds company to take innovative steps which is
required for coordinating with changing circumstances.
 Capacity to build credit profile is affected by implementing this method of planning. In
addition to this, it can be identified that firm’s ability to achieve credit in market get
hampered by utilizing this course of action.
5.Comparing ways in which organisations could use management accounting to respond to
financial problems.
There are various ways in which company could use management accounting and its
systems in order to respond to financial problems.
Benchmarking- This is the method used by company to compare the performance metrics
and business operations or processes to industry good and best practices from different firms. In