Management Accounting and Budgetary Control in IKEA

This document discusses the use of management accounting and budgetary control in IKEA to effectively respond to financial problems and achieve sustainable success. It covers topics such as computing costs, applying cost-analysis methods, producing financial reports, and comparing planning tools. The document also evaluates the effectiveness of these planning tools in resolving financial problems and leading organizations towards sustainable success.

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................4
TASK ..............................................................................................................................................4
P1 and P2,M1(covered in ppt)................................................................................................4
P3. Computing costs through applying suitable methods of cost-analysis to formulate income
statements:..............................................................................................................................4
................................................................................................................................................7
................................................................................................................................................8
................................................................................................................................................8
................................................................................................................................................9
M2. Accurately apply the range of management accounting techniques and produce
appropriate financial report....................................................................................................9
. D2. Produce financial report which accurately apply and interpret the business activities 10
P4: Explaining major advantages & disadvantages of different types of planning tools used for
budgetary control:.................................................................................................................10
P5 Comparing as to how corporations are effectively adapting MA systems for responding to
multiple financial problems:.................................................................................................12
M4 Analysing about how as to respond financial problems, MA can lead entities towards
sustainable successes:...........................................................................................................13
D3 Evaluating as to how discussed planning tools can respond effectively to resolving such
financial problems to lead organisations to sustainable success:.........................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Managing accounting is that kind of process which makes identification, analysing,
evaluation and interpretation that expresses information to managers. This makes goals to be
achieved with objectives attain of an organization. Under it cost is also been referred that is used
for making accounting information attained at the time of decision making process in more
effectiveness. Managing of accounting is different from different methods of an organization.
This is there to provide a framework with detailed information that has been concerning with
financial and non-financial transactions. The assignment is based over IKEA organization which
is a multinational organization and has its headquarters in Netherlands. It was formed in the year
1943. Different variety of products is been sold by an organization related to furnished furniture,
kitchen appliances, household furniture and customizing furniture as per demand made by
customer. The report is based upon managerial accounting system which makes accounting
system of accounting managed. Further it deals upon approaches which are used for making
explanation developed. Along with this benefits and drawbacks in relation to planning
mechanism of budget control is discussed. In the end final cost is there for making determination
of correct method used with reading income statement through marginal and absorption method
told.
TASK
P1 and P2,M1(covered in ppt).
P3. Computing costs through applying suitable methods of cost-analysis to formulate income
statements:
Marginal costing this is that kind of method which makes contribution over assisting
costs which has been classified differently as costs and fixed cost.
Absorption Costing: In this type of cost product overhead is been fixed through helping
variable in relation to absorption fixed through making analysis over gross profit figure
developed for an organization.
Here is the calculation of net profit by using both marginal and absorption costing method:
Marginal costing:

Quarter one
Particulars
per unit
cost Amount
Sales 66000
Less: cost of sales
Opening stock 0
Production cost (78000*0.65) 50700
Less: closing stock (12000*0.65) 7800
42900
Contribution 23100
Less:
Fixed overhead 16000
Fixed and selling cost 5200 21200
Net profit 1900
Quarter two
Particulars
per unit
cost Amount
Sales 74000
Less: cost of sales
Opening stock (12000*0.65) 7800
Production cost (66000*0.65) 42900
Less: closing stock (4000*0.65) 2600
48100
Contribution 25900
Less:
Fixed overhead 16000
Fixed and selling cost 5200 21200
Net profit 4700
Absorption costing:
Quarter one
Particulars
per unit
cost Amount
Sales 66000
Less: cost of sales
Production cost (78000*0.65) 50700
Semi variable cost (78000*0.20) 15600
Total variable cost 66300
Less: closing stock 10200 56100

Gross profit 9900
Less: overhead 400
Less: Selling and distributed cost 5200
Net profit 4300
Quarter two
Particulars
per unit
cost Amount
Sales 74000
Less: cost of sales
Opening stock 10200
Cost of goods sold 13200
Production cost 42900
Total variable cost 66300
Less: closing stock 3400 62900
Gross profit 11100
Less: selling expense 2800
Less: Fixed cost 5200
Net profit 3100
Working Note
Fixed cost 16000
Budgeted cost of production
80000 per
unit
Budgeted fixed cost 0.2
Variable cost per unit 0.65
M2. Accurately apply the range of management accounting techniques and produce appropriate
financial report
On applicability upon marginal and absorption method has been related to cost which has
helped in making an organization's profit generation possible. It also helps in doing various
analysis in relation to financial activities within business (Modell, 2020). This makes data
analysis possible upon accounting data that has been collected in relation to organization.
Further the file has shown about the data of Marwa Limited's profit which has been calculated in
relation to marginal cost of three years which has been explained separate manner like £ 65400,
£ 123,850 and £96,900. in this method of absorption cost has been applied which has made profit

and various figures to be presented which makes fixing of various issues within an organization
to be cleared out. Using of this method has made it clear that all how much cost is been used in
relation to various resources within an organization. There are certain other techniques that can
be use for maintaining of various processes that has been explained as follows:
 Analysis of Financial Statements through Ratio Analysis.
 Analysis of Financial Statements through comparative statements, trend, graph and
diagram.
 Fund flow and cash flow analysis.
 Return on capital employed techniques
 Budget and Budgeting.
 Budgetary control: Analysis of Budget Variance / Revenue Variance.
 Business Forecasting.
 Project Appraisal or Evaluation
Further the techniques used helps in making cost saving and cost development possible
which leads upon achieving task in more effective manner. Through these techniques financial
services can be maintained in an organization like IKEA (Nuhu, Baird and Appuhamilage,
2017).
. D2. Produce financial report which accurately apply and interpret the business activities
These are been performed upon making construction with forming of high profit possible
within the first year for Marwar Ltd. Further in this positive attitude is maintained in relation to
second year also. This makes identification of those obstacles possible that has been adhering
growth and success of an organization. Then such analysis makes overall profit made during the
year by an organization. Different changes is been made over profit which helps in figuring out
various profits that has accrued by an organization.
P4: Explaining major advantages & disadvantages of different types of planning tools used for
budgetary control:
Budgetary control: This has been helping in doing reorganization over different methods that is
to be used for making establishment possible in making comparison to attain appropriate
outcomes. It has been focused upon different types of result with the help of these planning tools
which has been explained as follows:

Rolling budget: It has been defined for managing of various kinds of plan that makes comparing
of scale possible during all the years. This is required upon making budget that has been based
upon various kinds of life cycle related to accounts. Budget makes different aspects covered
upon finances by making attempting which helps in gaining estimation done in more effective
manner. Under it IKEA limited uses the budget through efficiency developed with view point in
relation to effective utilization of economic resources. This budget has certain benefits and
drawbacks, described below:
 Advantages: This has made benefits attained upon organization that reduces complexity.
Such makes schedule task performed within previous year (Procházka, 2017).
 Disadvantages- The main thing of this budget statement is appropriation of corporation is
not there to make crucial decision.
Flexible Budget: The approach is been used in making budgeting refired as under this action
upon budget is been seen. Further makes financial transaction identified by making modification
within the demands of user group. Under IKEA such budget helps in drawing upon business
activities for making changes within future possible.
 Advantages: Key feature making benefits attained from budget makes appropriateness to
be created. This can be understood through an example that is error accrued in specified
financial year is been analysed. It makes accounts to be modified through accounts.
 Disadvantages: The issue that is been faced makes budget statement to be developed
through differentiation of financial data existing within an organization.
The sales or revenue budget
This is focused over income which has expected to be generated from operation in an
organization. It has helped in making mangers understand about financial potion of an
organization.
The expense budget
This makes expenses of an organization attained over specific period within this points
related to expenses is been prepared by managers.
Fixed budget: It has been made recognition that is rigid as per the nature of budget in it
modification can be made. In a organization like IKEA limited managers requires for following
budget through segmentation and making changes to be made.

 Advantages- No changes can be made in future in the fixed budget that is not complex
and becomes barriers in achieving goals and objectives of an organization.
 Disadvantages- In this rigidity within the budget is there that creates major disadvantage
of budget that is complicating the task. Also making changes due to some significant
changes required (Schaltegger, 2018).
M3: Analysing uses of different planning tools/methods and their application for
preparing and forecasting budgets:
Preparing a budget is part of planning tool which helps in making improvement in
relation to business. It helps in improvising within productivity and effectiveness of an
organization through improving over working capacity. Under this master budget, cash budget,
flexible and various other kinds of budget. Also it covers master budget, cash budget, flexible
and various other kinds of budget. Using this within planning tools makes management to
perform its function with more effectiveness. In it estimation upon likely through making
decision with estimation of budget, this makes money used in optimum manner which saves it
for future.
P5 Comparing as to how corporations are effectively adapting MA systems for responding to
multiple financial problems:
Financial Problems: In those kind of factors impacting investment within organization is
been deal upon. Under it efficiency and sportiveness is been given with solutions to an
organization . In it lack of supervision and in effectiveness leads upon having negative impact on
business operations. Following are several kind of financial issues/problems that IKEA are
continuously facing, as follows:
Increasing cost storage handling costs of inventories: IKEA faces various issues which is
related to cost upon inventory and storage. In this manager in an organization helps in
determination of the main cause of problem which has increased cost applied upon goods that
impacts cost inventories.
Declining sales figures: In an organization sales has been negatively impacting upon
profits in an organization decreased. IKEA managers is able to deal upon issues related to it. This
impact declining of organization over its product prices.

Along with this planning tools used in relation to different techniques that has been
making assistance for managers of IKEA in dealing of issues. That is why mangers should make
focus for allocation and issues discussed as follows:
Key performance indicators: This has been considered as important component that has been
making outlining possible. In other words different aspects is covered over gaining of good
impression with performance. They can be both financial and non-financial factors depending on
nature. KPIs include GP margin, NP margin and different kind of fiscal ratios that is having non-
financial KPI involves client relationship and brand value (Susanto and Meiryani, 2019).
Benchmarking: This is related over forming different elements having links with that of
contrasts with both non-financial and financial elements. It has been resulting within corporation
which makes efficiency to be attained.
Financial Governance: It is that mechanism within which financial information is been about
time by tracking ways to be used for addressing financial problems within an organization. Such
mechanism acts in making effective strategy developed over an organization through
implementing strategy decided. It helps in dealing upon factors causing reduction of
performance. It combines all the governing policies which can help to put strict controlling over
organisation's performance.
Regarding this following table has been made in comparison to entities Antique Furniture
UK and IKEA.
IKEA Antique Furniture UK
IKEA faces different issues which increases
handling of cost. Also makes sales and profit
reduced.
Antique Furniture UK faces problems by
increasing costs within operations related to
costs and problems relating over profit
decrease.
Corporation makes applicability of KPI which
has created benchmarking through
responsibilities identification of issues.
In this case of Antique Furniture this increases
financial grievance and also makes operational
cost increased. This major reason for it.
Inventories in management system helps in
developing of optimization strategy to solve
problems.
Cost accounting system is required to be
applied in order to catch root cause over the
issues to minimise operational costs.

M4 Analysing about how as to respond financial problems, MA can lead entities towards
sustainable successes:
Financial issue within an organization has been facing different obstruction which
impacts success and growth of an organization. This makes corporation reduce issue and respond
upon them within time period specified. It makes goals and objectives achieved (Tashakor,
Appuhami and Munir, 2019).
D3 Evaluating as to how discussed planning tools can respond effectively to resolving such
financial problems to lead organisations to sustainable success:
Managing personal panning tools makes supporting system developed in more smooth
way that is related to finance.This can be understood through example that can be used by IKEA
this is made for evaluating of organizational conditions. It makes critical elements of financial
problem to be assessed. Also it makes solution to be provided over problems to be raised.
CONCLUSION
From the above file it can be marked out that IKEA uses various kinds of methods that
has helped in developing of different methods and system which helps in making success of an
organization possible. Under the system success of an organization is been gained through
growth and development. This is makes system key success within an organization which helps
in adaption of various kinds of organization developed within an organization. Management
requires over applying tools over financial issues which makes tools through protective
framework through financial issues in making sustainability of success attained. Applying of MA
system with plaining tools should be optimized and efficiency of issues and response.

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