Analysis of Management Accounting Practices

This assignment provides a comprehensive analysis of various management accounting research papers and studies. It covers topics such as the impact of industry context on management accounting practice, the adoption and success of contemporary management accounting practices in the public sector, corporate governance consequences of accounting scandals, strategy, strategic management accounting, and performance. The assignment also includes an online inventory management guide and project management office knowledge broker articles.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
TASK 1............................................................................................................................................1
P1 Describing various systems of MA which are considered by Harrods Limited at the
workplace...............................................................................................................................1
TASK 2............................................................................................................................................3
P3 Preparing income statement (I/S) by taking base of two techniques of MA i.e. marginal as
well as absorption costing......................................................................................................3
Segregation between marginal and absorption costing..........................................................5
TASK 4............................................................................................................................................6
P4 Advantages and disadvantage of different budgeting tools.............................................6
. Managers may have the knowledge of other department but they don't know the strategic goals
and financial objectives of the overall organisation. ....................................................................10
P5 Comparing how organisations are adapted management accounting techniques to over
come financial crisis.............................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

TASK 1
P1 Describing various systems of MA which are considered by Harrods Limited at the workplace
Business Report
From: Management accounting Officer
To: General Manager
Harrods Limited
Subject: Systems of management accounting
Date: 6th December 2017
Introduction
A procedure through which financial plans are prepared as well as implemented and
evaluated at the workplace is referred as management accounting. It is used by only internal
stakeholders of the selected business which include managers, owners and employees. Further,
it comprises with various kinds of approaches as well as systems which are presented through
the current business report. In addition to this, essential needs of MA's systems under Harrods
Limited are described throughout the report.
Systems of MA
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Illustration 1: Systems of management accounting
(Source: Messner, 2016)
Cost accounting system: At the workplace of every organisation, cost is very essential as
well as crucial part. The reason behind this is that, expenses create direct impact on profitability
and business perfection of Harrods Limited. On the basis of this specific system, accountant
able to make calculation of total expenditures incurred for producing and selling retail items.
Along with this, the expenses are to be shows by segregating in different ways like fixed,
variable, production, semi-variable etc. In addition to this, key components involved under this
system are like overheads, labour as well as material. Moreover, it consists of target costing,
environmental, activity based, throughput, standard cost accounting etc (Messner, 2016).
Considering to this, cost incurred for selling and distributing every unit is determined easily in
Harrods. Therefore, decisions for considering pricing method is taken in proper and fruitful
manner. Hence, essential need of cost accounting is to derive cost of production and make
correction accordingly, if required.
Inventory management system: Stock at the workplace is highly needed to utilise and
manage properly as it is very crucial part of the firm. Higher the inventory at the end of year
leads to reduce capability of business of generating sales and enhance stock turnover ratio at the
fiscal period ending. On the basis of this mentioned system of MA, Harrods Limited able to
manage as well as decline total stock available within firm. When this specific aspect decreased
consistently then firm able to make more sales and turnover in financial year. As revenue
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generated in more proportion, then the retailer easily able to boost up its turnover ratio
(Inventory Management, 2013). Therefore, profit generation capacity of the firm will be
improved up to a greater extent in the retail segment of UK. Apart from this, for managing
stock it is essential to analyse its total value. Further, there are three methods considered for
inventory valuation i.e. weighted average, LIFO as well as the FIFO.
Price optimisation system: Along with the stock and cost, price is another key factor of
the company which must be determined in an appropriate manner. A monetary factor at which
retail products and services are to be sold among customers is termed as price. It is not
necessary that accountant of Harrods Limited charge one particular price of products up to long
term. This aspect differ within sometimes which leads to derive purchasing and consumption
level of consumers. At different level of Central Systemcharges, number of customers also
differ by which sales and profit of the retailer vary. Furthermore, basic need of price
optimisation is to select one particular price at which more numbers of customers purchased
retail items (Cadez and Guilding, 2012). On the basis of this method, Harrods Limited able to
determine that which price will be supportive for it to generate more profit and boost up
financial performance in retail sector of UK.
Job costing system: The selected company selling different range of products which are
like cloths, food items, apparels etc. On the basis of this system of MA, Harrods Limited able to
determine that cost of sales is up to which level incurred under products of each job. Once
expenses came into consideration for selling every product of job then company can derive
pricing level in an appropriate direction (Joshi and Li, 2016). Henceforth, essential need of job
costing is to assess cost of goods and services of each job occurred at the workplace of Harrods
Limited and on the basis of this make pricing decisions.
Conclusion
It can be summarised from the present analysis that, basically four types of systems are
considered by Harrods Limited which are part of MA. Cost accounting and job costing
approaches are supportive in terms of determining total cost of production and expenses
incurred to produce products under each job. Apart from this, stock management and price
optimisation is helpful to Harrods for reducing inventory level and derive one profitable price of
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retail goods and services respectively.
TASK 2
P2 Explaining the different methods used for management accounting reporting.
From: Management accounting Officer
To: General Manager
Harrods Limited
Subject: Systems of management accounting
Date: 6th December 2017
Introduction:
Sir,
In according to the management accounting report of Harrods limited it can be said that it
include the decision making, devising planning and performance management system of the
enterprise. This depend on the report which is to be given by the financial manger to assist the
management in the formulation of the plan (Pemsel and Wiewiora, 2013). The management
accounting is important in Harrods as this help the company to:
 Analysis the cost of all the products and services offered by the firm.
 Allocation of the resources according to the activity cost techniques.
 This will also help Harrods in forecasting the future and then to plan accordingly.
The different types of Management accounting reports are as follows:
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Illustration 2: Types of management accounting reports
[Source: Collier, 2015]
Budget report: in this type of report the overall budget of the company is decided and then
allocated by the management of Harrods. This also involve using the last year's budget in
preparation of current year budget by also keeping the inflation and cost of product in mind.
Harrods will list out all the possible sources of the fund and also seeing the expenditure and
revenue of the firm then to set the budget. This also help the management of the company to
analyse the performance in the market, departmental performance and also to control the cost of
the firm.
Accounts receivable ageing: this is used to assess the long and short term debts of the firms.
Who all are the debtors of firm, how much debt they all own and what among them are the
doubtful debts. The accounts receivable will analyse the amount of debts which are increasing
for the firm and will, find the effective solution helping them to gain the payments again. This
will be useful for Harrods to identify the relevant source of debt and making the report of it.
Job cost report: this report will be showing the expenditure made by a specified project of the
firm. Then after they analyse the expenditure made by all different type of project is causing to
the firm then they will allocate the budget according to the costing. This is very helpful in
identification of higher earning and lower earning areas of the firm and then controlling the cost
of them accordingly. This is used to analyse the expenses made by the project which is in
progress are the present time and them correcting the area of wastage as soon as possible.
Inventory manufacturing report: raw materials are the main source of production of the firm
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and to control them is also very important. The inventory of the firm are used by the
management to make their manufacturing process more and more efficient. The inventory
manufacturing report will be covering certain area of production like that of inventory waste,
hourly labour cost or per unit head cost of the firm while producing any product.
Conclusion: it can be summarised that management accounting there are many types of report
which need to be generated. They all are having their own importance in the firm and help in
decision making and cost allocation of the products of the firm which are been manufactured.
Management accounting is having its own importance in the firm and its decision making
process as this help the firm in reducing the cost and expense incurred by the task or job of the
firm.
TASK 2
P3 Preparing income statement (I/S) by taking base of two techniques of MA i.e. marginal as
well as absorption costing
Preparation of financial statements is very essential part of every organisation because it
supports to assess financial performance of the firm within industry. On the basis of performance
pertained effective business decisions like investing, financing, expenses making, dividend etc.
are taken into account. In the present part of the project, income statements are formulated which
show profitability position of the company. To prepare profit and loss accounts different methods
are available at there. Herein, marginal and absorption these two costing techniques are
considered by Harrods Limited for preparing such accounts. Further, statements and analysis is
presented below:
Income statement based on marginal costing
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Considering to the above statement of income it can be said that, at the end of fiscal year
the retailer generates revenue worth of 17500 GBP by selling 500 units. On this particular sales
amount Harrods Limited is capable for earning 4300 GBP net income which is not higher and
lower. On the basis of this, it can be assessed that management of cited firm is capable for
managing total costs incurred within firm. Being a retailer any kind of manufacturing costs are
not has to bear to it. Therefore, expenses for packaging and selling several retail items are
properly managed by it. Due to this specific reason, it becomes able to generate this profit
amount at the end of accounting period. Moreover, it should apply those strategies which support
to manage and control over the unproductive costs. The reason is that, these will help to improve
net profit and boost up financial performance in the retail sector of UK.
Income statement based on absorption costing
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Looking at the above formulated P&L on the basis of absorption method it can be seen
that, Harrods Limited earning same amount of revenue as earned under marginal i.e. worth of
17500 GBP. However, net profit generated by it in this case is worth of 6600 GBP which is
higher as compared to the above mentioned I/S. On the basis of this, financial performance of the
retailer in industry is higher than the marginal costing. Key reason for occurring such difference
is that, both the costing methods are relied upon different nature of costs which are like fixed and
variable. Calculation under the marginal method considers only variable expenses associated
with firm while another uses every kind of costs (Grabner and Moers, 2013). Due to which
amount of total cost and profit both differs up to a greater extent at the end of financial year.
Marginal and absorption both are supportive for preparing financial statement which is
I/S. However, these have some differences which are reflected below:
Segregation between marginal and absorption costing
Marginal costing Absorption costing
This method considered as tool for making
several business decisions at internal level.
Further, managers become able to make
On the another side, it undertaken as an
apportionment of expense which is
implemented under cost centre. Furthermore, it
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effective judgements which support to boost up
business performance in retail industry (Nuhu
and et.al., 2017).
is one of the significant part of responsibility
centres work in an organisation.
Outcome of I/S under this method is
considered in terms of contribution of each unit
sold by Harrods Limited in the market.
Amount determined under the P&L as per
absorption costing is referred as gross profit
earned at the end of year.
Overhead costs incurred under this method is
divided in two portions which are like fixed as
well as variable.
Herein, overhead expenses are segregated in
three parts which involve production or
manufacturing, selling & distribution as well as
administration.
Profit gained by the retailer at the end of
financial year is to be measured in terms of
P/V (profit volume) ratio.
In this method, changes or fluctuations in fixed
income lead to create huge impact on
profitability situations of the retailer (Hiebl,
2014).
Stock is to be measured in marginal costing in
form of non-fixed expenses of the company.
Herein, valuation of inventory is to be done on
the basis of production expenses incurred at the
end of financial period.
At the time of making calculations and P&L on
the basis of marginal costing, there is not
requirement to follow accounting principles,
standards, theories etc.
On the another side, treatment of stock is done
on the basis of International Accounting
Standard 2 (IAS 2).
TASK 4
P4 Advantages and disadvantage of different budgeting tools.
The formulation of plans in numerical terms for future period is called budgeting. Business
prepare budgets for various departments, units, divisions, etc. budgets are generally made for one
year. The comparison of budgets and actual performance of organisation will help in calculating
variances. It will also help managers to find out discrepancies and take remedial actions at
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proper time. It is a continuous process which helps in planning and coordinating. It helps in
controlling as the standard cost are set in this. The main objectives of budgetary control is to
operate various departments of cost with efficiency and economically. It also helps in eliminating
waste and increase in profitability. It is a centralised control system which anticipate the capital
expenditure for future. It corrects the deviations from the established standards. It also fixes the
responsibilities of various individual in the organisation. The various essentials of budgetary
controlling are budget centres, budget committee, budget officer, budget period, budget mammal
and determination of key factor. There are different kinds of tools for preparing budgets.
Following are the various tools:
different tools of budgeting
standards: in this specific standards are set by the manager. It guides the manager to determine
the progress of report. By maintaining the specific cost and amount required for project it helps
the controlling the budget .(Hiebl,, 2014.) .
 Advantages- it helps the manager to focus on other issues because the budget is specific
in terms.
 It provides the benchmark for judging the performance of employees.
 It helps in maintaining actual cost because the standard cost are set for each activity.
 Provides integrity in business as excessive cost reasons can be found out.
 It establish standards like what the cost should be, who will be responsible for them and
if actual costs are under control or not.
Disadvantage:
 they are prepared on monthly basis and are released on the end of each month.
 It becomes difficult for managers to take favourable decisions whether incentives are
provided to employees or not.
 This budget often create variances(.Messner,., 2016.)
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Analogous- in this the cost of the new project is based on the base of the actual cost. when two
projects are same in nature it will be very easy to find out the cost of new project. They are
usually used by managers who are having less experience.
Advantages:
 It is easy to define the cost of new project.
 The estimation is done on the past project so it becomes easy to define the cost.
 The time required to make the estimation is also less.
Disadvantage:
 the estimation made may not be always be accurate.( Hiebl,., 2014.)
Parametric- In this the historical data and other variables are used to estimate the cost of new
project. The other variables are time duration and scope of new project.
Advantages:
 it provides more accurate estimation of the new project.
 It is better than the analogous technique.
disadvantage:
 the variables taken must be scalable to give accurate estimation of new project.
 The estimation is made only after briefly discussing each variable
 it is a time consuming process. (Grabner,. and Moers, , 2013.)
Top down method- the budget is prepared by estimating the cost of each process that is
involved in new project. The manager can easily decide that which process requires more fund.
The manager is having the sole power to take decision.
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advantages:
 determination of cost of each process allows the overall estimation of entire project
 There is no impact of operation and maintenance resources, therefore it do not affect the
smooth running of project.
 the employees role and responsibilities are defined and it is cleared that what is
expected from them.
 every employee is ranked at same level that helps the manager in controlling the quality
of project.
disadvantage:.
 the morale of employee is affected.. The employees who wish to have an emotional
stake in their job, it demoralizes them. Managers are not able to see what talent is there
in the employees((. Joshi, . and Li,., 2016)
 The most creative employees starts looking for a new opportunity as they realise that
their abilities are of no use..also it becomes difficult to retain employees
Bottom up method- In this the quality of inputs is used by the project manager to determine the
overall cost of project. The quality of outcome is entirely dependent on quality of inputs used.
Various software are used such as smart sheet, ace project,etc. to analyse the cost or project
(.Messner, 2016)
advantages:
 the motivation of employees is increased due to ownership of budget. It is decentralised
budgeting system which helps in participation of employees as well. It leads to more
motivation in employees and they become more involved with the projects.
 It suits large organisation where there are many department. They are more accurate as
they are prepared by employees and managers who are closet to sources of revenues and
have expertise and knowledge.
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 The employees become more familiar with department to set the budget. It helps in
better communication and coordination between managers and departments.
Disadvantage:
 sometimes the decision taken may be ineffective due to inexperienced mangers. Also,
the budget preparation is slow and may rises disputes between various departments. It
includes budgetary slack problem which means the mangers set targets which are easy to
achieve. (Nuhu,. and et.al., 2017.)
 A lot of time is required in preparing this budget. Also the lower level employees lacks
expertise in resources allocation. Managers also may not be able to find cost saving or a
particular area and this may lead to increase in expenses
Managers may have the knowledge of other department but they don't know the strategic
goals and financial objectives of the overall organisation.
P5 Comparing how organisations are adapted management accounting techniques to over come
financial crisis.
Management accounting techniques are been used to over come the financial crisis of the
firm over a certain period of time (Drake, Roulstone and Thornock, 2016). Like that of financial
planning, financial statement analysis, cost accounting, fund flow analysis, Standard Costing,
Budgetary Control and Ratio analysis
Financial Planning- maximization of the profit of the firm is the main aim of the business and
this aim can be achieved only by the sound and effective financial planning (Guinea, 2016). So
this is considered as the best tool or techniques of management accounting which is to be used
by the firm to over come financial crisis.
Financial Statement Analysis- this include preparation of the profit and loss account and
balance sheet are the main element of the financial statements. All these statements are need to
be analysed by the accountant of the firm for different period. By this the firm can see the growth
in market as compared to the other firms or from last year. The rate of growth of the firms is also
analysed by preparation of financial statements
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Cost Accounting- this present the cost of all the departments of the firm according to the
product, process, department and branch wise as well. The cost of last year is compared to that of
the present year and then the expenses are taken out by the firm.
Fund Flow Analysis- this is the analysis of the flow of fund both inflow and out flow for a
certain period. This help the firm to know that is the fund used in a proper way from the past
year or not by comparing both years fund flow statements. It also helps in analysing the working
capital changes and fund from the operation are also found out through this analysis.
Standard Costing- this is the yard stick for measuring actual performance. With that of the last
year (Henderson and et.al., 2017). Then it will include the reason as to way the difference are
there in the actual and the set standard cost.
Budgetary Control: under these types of cost techniques all the upcoming future cost are
identified and then they arranged in the orderly bases. This will be helpful in controlling the
financial performance of business so that there are no wastage of the funds which are available
Ratio analysis- in this type of management is used to take out all the financial ratios of the firm
like that of forecasting, planning, coordination and communication and then to control them all.
All these type of management accounting techniques are used to make adequate decision
of the firm. There is also important to use all these type of management accounting techniques in
costing like that of budgeting and performance indicators as well (Agrawal and Cooper, 2017).
By the use of different performance appraisals like that of budgets from each one tasks which in
turn is useful for making the capable decisions for firm. Therefore, this will help in observation
or execution of all the business objectives of the enterprise.
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CONCLUSION
On the ground of preceding mentioned study there will be investigation which are
applicable with the diverse functional aspect of Harrods in UK which has the activity of various
accounting techniques. Thus, there were communicating based on the different tools and method
which are relevant with the costing, budgeting and fiscal problems. Thence, there will be need to
kind the equal to decision making which in turn advantageous in intensify the work performance
of the firm. Further there has been measurements of financial gain statements with the help of
marginal and absorption costing techniques which indicate that the absorption method essential
be utilised by professionals as it convey most appropriative results such as 9600. Further it will
be recommended to the organisation in discourse with motivative the manpower for making the
priceless efforts with the assist of different performance appraisals such as benchmarking, key
performance indicators etc.
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REFERENCES
Journals and Books
Cadez, S. and Guilding, C., 2012. Strategy, strategic management accounting and performance: a
configurational analysis. Industrial Management & Data Systems. 112(3). pp.484-501.
Grabner, I. and Moers, F., 2013. Management control as a system or a package? Conceptual and
empirical issues. Accounting, Organizations and Society. 78(6). pp.407-419.
Hiebl, M. R., 2014. Upper echelons theory in management accounting and control research.
Journal of Management Control. 24(3). pp. 223-240.
Joshi, S. and Li, Y., 2016. What Is Corporate Sustainability and How Do Firms Practice It? A
Management Accounting Research Perspective. Journal of Management Accounting
Research. 28(2). pp.1-11.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research. 31. pp. 103-111.
Nuhu, N. A. and et.al., 2017. The adoption and success of contemporary management accounting
practices in the public sector. Asian Review of Accounting. 25(1). pp. 106-126.
Agrawal, A. and Cooper, T., 2017. Corporate governance consequences of accounting
scandals: Evidence from top management, CFO and auditor turnover. Quarterly Journal
of Finance. 7(01). p.11
Cadez, S. and Guilding, C., 2012. Strategy, strategic management accounting and
performance: a configurational analysis. Industrial Management & Data Systems. 112(3).
pp.484-501.
Drake, M. S., Roulstone, D. T. and Thornock, J. R., 2016. The usefulness of historical
accounting reports. Journal of Accounting and Economics. 61(2). pp.448-464.
Grabner, I. and Moers, F., 2013. Management control as a system or a package? Conceptual
and empirical issues. Accounting, Organizations and Society. 78(6). pp.407-419.
Guinea, F. A., 2016. Study regarding the impact of cultural factors on management
accounting systems. The Audit Financiar journal.14(144).
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Henderson, B. and et.al., 2017. Marginal costs of abating greenhouse gases in the global
ruminant livestock sector. Mitigation and Adaptation Strategies for Global Change.22(1).
pp.199-224.
Hiebl, M. R., 2014. Upper echelons theory in management accounting and control research.
Journal of Management Control. 24(3). pp. 223-240.
Joshi, S. and Li, Y., 2016. What Is Corporate Sustainability and How Do Firms Practice It? A
Management Accounting Research Perspective. Journal of Management Accounting
Research. 28(2). pp.1-11.
Messner, M., 2016. Does industry matter? How industry context shapes management
accounting practice. Management Accounting Research. 31. pp. 103-111.
Nuhu, N. A. and et.al., 2017. The adoption and success of contemporary management
accounting practices in the public sector. Asian Review of Accounting. 25(1). pp. 106-
126.
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