Management Accounting Research Review
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AI Summary
This assignment presents a review of recent research in management accounting. It analyzes several scholarly articles covering topics such as the relationship between leadership performance and strategic management, performance measurement systems, the impact of institutional logics on accounting practices, and the role of psychology theory in contingency-based management accounting. The review also discusses emerging trends like integrating sustainability into management accounting and utilizing partial least squares structural equation modelling (PLS-SEM) for analysis.
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Case Study Report
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Balanced Scorecard as a measure of performance tool......................................................1
2. Creation of balanced scorecard and suggesting two measures...........................................5
3. Recommendation for appointing another accountant.........................................................6
4. Utilisation of target costing................................................................................................7
5. Providing review of firm's share scheme...........................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
INTRODUCTION...........................................................................................................................1
1. Balanced Scorecard as a measure of performance tool......................................................1
2. Creation of balanced scorecard and suggesting two measures...........................................5
3. Recommendation for appointing another accountant.........................................................6
4. Utilisation of target costing................................................................................................7
5. Providing review of firm's share scheme...........................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
INTRODUCTION
Profit is the main purpose for which businesses are established. The enclosed report deals
with ITS UK LTD which is successful firm providing technology solutions to government and
clients. The report deals with issue of company as net profit is 6 % and 20 % of gross profit is
not enough for achieving desired profit. For overcoming this, target costing technique is
discussed in the report. Moreover, balanced scorecard which is an effective performance tool is
also explained and it is created for the company. Along with it, recommendation for accountant
is discussed and employee stock ownership scheme is explained as well. The implementation of
techniques will help company to reduce upon expenditures and will eventually increase profit.
1. Balanced Scorecard as a measure of performance tool
Balanced scorecard is an effective tool to measure a company's performance so that it
may be able to achieve strategic goals with much ease. This performance measurement tool was
developed by Kaplan and Norton in 1990 which has immense importance for company. In this
case study, ITS (Integrated Technology Services) Ltd which is UK based subsidiary of ITSI
(Integrated Technology Services International) is concerned about its low net profit margin.
Company needs to reduce upon its indirect expenditures so that it may achieve more than 6 %
net profit margin with much ease. For overcoming this problem, balanced scorecard can be
effectively used to garner desired profit margin (Harlez and Malagueno, 2016). This technique
consists of four perspectives such as financial, customer, internal business and innovation and
learning perspectives. These components are evaluated in following paragraphs-
1
Profit is the main purpose for which businesses are established. The enclosed report deals
with ITS UK LTD which is successful firm providing technology solutions to government and
clients. The report deals with issue of company as net profit is 6 % and 20 % of gross profit is
not enough for achieving desired profit. For overcoming this, target costing technique is
discussed in the report. Moreover, balanced scorecard which is an effective performance tool is
also explained and it is created for the company. Along with it, recommendation for accountant
is discussed and employee stock ownership scheme is explained as well. The implementation of
techniques will help company to reduce upon expenditures and will eventually increase profit.
1. Balanced Scorecard as a measure of performance tool
Balanced scorecard is an effective tool to measure a company's performance so that it
may be able to achieve strategic goals with much ease. This performance measurement tool was
developed by Kaplan and Norton in 1990 which has immense importance for company. In this
case study, ITS (Integrated Technology Services) Ltd which is UK based subsidiary of ITSI
(Integrated Technology Services International) is concerned about its low net profit margin.
Company needs to reduce upon its indirect expenditures so that it may achieve more than 6 %
net profit margin with much ease. For overcoming this problem, balanced scorecard can be
effectively used to garner desired profit margin (Harlez and Malagueno, 2016). This technique
consists of four perspectives such as financial, customer, internal business and innovation and
learning perspectives. These components are evaluated in following paragraphs-
1
Finance perspective
ITS UK Ltd is required to follow upon its strategic mission and vision and as such,
balanced scorecard tool can be used to garner effective results. Starting from finance perspective,
various elements need to be evaluated by company. These include ROI (Return on Investment),
ROE (Return on Capital Employed), cash inflows and outflows. ITS UK Ltd which is engaged in
providing technology services to clients and government is required to maintain these elements
in quite effectual way (Maas, Schaltegger and Crutzen, 2016). Moreover, since it provides
technology solutions on contract basis, profit earned from particular contract also need to be
analysed so that financial performance may be strengthened in the best possible way.
Furthermore, company need to look after various financial records and all the above discussed
elements so that it may be able to maximise profitability and net profit margin. This will help to
2
Illustration 1: Balanced scorecard perspectives Source: bi-
insider.com
ITS UK Ltd is required to follow upon its strategic mission and vision and as such,
balanced scorecard tool can be used to garner effective results. Starting from finance perspective,
various elements need to be evaluated by company. These include ROI (Return on Investment),
ROE (Return on Capital Employed), cash inflows and outflows. ITS UK Ltd which is engaged in
providing technology services to clients and government is required to maintain these elements
in quite effectual way (Maas, Schaltegger and Crutzen, 2016). Moreover, since it provides
technology solutions on contract basis, profit earned from particular contract also need to be
analysed so that financial performance may be strengthened in the best possible way.
Furthermore, company need to look after various financial records and all the above discussed
elements so that it may be able to maximise profitability and net profit margin. This will help to
2
Illustration 1: Balanced scorecard perspectives Source: bi-
insider.com
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garner adequate profits as all the expenditures can be analysed in effective way. This will reduce
expenses and net margin will be increased consecutively.
Customer perspective
Firm establishes business for providing adequate services to clients and to enhance their
level of satisfaction as well. This is the basic goal of every organisation and that is as well of ITS
UK Ltd. Thus, it is essential required by the company to maintain satisfaction level of clients so
that they may develop positive image towards brand and more revenue may be garnered
(Messner, 2016). ITS UK Ltd is engaged in providing technology services and as such, it is
required to formulate effective strategies to enhance customer retention rate, satisfaction rate of
customers, market share etc. These elements will help to retain customers in the best possible
way.
Internal business perspective
This perspective is required to be effective so that various internal business processes
may be segregated to provide streamlined services to customers and gain revenue with much
ease. ITS UK Ltd has several operations as listed in the case study. These are consultancy
services to businesses, service outsourcing mainly to oil and gas industries. Thus, it is required to
correlate each of the services to organisation structure and as such, it can be correlated to varied
departments such as R&D (Research and Development), finance to achieve balanced growth.
Innovation and learning perspective
This perspective is essential for ITS UK LTD as it is a technology solution service
provider and should employ efficient staff so that collective goals can be achieved with much
ease. Employees are required to be trained in effective way so that they may be able to fulfil
demands of clients in effectual manner. Thus, more advanced and intellectual knowledge is
required which should be imparted by training experts so that workers can provide reliable
services with much ease (Cooper, Ezzamel and Qu, 2017). Thus, this perspective of balanced
scorecard is dedicated to job level satisfaction, staff turnover etc. and implies that organisation
should constantly look after employees so that specific job can be performed with full efficiency.
The principles of balanced scorecard on critical evaluation are listed below
3
expenses and net margin will be increased consecutively.
Customer perspective
Firm establishes business for providing adequate services to clients and to enhance their
level of satisfaction as well. This is the basic goal of every organisation and that is as well of ITS
UK Ltd. Thus, it is essential required by the company to maintain satisfaction level of clients so
that they may develop positive image towards brand and more revenue may be garnered
(Messner, 2016). ITS UK Ltd is engaged in providing technology services and as such, it is
required to formulate effective strategies to enhance customer retention rate, satisfaction rate of
customers, market share etc. These elements will help to retain customers in the best possible
way.
Internal business perspective
This perspective is required to be effective so that various internal business processes
may be segregated to provide streamlined services to customers and gain revenue with much
ease. ITS UK Ltd has several operations as listed in the case study. These are consultancy
services to businesses, service outsourcing mainly to oil and gas industries. Thus, it is required to
correlate each of the services to organisation structure and as such, it can be correlated to varied
departments such as R&D (Research and Development), finance to achieve balanced growth.
Innovation and learning perspective
This perspective is essential for ITS UK LTD as it is a technology solution service
provider and should employ efficient staff so that collective goals can be achieved with much
ease. Employees are required to be trained in effective way so that they may be able to fulfil
demands of clients in effectual manner. Thus, more advanced and intellectual knowledge is
required which should be imparted by training experts so that workers can provide reliable
services with much ease (Cooper, Ezzamel and Qu, 2017). Thus, this perspective of balanced
scorecard is dedicated to job level satisfaction, staff turnover etc. and implies that organisation
should constantly look after employees so that specific job can be performed with full efficiency.
The principles of balanced scorecard on critical evaluation are listed below
3
Transformation of strategies
Balanced scorecard is helpful for company as it translates corporate strategies into
business operations. This is required so that formulated strategies can be executed in operational
tasks to achieve goals of firm in the best possible way. Once operational tasks are executed
effectively, then external and internal communication may be collectively strengthened. This will
provide efficiency and clarity to achieve goals and operational activities may be streamlined
quite easily. In contrary to this, it has been criticised because it is not properly designed and as
such, lacks review facility (Bennett and James, 2017). Thus, it cannot be reviewed in day to day
activities and as such, it is not useful for ITS UK LTD.
Supporting firm to strategy
Balanced scorecard is performance measurement tool and as such, it provides positive
synergies to company and enhanced business unit. This requires lot of costs to implement such
technique in the organisation. This is not useful for ITS UK LTD as it is discussed in the case
study that it is facing low net profit margin at 6 %. Thus, it is not the best performance
measurement technique for the company as it has more of overheads and as such, expenditure of
this technique will lead to reduction in the profits and financial condition of firm may become
weaker. This could have negative effects and profit may be affected adversely.
Initiating change by implementing leadership
Balanced scorecard is effective technique and focuses on implementing leadership in the
company so that strategies can be managed, internal process can be streamlined etc. This is
essential for ITS UK LTD so that it may take effective steps to increase profit margin by
implementing leadership element in organisation (Bergh and et.al, 2016). Moreover, it is also
effective tool for communication purpose between team members. In contrary to this, balanced
scorecard does not provide measures to improve upon productivity and as such, it has been
criticised on the ground that it may divert company from accomplishing common targets. Thus, it
is not effective one to use and extract benefits out of it.
It may be concluded that balanced scorecard is useful technique but it needs to be
properly designed and formulated so that adequate benefits may be garnered by the firm.
4
Balanced scorecard is helpful for company as it translates corporate strategies into
business operations. This is required so that formulated strategies can be executed in operational
tasks to achieve goals of firm in the best possible way. Once operational tasks are executed
effectively, then external and internal communication may be collectively strengthened. This will
provide efficiency and clarity to achieve goals and operational activities may be streamlined
quite easily. In contrary to this, it has been criticised because it is not properly designed and as
such, lacks review facility (Bennett and James, 2017). Thus, it cannot be reviewed in day to day
activities and as such, it is not useful for ITS UK LTD.
Supporting firm to strategy
Balanced scorecard is performance measurement tool and as such, it provides positive
synergies to company and enhanced business unit. This requires lot of costs to implement such
technique in the organisation. This is not useful for ITS UK LTD as it is discussed in the case
study that it is facing low net profit margin at 6 %. Thus, it is not the best performance
measurement technique for the company as it has more of overheads and as such, expenditure of
this technique will lead to reduction in the profits and financial condition of firm may become
weaker. This could have negative effects and profit may be affected adversely.
Initiating change by implementing leadership
Balanced scorecard is effective technique and focuses on implementing leadership in the
company so that strategies can be managed, internal process can be streamlined etc. This is
essential for ITS UK LTD so that it may take effective steps to increase profit margin by
implementing leadership element in organisation (Bergh and et.al, 2016). Moreover, it is also
effective tool for communication purpose between team members. In contrary to this, balanced
scorecard does not provide measures to improve upon productivity and as such, it has been
criticised on the ground that it may divert company from accomplishing common targets. Thus, it
is not effective one to use and extract benefits out of it.
It may be concluded that balanced scorecard is useful technique but it needs to be
properly designed and formulated so that adequate benefits may be garnered by the firm.
4
2. Creation of balanced scorecard and suggesting two measures
Balanced scorecard is important tool for measuring performance so that activities may be
accomplished in accordance to common targets in effective way. This is essential technique that
should be properly designed by the company so that adequate benefits may be retrieved out of it
with much ease. It helps to prepare and execute strategic plan so that common goals can be
achieved in effective way. ITS UK LTD which is engaged in providing outsourcing services is
required to follow adequate framework quite effectively. In relation to this, balanced scorecard
can be created for company.
Finance perspective
ITS UK LTD enters into contractual agreement with clients and as such, it is required that
revenue may be earned, sales may be injected and profit may be consecutively increased. In
addition to this, it is suggested that two measures such as ROI, ROE should be used in effective
way so that financial condition may be strengthened (Nitzl, 2016). To accomplish this goal, it is
required that company should change contract terms as it should use gross profit margin instead
of net margin. Thus, by initiating such change, controlling can be done by comparing planned
figures with actual ones quite effectively.
Customer perspective
Customers should be enhanced by giving quality services so that level of satisfaction may
be increased up to high extent. This is required as ITS UK LTD is formed for providing quality
services to them and as such, level of satisfaction should be enhanced for better results. In this
respect, two measures are suggested which are customer retention rate, acquiring more customers
resulting in increased market share. Thus, these measures should be implemented by organisation
so that It may be able to satisfy customers up too much extent. Furthermore, customers will
become loyal towards brand which will ultimately inject sales and eventually net margin can be
maximised as well.
Internal business processes perspective
Internal processes is essentially required so that business may be able to provide reliable
services to customers in the best possible way. This is important so that employees turnover rate
may be reduced and skills can be enhanced quite positively. For overcoming such problem, it is
5
Balanced scorecard is important tool for measuring performance so that activities may be
accomplished in accordance to common targets in effective way. This is essential technique that
should be properly designed by the company so that adequate benefits may be retrieved out of it
with much ease. It helps to prepare and execute strategic plan so that common goals can be
achieved in effective way. ITS UK LTD which is engaged in providing outsourcing services is
required to follow adequate framework quite effectively. In relation to this, balanced scorecard
can be created for company.
Finance perspective
ITS UK LTD enters into contractual agreement with clients and as such, it is required that
revenue may be earned, sales may be injected and profit may be consecutively increased. In
addition to this, it is suggested that two measures such as ROI, ROE should be used in effective
way so that financial condition may be strengthened (Nitzl, 2016). To accomplish this goal, it is
required that company should change contract terms as it should use gross profit margin instead
of net margin. Thus, by initiating such change, controlling can be done by comparing planned
figures with actual ones quite effectively.
Customer perspective
Customers should be enhanced by giving quality services so that level of satisfaction may
be increased up to high extent. This is required as ITS UK LTD is formed for providing quality
services to them and as such, level of satisfaction should be enhanced for better results. In this
respect, two measures are suggested which are customer retention rate, acquiring more customers
resulting in increased market share. Thus, these measures should be implemented by organisation
so that It may be able to satisfy customers up too much extent. Furthermore, customers will
become loyal towards brand which will ultimately inject sales and eventually net margin can be
maximised as well.
Internal business processes perspective
Internal processes is essentially required so that business may be able to provide reliable
services to customers in the best possible way. This is important so that employees turnover rate
may be reduced and skills can be enhanced quite positively. For overcoming such problem, it is
5
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suggested to use effective measures such as implementing leadership, survey of satisfaction level
of employees. This will have positive effect on ITS UK LTD and it may be able to achieve
strategic goals with much ease with expertise staff.
Innovation and learning perspective
Company may implement well-structured strategies relating to finance and customer's
perspectives. But it will go in vain, if innovation and learning is not implemented. Thus, it is
required that firm may innovate products which is the main function of R & D team so that
innovation may be achieved. Effective measures can be used such as utilisation of capacity,
errors and mistakes in providing services. Thus, it is suggested to use these measures so that
financial performance can be enhanced in the best possible way (Katsikeas and et.al, 2016).
3. Recommendation for appointing another accountant
There are many loopholes in ITS UK LTD such as small contracts costs more than large
ones. This is because firm is not able to reach adequate net margin and as such, medium size
contracts reduces up to high extent. Moreover, there is lack of monitoring and control in
organisation and as such, financial budgets are not adequately compared with actual ones.
Another loophole is that adequate monitoring is not there which has lead to difficult to handle
variations. Moreover, charges for contract is not cleared to customers which has resulted into
more expenditures as due to lack of clarity, additional charges are paid and borne by company.
Furthermore, there has been inadequate utilisation of financial resources which has led to
decrease in net profit margin of the company. Thus, by considering above inefficiencies, firm
should appoint management accountant so that it may be able to garner efficiency in the best
possible way. This is because management accountant has capabilities to handle accounts in a
better way and recommends firm to take enhanced decisions with much ease. There is important
role of accountant in company (Schaltegger and Wagner, 2017).
Major one is budgeting which is utmost essential for company as it gets revenue from the
contracts and as such, it can get amount of tender much than the actual cost and it needs to divide
and share profit percentage. This will help company to garner profitable contracts which is
achievable by formulating budgets. But, it is observed in the case study that company is using
6
of employees. This will have positive effect on ITS UK LTD and it may be able to achieve
strategic goals with much ease with expertise staff.
Innovation and learning perspective
Company may implement well-structured strategies relating to finance and customer's
perspectives. But it will go in vain, if innovation and learning is not implemented. Thus, it is
required that firm may innovate products which is the main function of R & D team so that
innovation may be achieved. Effective measures can be used such as utilisation of capacity,
errors and mistakes in providing services. Thus, it is suggested to use these measures so that
financial performance can be enhanced in the best possible way (Katsikeas and et.al, 2016).
3. Recommendation for appointing another accountant
There are many loopholes in ITS UK LTD such as small contracts costs more than large
ones. This is because firm is not able to reach adequate net margin and as such, medium size
contracts reduces up to high extent. Moreover, there is lack of monitoring and control in
organisation and as such, financial budgets are not adequately compared with actual ones.
Another loophole is that adequate monitoring is not there which has lead to difficult to handle
variations. Moreover, charges for contract is not cleared to customers which has resulted into
more expenditures as due to lack of clarity, additional charges are paid and borne by company.
Furthermore, there has been inadequate utilisation of financial resources which has led to
decrease in net profit margin of the company. Thus, by considering above inefficiencies, firm
should appoint management accountant so that it may be able to garner efficiency in the best
possible way. This is because management accountant has capabilities to handle accounts in a
better way and recommends firm to take enhanced decisions with much ease. There is important
role of accountant in company (Schaltegger and Wagner, 2017).
Major one is budgeting which is utmost essential for company as it gets revenue from the
contracts and as such, it can get amount of tender much than the actual cost and it needs to divide
and share profit percentage. This will help company to garner profitable contracts which is
achievable by formulating budgets. But, it is observed in the case study that company is using
6
computers to present budgets but it is not effective to extract variations. Thus, technology is
required to be updated so that variations can be easily analysed by management accountant.
Another requirement of management accountant is that he is able to handle tax filing in
effective way. Taxes are to be paid to the government and as such, management accountant
provides way to generate revenue and to reduce tax amount so that revenue may be maximised
up to high extent. This is essentially required for the company so that net profit may be enhanced
in the best possible way. This management will be able to use capital in varied activities to gain
more efficiency and tax liability may be decreased up too much extent.
4. Utilisation of target costing
Target costing is useful cost reduction technique which assess product's life cycle cost
and as such, expenditures incurred should be reduced so that desired profit may be garnered by
firm. ITS UK LTD is facing with difficulty as net profit margin is low (Hall, 2016). The contract
should be priced at 20 % gross profit margin and as such, it is required that company should
reduce overall indirect expenses so that target costing at the rate of 6 % may be achieved. Thus,
company is required to maintain control over its expenses and as such, through constant
monitoring, firm may be able to achieve efficiency with much ease.
Net margin is required as it clarifies amount of sales which has resulted into profit earned
by the organisation. It is also effective as comparison can be effectively made with that of
competitors. Apart from this, past performance of firm can also be measured. The case study
provides that net income of firm is 2.8 and net assets are 15.8. By implementing formula of ROI
which is dividing net income with net assets, ROI comes to 17.72 %. Apart from this, ROI is
good but firm needs to reduce overheads so that it may be able to garner more profits and may
accomplish objectives in the best possible way. The main elements of target costing are to
conduct research, production, designing of products and engineering of product as well.
Target contract may be seen in the case study such that scope of contract is provision of
outsourcing for information systems and managing functions at company X. In this contract,
mark up value is 12 % on cost and as such, company X will contribute at least 60 % in event of
under runs and for discretionary service remuneration will be given on the basis of time and
material used. This will help to assess perfect price of the contract (Target costing, 2017). This
will provide clarity to company to determine targeted price is adequate or not with respect to
7
required to be updated so that variations can be easily analysed by management accountant.
Another requirement of management accountant is that he is able to handle tax filing in
effective way. Taxes are to be paid to the government and as such, management accountant
provides way to generate revenue and to reduce tax amount so that revenue may be maximised
up to high extent. This is essentially required for the company so that net profit may be enhanced
in the best possible way. This management will be able to use capital in varied activities to gain
more efficiency and tax liability may be decreased up too much extent.
4. Utilisation of target costing
Target costing is useful cost reduction technique which assess product's life cycle cost
and as such, expenditures incurred should be reduced so that desired profit may be garnered by
firm. ITS UK LTD is facing with difficulty as net profit margin is low (Hall, 2016). The contract
should be priced at 20 % gross profit margin and as such, it is required that company should
reduce overall indirect expenses so that target costing at the rate of 6 % may be achieved. Thus,
company is required to maintain control over its expenses and as such, through constant
monitoring, firm may be able to achieve efficiency with much ease.
Net margin is required as it clarifies amount of sales which has resulted into profit earned
by the organisation. It is also effective as comparison can be effectively made with that of
competitors. Apart from this, past performance of firm can also be measured. The case study
provides that net income of firm is 2.8 and net assets are 15.8. By implementing formula of ROI
which is dividing net income with net assets, ROI comes to 17.72 %. Apart from this, ROI is
good but firm needs to reduce overheads so that it may be able to garner more profits and may
accomplish objectives in the best possible way. The main elements of target costing are to
conduct research, production, designing of products and engineering of product as well.
Target contract may be seen in the case study such that scope of contract is provision of
outsourcing for information systems and managing functions at company X. In this contract,
mark up value is 12 % on cost and as such, company X will contribute at least 60 % in event of
under runs and for discretionary service remuneration will be given on the basis of time and
material used. This will help to assess perfect price of the contract (Target costing, 2017). This
will provide clarity to company to determine targeted price is adequate or not with respect to
7
contract price. Thus, the ceiling price of the contract or revenue is 784000 in pounds which can
be further bifurcated as 700000 as a cost of contract and remaining 84000 as a profit which is
basically obtained at mark up rate. Thus, contract cost = 784000 / 1.12 = 700000. Hence,
contract cost apart from profit is 700000.
Optimum cost structure can be implemented by company and it cannot charge high
amount than 700000. Thus, it is clarified from the case study that 20 % gross margin is less to
accomplish 6 % net profit. This is because administration and selling expenses are high and firm
has to pay for other overheads as well. Complying with this, gross profit will tend to decrease
more and as such, target costing can be used to maintain desired profit level with much ease.
5. Providing review of firm's share scheme
Employee Stock ownership scheme is important to motivate task workforce so that they
may become loyal to organisation and as such, they may provide much efficiency to organisation
(Hopper and Bui, 2016). Employees are given part of share in the company and as such, they
become shareholders of the company. This is essential for ITS UK LTD as it may extract
benefits out of it in the best possible way. This will motivate employees quite effectively and as
such, they will take participation in decision making of company in effectual way. Moreover,
company can use this scheme to increase value of shares and eventually, motivate employees in
effective manner.
Employees feel their importance in organisation and as such, they will be able to enhance
productivity in the best possible way. They feel importance as organisational goals are linked to
personal goals. It can be analysed that ITS UK LTD has effective employees stock ownership
and employees are motivated quite effectively. In addition to this, they may contribute more in
the achievement of organisational goals with much ease. The main advantage of this scheme is
that employees contribute more in overall production. This means that employees feel their
presence in the organisation. Effective and better suggestions are provided by them which help
management of ITS UK LTD to improve upon decisions and as such, perfect and enhanced
decisions are taken with much ease (Carlsson-Wall, Kraus and Messner, 2016).
The employee stock option scheme is quite good for employees as it increases their pay
and other monetary benefits in the best possible manner. Employees of ITS UK LTD feel more
loyal towards organisation as job security is provided to them and job satisfaction level goes up
8
be further bifurcated as 700000 as a cost of contract and remaining 84000 as a profit which is
basically obtained at mark up rate. Thus, contract cost = 784000 / 1.12 = 700000. Hence,
contract cost apart from profit is 700000.
Optimum cost structure can be implemented by company and it cannot charge high
amount than 700000. Thus, it is clarified from the case study that 20 % gross margin is less to
accomplish 6 % net profit. This is because administration and selling expenses are high and firm
has to pay for other overheads as well. Complying with this, gross profit will tend to decrease
more and as such, target costing can be used to maintain desired profit level with much ease.
5. Providing review of firm's share scheme
Employee Stock ownership scheme is important to motivate task workforce so that they
may become loyal to organisation and as such, they may provide much efficiency to organisation
(Hopper and Bui, 2016). Employees are given part of share in the company and as such, they
become shareholders of the company. This is essential for ITS UK LTD as it may extract
benefits out of it in the best possible way. This will motivate employees quite effectively and as
such, they will take participation in decision making of company in effectual way. Moreover,
company can use this scheme to increase value of shares and eventually, motivate employees in
effective manner.
Employees feel their importance in organisation and as such, they will be able to enhance
productivity in the best possible way. They feel importance as organisational goals are linked to
personal goals. It can be analysed that ITS UK LTD has effective employees stock ownership
and employees are motivated quite effectively. In addition to this, they may contribute more in
the achievement of organisational goals with much ease. The main advantage of this scheme is
that employees contribute more in overall production. This means that employees feel their
presence in the organisation. Effective and better suggestions are provided by them which help
management of ITS UK LTD to improve upon decisions and as such, perfect and enhanced
decisions are taken with much ease (Carlsson-Wall, Kraus and Messner, 2016).
The employee stock option scheme is quite good for employees as it increases their pay
and other monetary benefits in the best possible manner. Employees of ITS UK LTD feel more
loyal towards organisation as job security is provided to them and job satisfaction level goes up
8
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as well. Trust is formulated in employees towards firm which is main benefit to the organisation.
Contribution level is enhanced up to high extent which eventually increases firm's productivity in
effective way.
ITS UK LTD is effective technique which help company to reduce burden of tax liability
as when firm provides the scheme, then on shares issued under this scheme is not taxable or
some deductions are being available to company. As a result, firm is able to reduce tax burden in
this way (Saunila, 2016). Thus, employee stock ownership scheme has ample of benefits for
employee and company as well. This will help both of them to achieve productivity and as such,
employees will also remain motivated towards profession. This will help organisation to garner
desired profits with much ease.
CONCLUSION
Hereby it can be concluded that ITS UK LTD has good market share and clients are
satisfied with the services provided by it. In order to gain desired net profit margin, it should
control overheads and indirect expenditures which will reduce costs of contract and profit can be
increased. By analysing the case study, administration and distribution expenses are more which
means that company should monitor expenditures so that overall profit can be maximised up to
high extent.
9
Contribution level is enhanced up to high extent which eventually increases firm's productivity in
effective way.
ITS UK LTD is effective technique which help company to reduce burden of tax liability
as when firm provides the scheme, then on shares issued under this scheme is not taxable or
some deductions are being available to company. As a result, firm is able to reduce tax burden in
this way (Saunila, 2016). Thus, employee stock ownership scheme has ample of benefits for
employee and company as well. This will help both of them to achieve productivity and as such,
employees will also remain motivated towards profession. This will help organisation to garner
desired profits with much ease.
CONCLUSION
Hereby it can be concluded that ITS UK LTD has good market share and clients are
satisfied with the services provided by it. In order to gain desired net profit margin, it should
control overheads and indirect expenditures which will reduce costs of contract and profit can be
increased. By analysing the case study, administration and distribution expenses are more which
means that company should monitor expenditures so that overall profit can be maximised up to
high extent.
9
REFERENCES
Books and Journals
Bennett, M. and James, P. eds., 2017. The Green bottom line: environmental accounting for
management: current practice and future trends. Routledge.
Bergh, D. D. And et.al, 2016. Using meta‐analytic structural equation modeling to advance
strategic management research: Guidelines and an empirical illustration via the
strategic leadership‐performance relationship. Strategic Management Journal. 37(3).
pp.477-497.
Carlsson-Wall, M., Kraus, K. and Messner, M., 2016. Performance measurement systems and
the enactment of different institutional logics: insights from a football
organization. Management Accounting Research. 32. pp.45-61.
Cooper, D. J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research. 34(2).
pp.991-1025.
10
Books and Journals
Bennett, M. and James, P. eds., 2017. The Green bottom line: environmental accounting for
management: current practice and future trends. Routledge.
Bergh, D. D. And et.al, 2016. Using meta‐analytic structural equation modeling to advance
strategic management research: Guidelines and an empirical illustration via the
strategic leadership‐performance relationship. Strategic Management Journal. 37(3).
pp.477-497.
Carlsson-Wall, M., Kraus, K. and Messner, M., 2016. Performance measurement systems and
the enactment of different institutional logics: insights from a football
organization. Management Accounting Research. 32. pp.45-61.
Cooper, D. J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research. 34(2).
pp.991-1025.
10
De Harlez, Y. and Malagueno, R., 2016. Examining the joint effects of strategic priorities, use of
management control systems, and personal background on hospital
performance.Management Accounting Research. 30. pp.2-17.
Hall, M., 2016. Realising the richness of psychology theory in contingency-based management
accounting research.Management Accounting Research. 31. pp.63-74.
Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research.31. pp.10-30.
Katsikeas, C. S and et.al, 2016. Assessing performance outcomes in marketing.Journal of
Marketing. 80(2). pp.1-20.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136.
pp.237-248.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice.Management Accounting Research. 31. pp.103-111.
Nitzl, C., 2016. The use of partial least squares structural equation modelling (PLS-SEM) in
management accounting research: Directions for future theory development. Journal
of Accounting Literature. 37. pp.19-35.
Saunila, M., 2016. Performance measurement approach for innovation capability in
SMEs. International Journal of Productivity and Performance Management. 65(2).
pp.162-176.
Schaltegger, S. and Wagner, M. eds., 2017. Managing the business case for sustainability: The
integration of social, environmental and economic performance. Routledge.
Online
Target costing, 2017 [ Online] Available Through:
<https://www.accountingtools.com/articles/2017/5/14/target-costing>
11
management control systems, and personal background on hospital
performance.Management Accounting Research. 30. pp.2-17.
Hall, M., 2016. Realising the richness of psychology theory in contingency-based management
accounting research.Management Accounting Research. 31. pp.63-74.
Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research.31. pp.10-30.
Katsikeas, C. S and et.al, 2016. Assessing performance outcomes in marketing.Journal of
Marketing. 80(2). pp.1-20.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136.
pp.237-248.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice.Management Accounting Research. 31. pp.103-111.
Nitzl, C., 2016. The use of partial least squares structural equation modelling (PLS-SEM) in
management accounting research: Directions for future theory development. Journal
of Accounting Literature. 37. pp.19-35.
Saunila, M., 2016. Performance measurement approach for innovation capability in
SMEs. International Journal of Productivity and Performance Management. 65(2).
pp.162-176.
Schaltegger, S. and Wagner, M. eds., 2017. Managing the business case for sustainability: The
integration of social, environmental and economic performance. Routledge.
Online
Target costing, 2017 [ Online] Available Through:
<https://www.accountingtools.com/articles/2017/5/14/target-costing>
11
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