MANAGEMENT ACCOUNTING INTRODUCTION

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explain management accounting and give essential requirements of different types of
management accounting system in the given case scenario...................................................1
P2 Explain different methods used for management accounting reporting...........................8
Task 2.............................................................................................................................................15
P3 calculate cost using different techniques by preparing income statement under marginal
and absorption costing..........................................................................................................15
TASK 3..........................................................................................................................................16
P4 Explain advantages and disadvantages of different types of planning tools for budgetary
control...................................................................................................................................16
P5 Compare how an entity adopt management accounting systems in order to deal with the
financial problems................................................................................................................18
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................20

Illustration Index
Illustration 1: Retail performance....................................................................................................2
Illustration 2: BEP............................................................................................................................2
Illustration 3: Budget.......................................................................................................................4
Illustration 4: Ratio analysis............................................................................................................8
Illustration 5: Cash flow analysis...................................................................................................10
Illustration 6: Capital budgeting....................................................................................................13

INTRODUCTION
Role of management has increases with the introduction of higher amount of
complexities in the external business environment. Nisa Retail store has been selected for this
project report which is growing gradually in boosting the overall economy of the UK. This report
focuses on management accounting systems and management accounting reporting techniques in
complying all kinds of systems fruitful for the business enterprise. Marginal and absorption
costing has been chosen by an entity in improving the business fall under retail sector in the UK.
TASK 1
P1 Explain management accounting and give essential requirements of different types of
management accounting system in the given case scenario
Background
The current sector is regarded as most important sector in the United Kingdom which
generates higher amount of sales and the revenue every year. The economy is boosted by getting
higher revenue from this particular sector which increases the overall scope of all the businesses
fall under this category (Farías, Torres and Mora Cortez, 2017). There are different kinds of
businesses involves in this sector such as furniture, food and grocery, clothing and accessories
and electronics.
Nisa retail store has been selected in the present report which is small scale entity located
in the United Kingdom. It deals in providing grocery market products or services in order to
facilitate the needs and expectations of all the consumers. Management accountant of Nisa retail
store will take important decisions for the betterment of the current business as their desired
market aim is to achieve all the aims and the objectives within a given span of time. Analytical
ability of a manager gets increases by taking important decisions in their business.
Financial perspective
1

Illustration 1: Retail performance
The current business has generated higher amount of sales and the revenue from this
particular sector which helps in increasing higher scope. The scope will be increases with the
passage of time as this would help in enhancing the value of an entity in relation to its variety of
users. The recent study has revealed that this particular sector has produces 358 Billion GBP
every year. The financing goals of the economy will be accomplishes as this would attract
variety of users in investing lots of investments in different areas of business.
Employee strength
The biggest strength of this sector is an employee who represents an entity by their
actions as every wrong action will further ruin the performance of the business in the external
market. Total base of employees is 2.8 million in this retail sector which is collaboration of
various business enterprises (Tiwari and Debnath, 2017). There are 290315 number of retail
firms in this particular sector will be helpful in gathering large sum of revenue for the current
economy. It has been inferred that almost one third proportion of overall consumer spending
goes to the economy of UK through this kind of retail sector.
Illustration 2: BEP
2

Cost volume profit- This technique is regarded as one of the important approach in management
accounting which involves three components such as cost, volume and profit. It can be said that
this trilogy involves major involvement of cost and volume of the business which will directly
affects on the production of profit in the business enterprise. Nisa retail store inspire to earn
profit in the business as their primary motive of opening the firm is to gain higher amount of
profit after dealing all their current products or services. The primary concern of the top
management of Nisa Retail store is to seek for various techniques in order to reduce overall cost
incurred by an entity in their business. Cost reduction strategies are crafted by an entity in which
major principle followed by an entity owner is of optimum utilisation of resources. The input
applied in the business needs to be check properly as wrong one would destroy the current image
of the business in front of all competitors who intends to suppress the current skills and the
capabilities of an enterprise. The different approaches will be applied by an entity as their
primary motive is to analyse the existing cost incurred in the business in order to reduce the
burden of the external market (Wouters and Stecher, 2017).
Break even point will be applied by the owner in improving the skills of their business as
this point will be helpful for an entity in boosting their skills and the capabilities. An entity
determines this break even point as the sales units produced by the firm above than this point
will lead to earn profit otherwise loss.
This point is regarded as shutdown point where an entity will only recover overall cost
incurred by them in their business and no provision of profit earned by them.
Break even point= Fixed cost/Contribution per unit
Particulars cost per unit Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8
Units produced 8000 10000 12000 14000 16000 18000 20000 22000
Sales 10 80000 100000 120000 140000 160000 180000 200000 220000
Variable cost 5 40000 50000 60000 70000 80000 90000 100000 110000
Contribution 5 40000 50000 60000 70000 80000 90000 100000 110000
Fixed cost 10000 10000 10000 10000 10000 10000 10000 10000
Profit 30000 40000 50000 60000 70000 80000 90000 100000
3