Management Accounting Report: IKEA Financial Problem Solving

This report provides a comprehensive analysis of management accounting principles and their application within IKEA. It begins with an introduction to management accounting, differentiating it from financial accounting, and outlining its core principles. The report then delves into various management accounting systems, including cost accounting, inventory management, job costing, and price optimization, highlighting their advantages and relevance to IKEA's operations. Furthermore, it explores different methods of management accounting reporting, such as budget reports, accounts receivable reports, and cost reports, emphasizing their significance in managerial decision-making. The report also examines techniques of cost analysis, including cost-volume-profit analysis, and discusses planning tools for budgetary control. Finally, it addresses how IKEA can adopt management accounting systems to respond to financial problems, leading to sustainable success. The report concludes with a summary of key findings and references to relevant sources.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Management accounting and its different types of system..........................................................3
Methods of management accounting reporting...........................................................................7
Techniques of cost analysis.........................................................................................................9
Types of planning tool for budgetary control............................................................................10
Adoption of management accounting system in response of financial problem.......................12
CONCLUSION..............................................................................................................................14
REFERENCES................................................................................................................................1
APPENDIX......................................................................................................................................3

INTRODUCTION
Management accounting refers to the accounting that is concerned with managerial level and
is also known as decision making accounting. This is the base by which managers can determine
the actual performance of the company and the related activities and operation and on the basis
of that they make decision regarding the company which will assist it to have better dealing with
activities and involvement of operations that may lead to success of company in terms of goal
accomplishment (Kostyukova and et.al., 2018). It is also used in the form of planning tool by
which managers will determine the direction on which company need to work. IKEA is a value
based company that create various items related with making the home even more better in terms
of better experience. It is one of the famous company that produces various home accessories,
home appliances and various other. It was founded on 1943. This report will discuss about the
concept of management accounting along with various system and its reporting frameworks.
This report will also shed light on the concept of planning as a base concept with context of
management accounting. Likewise, it will also discuss that how management accounting and
different approaches enable the company to deal with financial issues. Lastly a practical
application of management accounting costing is also presented in the report.
MAIN BODY
Management accounting and its different types of system
Management accounting:
It is one of the major form of accounting concerned with internal user. Management
accounting is mainly considered withy managers and managerial level of organization. It is also
known as decision making accounting because on the basis of managerial report managers
determine the company’s position and performance and take the adequate decision (Rikhardsson
and Yigitbasioglu, 2018).
Management accounting refers to a process and procedures that will lead to have creation
of documents and reports which will aid management in taking decisions (What is Managerial
Accounting?, 2021).
Management accounting involves compiling information that will allow the managers to
make decision and make planning for future (Kristin, 2019).

It is the process of identifying, analysing, interpreting and communicating the information to
managers which will further assist the company to move towards the direction of the its objective
with the required and adequate decisions concerning with management.
Principles:
Designing and compiling:
As per this principle management accounting is considered with the best and relevant
data. This means that the management accounting comprises of all such information by which
details regarding past, present and future can be grabbed (Volkovska, 2017). This will lead to
better decision making.
Management by exception:
This principle is implemented when information is being presented to management. This
means that only information related with budgetary control and standard costing is presented.
This will lead to the comparison of actual performance with the standard (Principles of
Management Accounting, 2021). Here the deviation are found and corrective actions are taken.
Use of return on investment:
It is also called return on capital employed. The rate concerning return indicate the
efficiency of business. This is for the reason capital employed is calculated on the basis of real
money value.
Integration:
Here all the required information is integrated and used in such a way that the cost will be
minimum and the concerned benefits will be maximum.
Controllable and uncontrollable cost:
There is always such cost which is controllable and uncontrollable with regard to
business. Management accounting suggest techniques through which steps can be taken in order
to control the controllable cost.
Forward looking:
Management accounting always works on the forward looking approach. It fix standard
and make plans regarding the future controlling and efficiency.
Difference between management and financial accounting:
Financial accounting Management accounting

It is fully concerned with preparation of
financial statement and enable information to
interested parties.
It include the providing of information to
managers regarding the company’s
performance so that decision can be taken.
It include monetary information It include monetary as well as non-monetary
information too.
It provide financial information to outsiders. The information will be used by management
for planning and decision making.
Financial statements are prepared at the end of
year (Surbhi, 2018).
Statements can be prepared at any time as per
management requirement.
Include the summary of financial performance
and position.
Include all details regarding the company.
Management accounting system:
It refers to a system that is considered with management accounting. As per this system
management accounting management will entitle the information regarding the company and on
the basis of that information and its critical analysis they will take adequate decision for the
betterment of the company and leading it towards the direction of its objectives (Abdusalomova,
2019).
Importance of integration:
It is very important to integrate management accounting in the organization. This is
because it will enable the company to have a taking of best and adequate decision regarding the
company. As management accounting is related with detailed and in-depth analysis of
information so by enabling this data and information to the managers they can make future plan
regarding the company which will further lead to growth and success of company. In case of
IKEA which is a company that dealt with consumer products and home related product and when
information regarding the various aspect that come under the scope of management accounting is
shared and inculcated in the organization then it will lead to have better performance and raising
of chances related with grabbing of organizational goal.
Types:
Cost accounting system:

As per this system cost regarding the product is being analysed by the firms. This will
help them to analyse the profitability, valuing inventory and controlling cost. This is an
important system because this will enable the companies to analyse the actual cost and on the
basis of that they can further analyse the profit (Prischenko and Nizovkina, 2017). And in case if
the cost of production is high then by effective controlling it can be maintained too. This system
also enable the company to have a cost-profit analysis which means with the help of this system
profit in association of cost will be analysed and identified.
Advantages:
It is an important system because through this profitable and unprofitable activities can
be identified. It also act as base for future production policies. Here exact cause of declining
profit is also identified.
Inventory management system:
As per this system a watch over the inventory is being performed by the business. This
approach assist the company to monitor the inventory right from making purchase, till transfer to
production and conversion till it will be sold (Chebet and Kitheka, 2019). This will ensure a
check over the inventory. As inventory is a major aspect with regard to company so with an
enabling of inventory management, company can make efficient utilization of it through this
system. This means that with this system not only checking but the problem of over and under
stocking will also be reduced.
Advantages:
It is an essential method because it will keep track inventory and reduced the risk of
wastage and overselling. It will lead to cost saving. It will lead to have better negotiation in
business. It reduces the risk of over and under stork situation.
Job costing system:
It is all related with overhead costing which can be understood as depreciation on
equipment of production and building rent. This is related with one or more cost pool. However,
on the end of every accounting period, the total sum in each cost pool is assigned to various open
jobs. This is based on certain methodology.
Advantages:

Profitability regarding each job will be identified individually. It also acts as base for cost
elimination with similar jobs. Here a detailed analysis of the cost regarding material, labour, and
overhead is performed.
Price optimising system:
As per this system the determination of demand variation is calculated with various price
levels. Then this data will be combine with information on cost and inventory level so that the
adequate price will be determined and profit will be raised (Simchi-Levi, 2017). This system also
enable the company to have an adequate determination of the prices as per analysis of the market
demand so that it will ultimately assist the company to grab good percentage of profit.
Advantages:
This system ensure the minimization of possibility of occurrence of any error. It will
enable the companies to make adjustment in prices as per the market trends and situation. This
system enables the companies to secure optimum profits for the business.
However, with respect to IKEA cost accounting, price optimization and inventor control
is usually followed. This is because it enables the IKEA to have adequate availability of
inventory, cost covering with profitability. In the same manner these system also ensure to have
a maintenance of adequate prices so that the company will earn sufficient profits and pricing
strategy.
Presenting financial information:
It is concerned with the financial accounting wherein the financial information is
presented in the form of financial statements. These statements are the base on which the
company’s performance and situation can be analysed and identified. The presented information
is relevant to users including customers, employees, investors, shareholders because it will
enable them to judge and analyse the company’s financial efficiency in terms of its performance.
Information is usually presented in understandable manner because it will enable the user
to understand the company’s financial position. Because if the information is complex then the
user would not be able to understand the complex terms and may not take investment decision.
Thus, it is kept understandable and simple.

Methods of management accounting reporting
Management reporting:
It is an essential aspect with regard to management accounting. This is because it enable
the managerial level to have a knowledge regarding the company’s current performance and
requirement. This will also ensure timely taking of decision with regard to company. IKEA also
ensure the inculcation of management accounting reporting so that it can take best decision with
regard to its success.
Methods:
Budget report:
It is an essential type of report concerning managerial accounting. As per this report
estimated budgets regarding the business are prepared and then the activities are plan and
synchronized as per planned budget. Budgets are generally prepared on the basis of past
performance and futuristic plans (Schaltegger, Etxeberria and Ortas, 2017). Various aspects are
being considered while preparing budget. It includes all the sources of income and estimated
expenditure too. This report enable the managers to offer cost cuts, employees incentive,
negotiate terms with vendors and suppliers. This is counted as critical report. IKEA also made
this report and perform its activities within the framework of estimated budget.
This report is significant and relevant because it is made on the basis of past data trends
and analysis. Likewise, this report also include future expected expenses and income so it is
relevant too.

Account receivable report:
This is also an important report form every company including IKEA too. This is because
enabling the services on credit is an important aspect of every business including IKESA too.
This report will identify all those defaulters to whom amount is still not recovered yet. This
report also specify the amount as well as time. As written of bad debt is common in every
business but it is also not a good aspect. Hence, this report ensures the timely receiving of
payment with a strengthening of credit policy regarding the company.

This is an important and relevant report because it will lead to entitle and deliver the
information regarding with debtors to the company.
Cost report:
As per this report costing regarding the company’s operation regarding the production of
products are being identified and analysed. As per this report costing related with material,
labour, overhead related with the production of the final product are determined and added. This
will enable the managers to analyse the actual costing regarding the product. This report also
lead to setting up of selling prices of the products by keeping adequate profit margin so that the
company can cover its cost and profit is maximised. This report also prepared in every company
including IKEA where a cost analysis is performed and profit will be set.
This is relevant and accurate because it involves the actual cost and that form the basis of
future.

Performance report:
As per this report the performance of the company with regard to financial and non-
financial aspect are being determined and reported. This report act as a base by which company
can analyse the company’s performance and on the basis of which the future planning and
actions will be taken (TYPES OF MANAGERIAL ACCOUNTING REPORTS, 2020). This report
also helps the manager to identify the deviation and loopholes which are needed to be overcome.

Preparation of this report at regular interval in IKEA enable the company to have the
determination of future course of action and planning regarding the future activities and business
operations.
This report is accurate and reliable because it is made on the basis of analysis of
company's financial statements and information and as financial statements are the reflection of
company's image so it will lead itself raise its accuracy.
Other managerial report:
Apart from these IKEA also prepare other managerial report including project report,
competitor analysis, information report and various others. And on the basis of the information
regarding reports various decisions are taken by the management of the IKEA that assist it to
perform its operations towards the direction of its objectives. This report including competitor
analysis, information report and various other will lead to have a creation of base that will assist
the organisation to grab and accomplish its goals.
Integration of system and reporting:
An integration of management accounting system and reporting enable the company
including IKEA to have better working of business operation. This can be understood as if the
inventory system will be integrated then it will lead to have full control related with issuing and
dispatching of inventory will take place as it is already being adopted in IKEA too. likewise, an
adoption of management accounting reporting will enable to have better controlling and
monitoring like in case of cost or performance report. These report will enable the IKEA to have
measurement and monitoring of its performance. However, on a critical note it is to be
considered that an execution of these concepts will require a lot of time as well as cost because it
is time consuming as well as costly affair too.
Techniques of cost analysis
Cost:
It refers to the expenses which is being incurred in order to acquire any good or product.
It can also be said that the cost is the financial valuation of resources including material, risk,
time and various other aspects in order to purchase the product (Pope and Mohr, 2017).
Types:
Fixed: