Management Accounting

This assignment focuses on the concept of management accounting and its importance in decision-making. It analyzes the value chain of Woolworths Group Limited and discusses the procurement and operations processes of the organization. It also explores the competitive strategies adopted by Woolworths to gain a sustainable competitive advantage in the supermarket industry.

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

1MANAGEMENT ACCOUNTING
Table of Contents
Introduction:..................................................................................................................2
Question 1:...................................................................................................................2
Requirement a:..........................................................................................................2
Requirement b:..........................................................................................................3
Part i:.....................................................................................................................3
Part ii:.....................................................................................................................3
Part iii:....................................................................................................................5
Part iv:...................................................................................................................5
Part v:....................................................................................................................7
Question 2:...................................................................................................................7
Requirement a:..........................................................................................................7
Requirement b:..........................................................................................................7
Requirement c:..........................................................................................................7
Requirement d:..........................................................................................................7
Requirement e:..........................................................................................................8
Question 3:...................................................................................................................8
Requirement a:..........................................................................................................8
Requirement b:..........................................................................................................8
Requirement c:..........................................................................................................9
Conclusion:...................................................................................................................9
References:................................................................................................................11

2MANAGEMENT ACCOUNTING
Introduction:
In the current era, accounting is utilised in the form of a tool in evaluation of
business and its associated activities. There are different ways of presenting
accounting information so that the users of such information are assisted to gain an
understanding of the analysis. One accounting type is identified as management
accounting, which implies the presentation of evaluation of business activities to the
internal management for facilitating in decision-making (Alsharari, Dixon and
Youssef 2015). The current assignment is divided into three sections. The first
section would focus on analysing the value chain of an ASX listed organisation. For
this reason, Woolworths Group Limited is taken into consideration. The second
segment would emphasise on overhead allocation in the context of Prime Personal
Trainers, which provides personal training services to the people in Belgium. Finally,
the assignment would shed light on identifying and evaluating the cost pools for
Maleluka Council that owns animal shelter and provides different services.
Question 1:
Requirement a:
Value chain could be defined as a continuous procedure of accumulating,
analysing and communicating information to undertake decisions along with
assisting the organisation in identifying the value-creating process and activities
within the business. By using value chain, it becomes possible for the organisation to
identify the primary activities as well as the support activities through which value
would be created (Ax and Greve 2017). The primary activities are deemed to have
direct association with sales, production, marketing, service and delivery. They take
the shape of operations, outbound logistics, inbound logistics, sales, marketing and
after-sales services. However, the primary activities could not work alone. A helping
hand is required from the supporting activities for full maximisation of customer
value. Some instances of support activities mainly include procurement, human
resource management, technology development and organisational infrastructure
(Bobryshev et al. 2015).
There are certain ways through which value chain concept adds benefit to an
organisation, two of which are discussed below:
Low cost advantage:
By using value chain analysis, an organisation could identify the activities that
create value for the organisation and those unable to add value to the organisation.
By analysing the value-creating activities, it becomes possible for the organisation to
develop the cost drivers for all processes (Porter and Kramer 2019). Thus, it
provides the scope for cost improvement strategies to be enforced along with
maintaining customer value. After this, it becomes possible to detect those areas
having minimised cost of access to raw materials, innovative process technology or
distribution channels.
Differentiation:
By using value chain analysis, an organisation would be able to contrast its
activities with those of the rivals. By comparing own actions with those of the rivals,
the organisation would be able to concentrate on the perceived value of the
customers towards the products and services along with analysing differentiation
strategies such as marketing channels, pricing, product features, service support and

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others to maximise customer value (Holweg and Helo 2014). This would assist the
organisation in finding out innovative methods for conducting value-adding activities
leading to enhanced overall performance as well as competitive supremacy.
Thus, the value chain concept is a highly flexible strategy for looking at the
business operations, the competitors and the respective areas in the value chain
system of the sector. This assists in having an in-depth knowledge of the
organisational issues engaged with the promise to make customer value
commitments and promises, since it concentrates attention on the activities required
in order provide the value proposition (Boučková 2015).
Requirement b:
In this section, Woolworths Group Limited is selected as the organisation, which
operates retail stores in Australia and New Zealand. It is established in the year 1924 and its
current employee base stands at around 201,522.
Part i:
Woolworths believes in earning the trust of the customers along with
respecting service responsiveness both internal and external of its store operations
along with enabling them to undertake informed health, ethical and environmental
decisions. As a part of its mission statement, the focus has been kept on producing
and providing superior products to the Australian customers
(Woolworthsgroup.com.au 2019).
On the other hand, the objectives of Woolworths have been to enhance stock
returns and optimise network efficiency while assuring that its customers served by
above 800 stores found on virtually in every main street of Australia find in-stock the
value for money products, as per their expectations. For this, the organisation has
undertaken significant investment in its supply chain management systems that
affect all areas of the business (Woolworthsgroup.com.au 2019).
Part ii:
There are three generic strategies that an organisation could use for
accomplishing competitive edge along with ensuring sustained growth. These
include cost leadership, differentiation and focus. Cost leadership is dependent on
developing low-cost position in relation to the peers of an organisation. By using this
strategy, the organisation could manage the relationships across the entire value
chain by remaining devoted to lowering costs across the overall chain (Carlsson-
Wall, Kraus and Lind 2015). Differentiation needs an organisation to develop
products and services, which are unique and the customers value them. Focus
involves identification of a market segment based on which emphasis needs to be
placed on that segment (Chenhall and Moers 2015).
Woolworths is observed to adopt integrated competitive strategy by using a
mix of both cost leadership and differentiation strategies, in search for sustainable
competitive edge over the competitors in the supermarket sector. According to
Hopper and Bui (2016), it is possible for an organisation to outperform its
competitors only, if it could develop a difference that could be preserved effectively.
In case of Woolworths, there are certain important competencies identified that
makes the organisation as one of the leaders in the supermarket industry and they
are elucidated as follows:
World-class supply chain:
The innovation and competitive edge of Woolworths have been developed
with the help of its supply chain. The efficient distribution network of the organisation

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is considered as a resource as well as capability in its outbound and inbound
logistics. It has focused on efficiency and cost reduction to manage unessential
expenditures. A mix of tangible and intangible assets like supplier relationships and
technological capabilities is significantly useful, since it contributes to considerable
cost minimisation across the entire logistics network of Woolworths
(Woolworthsgroup.com.au 2019). The extent of cost saving advantages provided by
the effective supply chain is not substitutable by other resources and it is difficult to
imitate, since the scope and level of technological capabilities engaged is highly
staggering and specialised.
Branding and market position:
The store positioning has been made by Woolworths with the slogan of “The
Fresh Food People” developing a differentiated quality image and healthy range of
products at affordable prices. The consumers have sound experience with the
products, which is mainly due to strong procedures of quality assessment across the
supply chain (Kaplan and Atkinson 2015). Currently, 95% of fresh fruits and
vegetables and 100% of fresh meat are from the producers of Australia
(Woolworthsgroup.com.au 2019). Such brand reputation is valuable, since it assists
in providing meaningful differentiation to the rivals and as a result, there has been
increase in the level of customer satisfaction.
Innovation:
There are different innovative projects made by Woolworths like “new idea”,
“re-fresh” and “petrol retailing”. In addition, it has initiated “everyday money” credit
card by collaborating with MasterCard and HSBC Bank (Woolworthsgroup.com.au
2019). Furthermore, various convenience programs and consumer rewards are
initiated by the organisation, which include “everyday money shopping cards” and
“everyday rewards”. Such innovation in products and offerings could be clearly seen
as a competitive edge of Woolworths over its rivals.
Integration:
Vertical integration of some its supplies is conducted by Woolworths by
manufacturing its own inputs so that market power could be increased and
accordingly, it could respond to the trend of the private label. With the help of such
integration, it has availability of vast array of products under the brand of
“Woolworths Select” intending to provide consistent superior quality
(Woolworthsgroup.com.au 2019).
Marketing and sales:
The marketing strategy of Woolworths is its significant strength that has
assisted the organisation in differentiating its products along with ensuring its
position as one of the biggest retailers in Australia. The organisation incurs more on
marketing expenses via newspapers, television, distributed leaflets and magazines.
These sales and marketing activities of Woolworths have contributed to the fresh
food image along with successful brand awareness accomplished by the
organisation (Woolworthsgroup.com.au 2019).

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Part iii:
Figure 1: Value chain model of Woolworths Group Limited
(Source: Woolworthsgroup.com.au 2019)
Part iv:
From the above figure, one value-adding process from the primary activities
and one value-adding process from the support activities are selected for
Woolworths and they include procurement and operations. The detailed analysis of
these two processes is provided as follows:
Procurement:
Procurement in the value chain represents the processes engaged in buying
the inputs, which might include equipment, raw material, machinery, supplies and
other items essential for manufacturing the finished product (Langfield-Smith et al.
2017). Owing to the relationship with different value chain activities, Woolworths has
to carefully consider its procurement activities for optimisation of the operational,
outbound and inbound value chain.
Woolworths has selected “Trandestone’s Merchandise Lifecycle
Management” platform for its procurement process (Woolworthsgroup.com.au 2019).

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This provides a platform for the organisations to handle orders and suppliers,
business to business sales and financing. It links with above 6,000 suppliers.
Woolworths follows a strong process of certification when it comes to choosing the
suppliers. In terms of product quality assurance, the organisation is involved in
auditing its products before they are sold to the customers. On the other hand, it has
adopted the nationalisation of buying activities to the goal at fulfilling considerable
cost savings. With the help of this process, the consumers obtain superior quality
products at affordable prices, since the procurement system has allowed the
organisation in condensing costs by $2.5 billion (Woolworthsgroup.com.au 2019). In
addition to this, Woolworths has integrated its delivery network system by engaging
sound transport system and distribution centres into the same. In this manner, the
organisation has the better position of avoiding strikes of the staffs while having
better control to ensure its shipment activities (Lavia López and Hiebl 2014).
Furthermore, the operation via the centres of distribution and trucks in the supply
chain assists the organisation in maintaining optimum distribution efficiency as well
as the product quality.
Operations:
This section contains two primary activities, which assure the convenience of
the customers and value coupled with inventory management and quality
assessment. Woolworths is involved in maintaining standardised procedures for
identifying and eliminating the products from the delivery lots, which are obtained
from the suppliers. From the time the retail store receives the stocks to when the
products are displayed on the store shelves, the staffs working in the quality
assurance department are engaged in time-to-time checks for identifying and
removing the defective products (Woolworthsgroup.com.au 2019). Moreover, it is
observed to maintain “Minimum Presentation Level” for its stock keeping units
(SKUs). In this context, it is noteworthy to mention that space planning is necessary
to ensure the success of any retail store (Melnyk et al. 2014). Therefore, this
innovative process is used by Woolworths so that it could present the assortment in
different striking ways by often using plan-o-grams for depicting the minimum
presentation quantity.
Besides, the “Sophisticated Point of Sale” technology assists Woolworths in
maintaining track of the total SKUs sold for a particular item and at the time the stock
levels go below the M.P.L, the re-stocking order is dispatched to the corresponding
distribution centre. In this manner, the organisation is utilising its store space
optimally resulting in enhanced quality of products, as the quality check officers
immediately notice the defective products (Messner 2016). By using the POS
system, Woolworths is no longer needed to use the conventional cash register
system, since this system offers information regarding the customers and existing
inventory. By using enterprise data interface technology, Woolworths is involved in
maintaining error-free information regarding its business inventories. With the help of
this system, the user could have clear information about the purchase orders,
documents related to scheduling agreements, schedule line categories, types of
sales documents and others (Nielsen and Roslender 2015). By obtaining all pertinent
information, effectiveness could be witnessed in the inventory management system
of Woolworths. As a result, it never encountered a situation such as empty shelves
or unavailability of merchandise; thereby, making the customers reluctant in visiting
the stores in future.

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Part v:
It needs to be mentioned that the theories learned about the value chain
concept have provided immense assistance in linking the same with the real case
scenario of Woolworths Group Limited. One value-adding process from the primary
activities and one value-adding process from the support activities are selected for
Woolworths and they include procurement and operations. In theory, it has been
learnt that Procurement in the value chain represents the processes engaged in
buying the inputs, which might include equipment, raw material, machinery, supplies
and other items essential for manufacturing the finished product. In terms of
operations, it has been learnt that it contains two primary activities, which assure the
convenience of the customers and value coupled with inventory management and
quality assessment. By using these theoretical concepts, it has become possible to
conduct the value chain analysis of Woolworths effectively.
Question 2:
Requirement a:
Particulars Details Values
Estimated variable overhead A $150,000
Estimated direct labour cost B $ 75,000
Fixed overhead C $120,000
Direct labour hours D 3,000
Variable overhead rate as
proportion of direct labour cost E=A/B 200%
Fixed overhead rate F=C/D $ 40
Requirement b:
Particulars Details Values
Variable overhead rate A 200%
Direct labour cost B $ 250
Fixed overhead rate C $ 40
Direct labour hours D 10
Overhead cost allocated to Job
20 E=(AxB)+(CxD) $ 900
Requirement c:
Particulars Details Values
Equipment and supplies cost A $ 1,000
Direct labour cost B $ 250
Overhead applied C $ 900
Total cost of Job 20 D=A+B+C $ 2,150
Requirement d:
Particulars Details Values
Total direct labour cost A $ 5,725

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Variable overhead rate B 200%
Total direct labour hours C 229
Fixed overhead rate D $ 40
Allocation of variable overhead E=AxB $ 11,450
Allocation of fixed overhead F=CxD $ 9,160
Total overhead allocation G=E+F $ 20,610
Requirement e:
It is necessary to use two cost pools for the accountant of Prime Personal
Trainers, instead of one, so that the product cost information is accurate. The
allocation bases used for each department would be realistic in representing the
linkage between the product and overhead costs, instead of using a single plant-
wide rate (Pavlatos and Kostakis 2015). On the contrary, the use of departmental
overhead rates requires the distribution of overhead expenses to the departments,
the allocation of expenses of the support departments to the production departments
and the collection of cost driver data by the production departments. Even though
useful information could be obtained from this approach than the single cost pool,
the expenses are more and there are chances of obtaining misleading information as
well (Tappura et al. 2015). Despite such drawbacks, the method is still deemed to be
superior when it comes to product costing and cost allocation.
The method could result in a difference, since the use of activities varies for
each overhead activity. Moreover, the overhead allocation would be made
depending on direct labour hours or direct labour cost (Shields 2015). Hence, if
additional equipment is used, there would be lower labour usage and minimised
overhead allocation resulting in lower cost.
Question 3:
Requirement a:
As commented by Salterio (2015), cost pool signifies the grouping of
individual costs into a class depending on cost centre or department. The same is
utilised for assigning costs to the cost units. Based on the provided information of
Malekula Council, the organisation provides three types of services that constitute of
the following:
 Animal training services
 Housing services to the stray dogs
 Animal healthcare services
Hence, it is possible to classify costs into three cost pools based on the cost
objects. Such costs primarily constitute of animal shelter expenses, healthcare
service costs and training costs.
Requirement b:
When there is combined collection of indirect expenses, the same is identified
as overhead costs. All such cost components depend on specific activities, which are
deemed to be the cost drivers (Van Der Stede 2015). By analysing the cost structure
of the provided organisation, the cost drivers for the identified cost pools are number
of animal days, training classes attended and number of animal visits.

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Requirement c:
Statement showing assignment of cost to different cost pools
Elements of costs Basis of
Allocation
Shelter
Costs
Training
costs
Health care
service
costs
Animal shelter
employees salaries Actual $ 100,000
Veterinarians and
technicians salaries Actual $ 150,000
Animal trainers' salaries
50% for
Training and
rest for the
sheltered
animals $ 20,000 $ 20,000
Food and supplies
75,000 for
health care
and the rest for
the shelter $ 50,000 $ 75,000
Building related costs
Area occupied
(5:3:2) $ 100,000 $ 60,000 $ 40,000
Director and
administration staff's
salary
Respective
departments'
staff's salary
(12:2:15) $ 24,828 $ 4,138 $ 31,034
Total costs assigned
each cost pool $ 294,828 $ 84,138 $ 296,034
Cost Pool Activity Driver
Number of activity
Cost of
each cost
pool
Cost per unit of
activity
Shelter Costs
Number of
animal days
27,37
5
Animal
days $ 294,828 $ 10.77
per
animal
day
Training costs
Number of
Training class
attended
1,25
0
Individual
classes $ 84,138 $ 67.31
per
individual
class
Health care service
costs
Number of
Animal Visit
5,00
0
Animal
visits $ 296,034 $ 59.21
per
animal
visit
Conclusion:
Based on the above analysis, it could be stated that Woolworths has adopted
the value chain system for bettering its business activities and operations. Moreover,
it has been analysed that Prime Personal Trainers should use two cost pools for
better cost allocation. Finally, it has been evaluated that the Malekula Council’s
services have certain cost drivers and accordingly, cost drivers have been allocated
to them.

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