Nisa Retail Store Management Accounting

The assignment examines the application of various management accounting techniques at Nisa Retail Store. It highlights the importance of maintaining accurate financial records, classifying transactions, and utilizing systems like cost accounting, inventory control, lean management, ABC costing, and transfer pricing. The analysis emphasizes how these systems contribute to financial soundness and profitability within the retail industry. Furthermore, it stresses the need for budgeting, financial ratio analysis, and capital budgeting to enhance cash position and manage financial constraints.

MANAGEMENT
ACCOUNTING

INTRODUCTION
In the accounting area, the process where company identify, measure, prepare, monitor,
diversify etc. to the different financial transactions and elements is known as management
accounting. Each and every business enterprise uses such kind of process which highly helpful to
manage financial resource and make the firm more financially sound. In the current case study of
management accounting, a retail store NISA, is selected which is a leading and a local retail store
which is only operating in UK. It is a small departmental store operating in UK only which sells
product and services in UK only. The present report shows various types of approaches of
management accounting along with their essential requirement in the business process. In
addition to this, it helps to assess different reports used to management accounting reporting and
determine performance of Nisa store in retail industry. Beside this, current study emphasises on
different methods of costing to derive net yield at the end fiscal year. At the last it describes
those planning tolls which helpful for Nisa store in budgetary control.
TASK 1
P1
Business Report
To,
General Manager,
Nisa Retail Store
Date: 4th October 2017.
Subject: Different systems of the management accounting
An aspect under which financial plan is framed, analysed, executed and monitored in the
workplace is considered as the management accounting. It helps to the Nisa retail store in order
to provide clear, accurate, proper, reliable and timely informations and data related to the
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account and finance. Further, when the managers have adequate and reliable financial data then
they are able to take effectual decisions whether these are for short term or long term (Lukka,
2014). Further, the company is able to make day to day decisions, weekly, monthly or yearly in
appropriate and profitable way. When the Nisa retail store uses management accounting process
at the workplace then it can make effective business decisions as well as analyse regarding what
has to buy and make in the manufacturing process. It can be said that higher the uses of
management accounting aspect at the workplace lead to manage various financial resource in
effectual manner. Further, Nisa retail store is easily become more strong in the retail industry in
terms of financial health. Various kinds of systems and approaches by which Nisa retail store
can manage the firm. So, essential requirement and necessity of the such systems for Nisa store
are explained as below:
 Inventory accounting: The method or system where inventory or stock of the firm is to
be managed and utilized to generate sales is known as inventory or stock accounting.
With the help of such kind of approach the Nisa retail store is highly able to use or
utilize those items which are in stock to produce products and services. Higher the level
of stock remains at the workplace is not better and profitable for an entity (Rossi, 2014).
It is very compulsory for Nisa retail store to manage the stock and reduce it in the
business which is done by using accounting process. Hence, it can be said that stock
accounting is essentially required for managing and effectively utilizing stock or
inventory.
 ABC costing: The method of costing where the management of Nisa retail store
determine cost and expenses of each and every stage or activity of particular process is
known as ABC costing (Kotas, 2014). Requirement of the method is to assess that which
activity incurs how many expenses and these are proper and utilized or not.
 Accounting for lean: The approach of accounting in which unused and miscellaneous
expenses are eliminated and increase quality of services and products of Nisa retail store
is identified as lean accounting system. When the management uses such system then it
able to reduce the costs which are unproductive and not giving any kind of return
(Schaltegger, Gibassier and Zvezdov, 2013). Along with quality of retail products will
be increase up to better level by which more number of customers want to purchase
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goods from Nisa retail store.
 LIFO: The respective system or approach is related with the stock valuation in which
the company is able to sell its stock and manage the business process effectively. LIFO
stands for last in first out where the Nisa retail store sell those inventory at the initial
which are comes at the last time rather than using new level of stock. It is very less used
by the firms due to not efficient, productive and helpful for generate more profit.
 FIFO: Another method of stock valuation is FIFO which stands for the first in first out
and due to this it is the most usable approach for the company. According to this, stock
and inventory sold at the first time which comes and occurs first time in the business
process. The current method of valuing the level of inventory is used by most of the
companies. In the reality when comparing with the LIFO than first in first out method is
the better and shows value of the overall stock in appropriate and actual way.
 Weighted average: According to the weighted average stock valuation method it helps
to know about the average value of LIFO as well as FIFO. Moreover, with the help of
respective approach of stock valuation Nisa retail store able to determine that average
value of its overall stock is how much.
 Price optimisation system: It is a mathematical system adopted by the Nisa retail store
in order to assess that at which pricing strategy and level majority of the consumers
purchasing goods and services. If a company needs to maximise its operating profits
what all best opportunities should it consider for maximising it. Price optimisation
system have been implemented in industries like casinos, hotels, car rental, airlines,
banking and insurance company, cruise lines and retail sector.
 Cost accounting system: Under this approach, costs and expenses which incurred in the
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workplace are analysed and decisions for deriving selling prices are taken. The main aim
of the system is to advice the management on the best alternative opportunities based on
cost efficiency and capability. Cost accounting is mainly used in the financial
accounting but the basic function is for the management to facilitate decision making.
 Job costing system: The Nisa retail firm producing different range of products where to
assess cost of each job goods the mentioned system is considered in the workplace.
Further, it is an effective approach which provides information to the managers about
the expenses incurred for producing products of every job cost.
P2
For the business it is very important to prepare number of financial statements which
include P&L, cash flow account, B/S etc. For such statements the relevant data are derived from
different small level reports. In those reports financial transactions for specific activity, process
or department are to be recoded and by summing and analysing such data management of Nisa
retail store is highly able to know position of its in terms of finance. Different small kinds of
reports which are used by Nisa retail store in order to assess financial performance are analysed
as below:
 Budget report: The report which shows various kinds of financial data and information
for further fiscal year is to be identified as a budget report. With the help of budget report
the Nisa retail store can know that how much sum of money is to be required in next year
to produce products and services. By this it able to determine that amount of total
expenses along with incomes will be how much (Five management report types, 2016).
Hence, it helps to assess future performance of the company in the retail store of UK. On
the basis of this, Nisa retail store can easily formulate business strategies in the firm.
 Payroll report: Other report which is used to make financial statements is payroll report
which is related to the employees or workers which are working in the Nisa retail store.
In this, expenditures which are highly related to the employees are to be recorded and
after making total of all expenses treated in the income statement. Various number of
expenses relating employees recorded which are such as wages, labour, salary,
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compensation, incentives, allowances, monetary motivation and rewards etc. With the
help of respective report Nisa retail store is able to know that within a year how much
amount is spent on the employees (Strumickas and Valanciene, 2015).
 Manufacturing report: Such report of management accounting shows total amount
which is expenses in the firm in order to manufacture different products and services. In
addition to this, it helps to the Nisa retail store to give information regarding number of
units which are produces. Various manufacturing expenses are such as purchase of raw
material, labour charges, activity, technology etc. After making add of all costs,
transacted in the P&L account of loss side.
 Report of account receivables: As per the such report the management of Nisa retail
store is able to know that how much some of money is to be received by it at the end of
accounting year. Higher the receivables show that company is able to generate more
profit and make is financially sound. Different kinds of receivables which occur in the
Nisa retail store are such as debtors, sale on credit, sales by cash etc (Chenhall, 2012).
 Job cost reports: Furthermore, other management accounting report used by the firm
Nisa retail store is relating to job costs. As per the report various processes which are
involved in the firm are to be identified as well as recorded its financial transactions.
According to the current report the company can know that which activity or process
incur how much cost to complete their task. When the Nisa retail store found that a
particular activity or process incur more amount of expenses as compare to others then it
can take corrective actions and resolve such obstacle.
TASK 2
P3
Net profit is final outcome of incomes which are generated through business process and
every company wants that level of final profit will maximize year by year. For derive that Nisa
retail store is how much able to generate profit numerous kinds of methods are used by it. There
are mainly two approaches employed by the NISA retail store in the finance department by
which it derives that how many expenses incurred (Kokubu and Kitada, 2015). Further, by
considering level of cost net profit is to be identified and analyses company's financial
performance. The two approaches of the costing are like as marginal and absorption methods
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which consider different kind of costs. In the marginal only direct and variable costs are to be
considered while in another method all the expenses are used for assessing net profit. Further,
calculation of net profit considering absorption and marginal is stated below:
Assessing net profit by considering absorption approach:
Assessing net profit by considering marginal approach:
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Interpretation
As we have seen that NISA retail store is calculating its Net Profit by both the method i.e.
Marginal method and Absorption method is getting a different profit 9300 GBP and 9600 GBP
respectively. In the Marginal method we are taking only the variable expenses to take out the Net
Profit whereas in Absorption method we are taking into account all the expenses i.e.fixed and the
variable cost. The Net profit of NISA retail store is more in marginal method as compared to
variable cost as former is only taking variable cost in calculating the net profit.
While calculating the profitability of a firm it is convenient using the absorption method
as it can calculate the actual profit by deducting all the expenses. Whereas in marginal method
profits which are taken out are not the actual profit as it still include the fixed cost of the
company. So NISA retail store should use both the method accordingly when ever convenient to
take out the profits.
Differentiate among above mentioned two costing approaches
On the basis of meaning:
Under the marginal costing only those expenses included which are in the nature of
variable or non-fixed. On the other side, each and every kind of costs are taken into account in
the method of absorption costing.
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On the basis of type of costs:
Marginal method consists with costs which are mentioned as below:
 Direct material: Those expenses which directly come into consideration within company
for purchasing raw materials in order to manufacture finished goods are known as cost of
direct raw materials.
 Direct wages: All those costs and direct wages which paid to the labour and employees
who produce goods and services physically are considered as direct wages.
 Expenses of variable overheads: List of costs for producing and operating a business
incurred within firm and changes according to the level of output are known as variable
overheads.
On the other side, Various types of expenditures which are included in the absorption
costing are such as follows:
 Direct materials expenses
 Direct wages
 Variable overhead costs
 Cost of fixed overheads: Set of expenses to produce and operate a company associated
within firm and not changes as per the production is known as fixed overheads.
 Marketing costs: Expenses occurred in Nisa retail store for completing marketing and
advertising activities are known as the marketing costs.
 Selling and distribution expense: List of costs incurred by the sales function in orrder to
distribute products and services up to the customers are included in selling and
distribution expenses. For instance: salesperson wages, sales administration staff salary
etc.
On the basis of net income:
In marginal method the net income is derived for the year is higher as in absorption
method as only variable cost in taken into consideration. And in absorption method both the cost
are taken into consideration so the net income derived from the absorption method is less.
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On the basis of total expenses:
The total expenses are less in the marginal method as it is using only one expenses while
in absorption method it is using all the expenses so total expenses are more than marginal
method.
TASK 3
P4
At the workplace it is very compulsory to make effective and appropriate business as well
as budget plan which helps to enhance financial performance in the industry. There are various
types of tools and techniques used by the Nisa retail store in order to develop effectual and
profitable budget and financial plan. Further, such planning tools are analysed as below:
Capital budgeting tools
The tool by which the company is able to take effective decision to invest or put money
in project is known as capital budgeting. When the firm such as Nisa retail store employ the
techniques at the workplace then it assess the viability of one project when there are two or more
mutually exclusive investments available (Noreen, Garrison and Brewer, 2014). It includes
various methods which provide that which project is most beneficial and profitable in the future.
Different types of investment appraisal techniques like NPV, IRR, ARR, Payback period (PP),
profitability index and discounted PP. Among them NPV as well as IRR both are the most
widely used approaches. Further example of such tools is stated below:
Internal rate of return
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Merits:
Very main benefit of this technique is that, it helps to make profitable decisions at the
workplace in order to generate higher return of potential investment. By considering the tools
Nisa retail store able to know that within how many years initial investment by it will be recover
and on the basis of it further decision is to be taken. The net present value considers various
aspects such as time value of money, cash flow of every year, factor for discounting and number
of years. By this Nisa retail store able to know future value of the investment made by it at the
initial.
Drawbacks:
Basic issue associated with this tool is that in case discounting factor is not provided then
it assumed by the firm. Further, it uses same in every year and it is not compulsory that economy
will grow with same rate year by year (Jacobs and Cuganesan, 2014). By fluctuating inflation
and growth rate of the economy cost of capital is also changes accordingly by which Nisa retail
store is not able to determine proper and effective decision to make investment.
Analysis of financial ratios
Another to make financial plan and control over the outflows in budget is financial ratios
which helps to interpret various kinds of financial statements. By using data from financial
statements of Nisa retail store the management can know that firm is how much profitable as
well as liquid position of it in retail store is up to which level better. After assessing financial
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health manager of Nisa retail store are highly able to make effectual future plan and strategies to
enhance it. Different financial ratios used to make financial plan and some of them are explained
by hypothetical example as below:
Advantages:
Key benefit of the financial ratios is that it helps to assess business performance in the
overall industry in terms of financial position. Along with this by using financial ratios the Nisa
retail store is able to compare with rivalry firms and those companies which are operating in the
retail industry. Different financial statements which are prepared by finance and account
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manager are to be analysed with the financial ratios and can make better plan for further fiscal
years (Bouten and Hoozée, 2013).
Limitations:
Drawback of the financial ratios is that it provides historical and past performance of the
firm and on the basis of such data management forecast for the future. It is not compulsory that
the firm will perform in the future year same as past. Hence, it can be said that appropriate
decision are not taken by it. Another limitation of financial ratios is that it not consider any kind
of qualitative methodology by which reliable, new and appropriate data are not derived. Due to
this, overall proper decisions as well as plan highly affects negatively.
Budgeting
It is one of most important and highly used planning tool by every business entity which
helps to assess future financial data, performance and informations of it. In this various kinds of
statements related to different business aspects are to predicted and analysed in better way.
Various aspects predicted are such as net cash position or balance, number of units which are
necessary and required to produce, level of revenue as well as profit has to earn, amount and
quantity of raw material required etc. for the further month. Along with this using the budgets the
Nisa retail store able to take corrective actions in case it finds that problems and constraints
occurs (Ball, 2013). Explanation of cash and labour cost budget using hypothetical example is
such as follows:
Cash budget
Particulars January February March April May June
Opening balance 3652 4862 5982 6524 7562 8952
Revenue 4560 5624 4562 6954 8954 9540
Debtors 1452 1942 2451 2654 1874 1954
Cash inflow A 9664 12428 12995 16132 18390 20446
Buying of raw materials 3562 4562 5695 6245 7852 7562
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Charges of labour 2653 3652 4856 5698 6245 4522
Creditors 1254 1465 1987 2657 3654 6575
Cash outflow B 7469 9679 12538 14600 17751 18659
Net cash available (A –
B) 2195 2749 457 1532 639 1787
Budget report for labour hour:
Labour or wages Month 1 Month 2 Month 3
Products required to manufacture in next year 2897 3549 4685
Labour hours on each product 2 2 3
Total labour hours which will be needed in
upcoming year 5794 7098 14055
Cost on every labour hour 8 8 9
Total expenses on labour 46352 56784 126495
Benefits:
Budget helps to the Nisa retail store in order to predict as well as assess future financial
performance in the retail industry. With this it highly able to determine strategies and tactics
whichever require for overcome those obstacles and constraints assessed in the budget. Along
with this using budget the management of Nisa retail store able to allocate resource such as
financial in adequate manner to different organisational functions like as IT, marketing, finance,
HR, research and development etc.
Disadvantages:
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The preparation method of different budgets are based on the past financial data and it is
not necessary that company will perform same as past. In this case, the management of Nisa
retail store is unable to take corrective actions as well as formulate effectual business strategies
(Kanellou and Spathis, 2013). Apart from this, in the economy if uncertain changes are occurs
then Nisa retail store can not achieve goals and objectives which are determined in the budget.
Along with this prediction for the future years can be wrong which lead to impact on the smooth
functioning of business process.
TASK 4
P5
In the firm several kinds of problems occurs which are related to different aspects like as
manufacturing, employees, management, financial, costing etc. In order to give appropriate
responses there are various tools and techniques are used by the manager. The current scenario is
related to finance and accounts where number of financial constraints arise. There are wide range
of issues related to the financial incurred in the Nisa retail store which are listed below:
 Declining profitability situation
 Issues related to the productivity reducing
 Negative impact of the business growth over the fiscal years
 Quality or standard of the goods and services provided by cited retail store
 Output of each worker or organisational department
 Turnover time reducing in the firm
 Liquidity position decreasing
 Obstacle regarding to the return on investment
To overcome and resolve different financial problems there are list of management
accounting approaches used by Nisa retail store which is elaborated as below:
 Benchmarks: The tool in which targets are made by the company after considering some
standards is known as benchmarks. Under this, one specific target is settled out by the
manager like increase net profit by 10% in next accounting period etc. If the Nisa retail
store meet targeted benchmark then assessed that it performs well in the industry (Lukka,
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2014). On the other side, if firm unable to raise NP by 10% or more, then reasons behind
this are identified and resolved easily.
 Key performance indicators: Another method of management accounting through
which issue of financials are eliminated is KPI. In this two kinds of factors are considered
like financial and non-financial incurred within working environment. Here, the manager
uses indicators like product quality, efficiency of employees, net income, revenue, debt
amount, dividend etc. For example: from the previous year, in present period if quality of
product and net profit increases then it can be said that Nisa retail store has better
performance in the industry.
 Budgetary targets: In this kind of method data estimated for the next fiscal year with the
help of different budgets like sales, cash, production, overhead costs, manufacturing etc.
After completion of one year budgeted data compared with the actual figures incurred
within working environment. If the Nisa retail store able to meet estimated figures and
variance comes in positive manner then better performance considered (Rossi, 2014).
 Budgetary control: According to such management accounting system Nisa retail store
can control over the miscellaneous expenses and make the strategies to increase attraction
of consumers for purchasing retail products. Hence, it can be said that budgetary control
helps to the Nisa retail store in order to give responses to increasing cost and reducing
and sales.
 Financial governance: A small part of corporate governance in which all the financials
are recorded and analysed in a proper way is identified as financial governance. In this
method of management accounting, any kind of issue related with monetary term is
evaluated and then solutions are made to respond.
Use of financial governance:
Financial governance is used within workplace of Nisa retail firm in order to know that
all the financial resources are utilised in a proper and optimum manner or not. Along with this,
for assessing efficiency of the workforce and productivity of the company against to the
financials it is used in the entity. If any of the issue incurred then easily evaluated and possible
solutions made in order to resolving list of monetary problems.
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Characteristics of an effective management accountant:
When a management accountant provides his services and duties to the company then
must has list of characteristics and skills. The reason is that with the help of effective skills and
attributes, level of financial risks reduces. Further, those characteristics which must have an
effective management accountant are listed below:
 Skills to organise financial data and complete paperworks
 Effective skills for managing time-frame
 Creativity
 Higher level of communication skills and characteristics
 Focus on the clients and consumers
 Flexibility
 Decisions making attributes
 High level of trustworthiness
 Attention to detail
 Analytical skills
Ways by which above skills help to resolve financial problems:
The above mentioned all the attributes and characteristics are highly supportive for the
Nisa retail store to enhance level of financials and reduce issues relating to this. When the
accountant uses above all the skills within workplace then efficiency of employees and overall
productivity of Nisa retail boost up with a greater level. For instance: when the management
accountant considers time management skills then become able to complete all the assigned
works within deadlines. It leads to reduce cost of company and enhance profit as it is one of the
big issue in the working environment.
Effectively systems and tactics:
In the company apart from financials, there are various issues incurred and to resolve
them some strategies are used which are stated below:
 It is highly mandatory to understand significance of time management to the workforce.
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 Needs to use effective communications methods and techniques
 All the transactions of monetary are must be recorded in the books of accounts on time.
Further, classification of all the transactions must be proper like cost, profit etc.
 The company needs to use all the research methods and applications
 Accountant should aware from the need of record-keeping system and their essential
requirement within accounting department.
 The firm requires considering ERP software ( Enterprise Resource Planning).
 Further, reporting of the financials must be timeliness, detailed, accurate and appropriate.
All the above management accounting systems are provided information to the selected
retail store related to its various financial aspects. In order to assess financial problems it is
highly compulsory to know that performance of the business is either in positive direction or
negative in whole retail industry. On the basis of above analysed approaches level of costs and
expenses, profit as well as inventory is to determined for the current as well as future fiscal
periods. On the basis of budget the cost centre is highly helpful which shows that overall
information and financial transactions related to expense. Furthermore, by using activity based
costing the management of Nisa retail store is able to assess cost of every phase of the business
process. With this, wastage costs and products are also determined which is the best to reduce
financial constraints. In this context, it can be said that budget is connected with all the
management accounting systems by which future financial aspects and data are to be derived.
Further, by assessing future data in current year it able to know that which kinds of financial
problems will be occur and for that effectual strategies and plan will be prepared by
management. Therefore, it has been analysed that all the systems of MA are helpful for the firm
in order to reduce and overcome constraints related to financial department.
CONCLUSION
By considering the assignment of MA it can be concluded that at the workplace of Nisa
retail store it is compulsory to keep records of financial transactions which helps to prepare
accounts in appropriate manner. Furthermore, there are different systems which are used by Nisa
retail store to make the firm highly financially sound and become profitable in overall retail
industry. Such systems or approaches are like as accounts for cost, inventory or stock, lean, ABC
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costing, transfer pricing etc. It is seen that while making out the profit of the retail store at the
end of the financial year by both method the profit differs in the two methods. To enhance net
cash position and to control the budget NISA retail store must see the budget systems, financial
ratios as well as capital budgeting system.
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APPENDIX
WORKINGS OF P3
Working Note 1
Fixed Production overhead absorption rate (OAR)= £1,800/600 = £3 per unit
Working Note 2
Working Note 3
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