Management Accounting & ASDA Stores

This assignment examines the application of management accounting systems to address financial challenges within ASDA Stores. It analyzes the clash between marketing and finance departments due to unplanned budgets and proposes solutions through key performance indicators (KPIs), benchmarking, and targeted budgeting techniques. The document emphasizes the role of management accounting in improving profitability, controlling costs, and facilitating informed decision-making for ASDA Stores.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Report on management accounting system and its different types required for management
.....................................................................................................................................................1
P2 Different methods of Management accounting reporting......................................................4
TASK 2............................................................................................................................................7
P3 Calculation of absorption costing and marginal costing in identifying income statements. .7
TASK 3..........................................................................................................................................11
P4 A report on merits and demerits of various planning tools of budgetary control................11
P5 Use of management accounting system to solve financial problem....................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

From: Management accounting officer
To: General manager of ASDA Stores
Sub: Management accounting system
In this report, being a Management Accounting Officer, details of the variety of MAS
that assist ASDA Stores in make the proper decision while choosing the best alternatives has
explained by me. Different types of Management Accounting Systems such as Traditional, Lean,
Throughput and Transfer systems are the part of this report.
INTRODUCTION
MAS or management accounting is a enterprise learning and transformation process in
which practical application of accounting techniques while making report is done (Bac, 2013).
These reports show the financial health of an organisation in meeting its future estimation plans.
Management accounting plays several roles like analysing, planning, implementation and
controlling programme designs (Banerjee, 2010). It helps management in knowing their financial
status. These financial reports also help management in making decisions.
In this assignment, Asda Stores Ltd. is considered for application of management
accounting strategies. This company is British supermarket distributor and its headquarter is in
Leeds, West Yorkshire. It was founded in 1965 (source: asdasecure).
Various methods and types of management accounting has been discussed in report to
General manager. Merits and demerits of planning tools has also been explained to support
budgetary control process. Case analyses of two different scenario's have been done to execute
accounting techniques into it. The study of these different scenario's will help management of
chosen company in proper application of these tools discussed in report for better decision-
making.
Main objective of this report is to identify different ways of using accounting methods
such as profit analysis, marginal costing and absorption costing for company.
TASK 1
P1
Management Accounting System:
1

The MAS contains all the provisions that provide accounting information to the managers
(Bennett and James, 2017). Data's collected through this system helps in making decisions to
resolve many issues of an organisation. It consists guidelines for making financial and non-
financial decisions. It is mainly considered by Investors, creditors and operational managers.
These users have different purposes to consider accounting information. It is based on their
requirements.
There are various management accounting systems which are used in order to make certain
objectives.
Cost Accounting system: This is also known as lean accounting system. Cost accounting
system is the main tool which are used in order to make sustainable development. However, it
can be stated that the cost accounting system is an effective technique which produce goods in a
reasonable manner. This can be said that the management accounting system is the most
effective tool that can be used for lowering the cost of production of goods. It involves the
revolutionary technique in which it focuses on the cost reducing strategy. Whenever it is
necessary to make decisions, this system provides immediate information to the accounting
managers.
Stock Administration system: It is a main system that assist in keeping control over stock of
an enterprise. Inventory management system helps the company to gain the sustainable
development in an appropriate way. With the help of IMS, company can effectively manage
their working capital and cited company can make their decisions effectively about the
Inventory Management System.
Job Costing system: This is the job costing system which are used in order to assign
production cost to an individual product or batch. Normally, this can be said that the job order
costing is the tool which is used only when the goods produced are separately different from
each other.
Price optimisation system: This is the tool under which the management accountant officer
will optimise the price so that the company could use their objectives in an appropriate way.
although, this is the most important tool of the business that can be used by the company in
order to implement their business objectives. POS helps the company to fix their price in an
effective manner. which would help out to make their business decisions for the long run.
2

P2
From: Management accounting officer
To: G.M. of ASDA Stores
Sub: Management accounting report
In this report, the process of decision-making has been explained to various methods of
accounting reporting to assist ASDA Stores. Apart from this, the use of these methods has also
been mentioned as per the company's requirement.
Introduction to Management accounting report
Management accounting reports tells about financial position and status of a company. It
shows the how efficiently company is performing as compared to other companies (Chiarini
and Vagnoni, 2015). This is done at the last of each accounting period or it can be present at the
time of demand, such as directors can also ask for monthly, weekly or even daily reports.
Advantages of M.A reports
 This system assist in future prediction.
 This aids in decision making or buying.
 It predicts coming cash flow of business from various sources.
 This assist in knowing the difference in labour, content and results of possessions
 It help organisation in studying the rate of rate required to run the business.
Different methods of MA report
 Budget Report: It is a system of MA reporting of organization, management can learn
how to analyse the performance of a company through evaluating budget report
3
Methods of Management Accounting ReportMethods of Management Accounting Report
Accounts receivable
Aging Report
Job costs Reports
Income statement
report
Cash flow reportBudget Report
Inventory reports

(Chiarini, 2012.). This report helps the company in controlling additional costs on some
departments. It also compares the performance of each department on the basis of their
cost allocated in budget reports. Under this technique, an approximated budget for that
particular period has been made, this estimate is based on the trend of actual expenses.
Owners and managers can also use budget reports for allocation of incentives among
their employees, budget reports analyse robust analytical skills and skills to create
useful management accounting reports. Overall, this is fundamental reports in
managerial accounting. It helps businesses in control costs in enterprises.
 Accounts receivable Ageing Report: This reporting method of management
accounting for any business is very important, which sells its products on credit.
Generally credit is given in different categories such as 30, 60 and 90 days. It is
necessary for a company to refer this report at the time of making credit policies for
buyers of their product.
 Job costs Reports: This method of management accounting provides a report that
shows expenditure for a particular project. These costs correspond to an estimate
revenue to analyse job profits. This method classifies high earning areas of the business,
rather than focusing on the allocation of funds to these areas rather than waste money
and cost rather than using the money in low-income areas. Job Costing is also used to
identify expenses of work-in-progress or unfinished projects to eliminate wastes before
completion.
 Inventory and manufacturing reports: This method of management accounting is
useful for companies that produce physical products such as manufacturing industries.
The Inventory and Manufacturing report helps in collecting data on inventory cost,
labor and other upper part of the production process. Manufacturing companies can use
the managerial accounting report to make their operations more efficient
 Income statement report: These statements consists of trading and profit and loss
account which is prepared at the end of every year (DRURY, 2013). It helps a company
in knowing how much profit and loss is left with the company after pay off all its
expenses. It is transferred to retained earnings account of a company.
 Cash Flow statement report: This report helps the business to know how much cash is
available in a business and how much it could be earned in future. Overall, it tells about
4

the trade's liquidity.
This method could be applied by ASDA Stores in following ways:
 Budget Report: ASDA Stores can use the budget report to analyse the difference
between estimated and actual data. More deviation refers to the inability of a company
to manage its costs, where less variance means that the company is using its resources
without wasting its resources. It can be understood through this illustration: ASDA
Stores sales budget is 500 units and company able to achieve selling 600 units. This
difference is known as under budget as company estimates lesser than actual. This under
budget affects in non-meeting of actual demand.
 Accounts receivable Aging Report: Through the application of this type of report,
ASDA Stores could know how much period requires to receive the total amount from its
debtors. For instance, If the debtor is moving from last year, the efficiency of the
working capital of the companies will be affected due to the low cash available for a
business. Therefore, this report can be implemented to control the extra blockage of
cash among debtors.
 Job costs Reports: After the application of this method, ASDA Stores can know which
activity consumes more cash. For example, in the given example, the company has
production, sales and distribution costs. These different costs generate a job-related cost
on the basis of activities. .
 Inventory and manufacturing reports: In this type of reporting method, managers
applied this to know how much stock of ASDA Stores is blocked in manufacturing
process. These reports represent the working capital statement and the progress of a
company. For example, information about a company's stock and closing stock is
required to meet the demand of a product for information.
 Income statement report: This report is known to show how much profit has been left
with the ASDA Stores after payment of all expenses, interests, taxes and payments. For
example, the company records the net profit amount of £ 9300 over a year. This means
that it has only managed to earn that amount.
 Cash flow statement report: ASDA Stores can implement this method to find the
liquidity of its business through the analysis of cash flow statement reports. For
example, the company's net profit is £ 9.3 billion, which is accumulated. This means
5

that the business is not earned in cash. So, the business may know how much actual
cash has been left with this report.
CONCLUSION
This depends on the requirement of ASDA Stores which type of report is required. Each
reporting method has its own use and significance, to obtain the liquidity of a business, the cash
flow statement report is useful. Income Statement helps the business to know how much money
it makes with the business in order to invest in expansion activities and business maintenance.
Budget report estimates are based on estimation. According to it, rotour plc is required for
allocation of funds between different departments.
TASK 2
P3 Calculation of absorption costing and marginal costing in identifying income statements
Marginal costing: In this type of costing method, expenses and revenues are break down
into per unit basis. According to this costing method, business should produce products until its
costs per unit is more than its price per unit (Håkansson, Kraus and Lind, 2010). For example:
To know the impact of profit with change in sales units, company requires per unit price. It can
produce its products until price of the product is more than its costs. But after utilising excess
production limit, for any new production fixed cost of company would increase which makes
excess of costs over its price.
Absorption Costing: This is a method for evaluating the inventory, here, the distribution
expenditure is distributed among the various departments to know how much cost has to pay for
each department. For example, let's assume that the ASDA Stores has two departments that are
selling & distribution and production. Suppose that the staff of these two departments eat in a
canteen the cost of the canteen is itself developed by the company itself. Therefore, the cost of
canteen is not direct cost, but it supports both departments to run a business. Therefore, the
methods of absorption have suggested to distribute the canteen expenditure among these two
departments to get the actual value.
Below is the table in which calculation of Income statement with marginal costing and
absorption costing is Computation of Net profit by using absorption costing
Income statements
6

Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2+3 = 16*500
8000 8000
Gross profit 9500
Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
Total Profit / Loss 7800
Calculation through using Marginal costing Income statements
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2 - 7800
Closing stock: 100*13 - 1300 -6500
Contribution 11000
Less:
Variable sales overhead 500*1 500
Fixed overhead -1800
Selling and administrative cost expenses (800+400) -1200 -3500
Total Profit / Loss 7500
Therefore, net profit in both techniques is the different from each other. Net profit as per
marginal costing is lower than the profits calculated by using absorption costing. The net profit
of the marginal costing is 7500 and from the absorption costing, it is come to the 7800.
Henceforth. Net profit as per absorption costing is more efficient than marginal costing.
Marginal costing divides costs into two parts which is variable and fixed costs while in case of
absorption costing, it considers fixed and variable costs together at the time of calculation
(Ibadin and Imoisili, 2010). For example, in absorption costing method, production costing
7

includes both variable and fixed costs of production and Selling & distribution costs contains
both variable and fixed overhead of administration expenses.
Below is the table of difference between Marginal costing and Absorption costing
techniques:
Basis for comparison Marginal Costing Absorption Costing
Meaning Process used in order to find
out total value of output
produced is known as marginal
costing.
Distribution of funds on
expenditure centres to find the
actual value of production are
known as the absorption cost
(Laudon and Laudon, 2016).
Acknowledgement of Cost In marginal costing, The cost
of the product is under variable
cost and the fixed cost is
considered as the periodic cost.
Both fixed and variable costs
are considered as the cost of
the product here.
Categorization of Overheads The cost has been fixed in
variable and marginal cost to
find the contribution and the
net profit separately
In absorption costing, For
gross profit and sales and
administration costs, there is a
separate classification for
production to get net profit.
Gainfulness In marginal costing, cost-
volume analysis is used t
calculate gain to a company.
In absorption costing,
deduction of fixed costs
together impacts gain of a
company..
8

Expenditure per Unit Opening and closing stock of a
company doesn't affect the
calculation of Marginal costing
in finding cost per unit of a
product.
Opening and closing stock
directly affects the absorption
costing while calculating total
expenditure absorbed in
production process.
Detail Here, the main purpose of
marginal costing is to calculate
contribution per unit.
The purpose of absorption
costing is to calculate net profit
and gross profit of a company.
Cost Information In order to final out the cost of
every commodity data
associated to cost is presented.
This is prepared in a traditional
way to present the cost of the
data.
Absorption Costing: It accepts the costs that can be completely absorbed in the
production process (Lavia López and Hiebl, 2014). The goal of the cost of absorption is to
recover overheads so that the total time and effort eaten in the manufacture of products and
services can be reflected. It is calculated after considering following factors given below:
 Appointment and allotments of overheads: In this phase, the overhead is allocated and
divided. It includes overhead expenditure directly separated from the production
department.
 Rebuilding Service Cost Center Overheads: Service cost centers or departments are
not directly involved in the production activity of the products, thus their fixed overhead
charges can be distributed to the production departments on the basis of their cost. For
example, rebuilding of costs on the basis of services provided by canteen, stores, health
department and conflict resolution department can be done. As these departments
contributes in supporting production houses which helps company in smoothly running
its business operations.
 Absorption of overheads: Overhead absorption is a method in which the costs of
overheads are included in the total cost of the product. It is defined as charge per unit cost
per production as per calculation based on the total number of production units. Overhead
absorption rate by the number of units of available absorption products can be identified
9

by dividing it from total overheads. Sometimes the number of units is estimated based on
demand or previous trends.
TASK 3
P4 A report on merits and demerits of various planning tools of budgetary control
From: Management accounting officer
To: General manager of ASDA Stores
Sub: Different accounting tools
This report consists of explanation of various tools which would help management of
ASDA Stores in resolving the issues in management accounting information systems. Tools like
budgetary control and budget forecasting, performance indicators and variance analyses would
solve the issues raises in accounting functions. Additional to this, report would also point out
merits and demerits of these planning tools of budgetary control.
Budgetary Control Concept
It is a universal concept by which company can control distribution and allocation of its
funds. ASDA stores could manage its funds on the basis of sales forecasting in advance.
Budgetary control in actual is controlling financial statement activities through comparing it
with estimated figures. Before controlling a budget, company requires to create budget forecast
as a first step.
Various types of planning tools is used in controlling a budget such as financial budgets,
operating budgets, non-monetary budgets and fixed & variable budgets. This tools has been
explained with the help of given diagram below:
Financial
Budgets
Types planning tools of
Budgetary control
Operating
Budgets
Non-Monetary
Budgets
Fixed and variable
budgets
10

 Financial Budgets: In this type of budgeting tools, estimation related with cash inflows
and outflows is done (Macintosh and Quattrone, 2010). It supports company in planning
for using its finance in accomplishing different tasks like maintenance of assets,
acquiring new assets, long-term investments, etc. To make a financial plans company
utilises following sources such as sales revenue, revenue from selling an asset, stock
value and previous loan values. Financial budget could help ASDA Stores in knowing
the allocation of its funds among different activities.
 Operating Budgets: It is an estimation based on distribution of funds on various
operational activities. It would be helpful for ASDA Stores to use operating budgets to
track its expense, revenue and profit budgets during a year. It would also help our
company in meeting customers demands in future.
 Non-Monetary Budgets: These budgets consists of estimating non-financial sales and
revenues. ASDA Stores could make non-monetary budgets to control all activities which
is small in value but important for business operations.
 Fixed and variable budgets: Non variable budgets are associated with the coming time
estimation of business expansion. Fixed expenses are those which is permanent in nature
or say it is not effected by any increase and decrease in production of units. Variable
budgets are estimation on per unit increase and decrease of production. These budgets
would support ASDA Stores in estimating fixed costs, variable costs and semi-variable
costs in advance.
Advantages of various types of planning tools used in budgetary control:
 These tools provide effective tools for business: Various planning tools would support
ASDA Stores in functioning effectively and company might know its future cash
inflows and outflows in advance. It would help company in proper allocation of funds.
 These tools provide the coordination and communication facilities: This tool will
help different departments to get information about all those activities, which they need
to perform in advance. For example, the marketing department of ASDA Stores could
know in advance how much fund has been allocated for them and they can coordinate
and communicate their employees accordingly.
 This tools guides how to keep records: It provides guidelines about how to keep
11

records and how to utilize these past records in future estimation of demand of the
product.
 These tools are substitute to planning: As in the planning process, company makes
future estimation, assigned works and execute plan. In same way, these budgetary
control tools works. It estimates future figures, allocate funds and implement the
budgets for ASDA Stores.
Disadvantages of various types of planning tools used in budgetary control:
 It is rigid in nature: Budgetary tools are not flexible or rigid in nature because these
plans are for long term and consumes lots of time (Monden, 2011). Hence, any change
in mid is not possible as it can affect huge fund loss to a company.
 It is time consuming: It is long term planning process because it requires analytical
and assessment skills. Company requires special persons to execute a plan and lots of
in-depth research is required to make a plan which consumes lots of time.
 Innovation can't implemented: Future estimation is based on past data's and
informations. Any additional factors like innovation and creativity is not considered in
tools of budgetary control.
 Future is not certain: No one knows what will happen in future. Therefore, any
planning which is based on future actions is not justifiable because it can't predict
which government will take what actions and regulations.
P5 Use of management accounting system to solve financial problem
From: Management accounting officer
To: General manager of ASDA Stores
Sub: Solution to financial problems through Management accounting system
Brief
Tools of management accounting is feasible in accessing accounting informations which
could solve issues of financial management department (Ward, 2012). After analysing various
issues within ASDA Stores through critical sources it was found that the main reason behind the
clash between marketing and financial departments were unplanned budget made by top
management. But after implementing below tools, all financial issues could be solved.
12

On the basis of analyses of various tools of management accounting information, three
techniques were identified which is explained below:
 Key performance Indicators (KPI): In this type of technique, company can measure
its performance. It takes return on investment as a base to calculate outcomes.
Performances of debtors, creditors, raw materials and fixed assets are tracked by KPI
(Yeshmin and Hossan, 2011). For instance, ASDA Stores could eliminate non
performing assets to reduce excess burden of cost on company.
 Benchmarking: It is alternative of KPI technique, because in this tool, previous
performance is taken as a base to measure current performance of the company. For
example, lets assume ASDA Stores has targeted £11000 for net profit. This target is
known as benchmarking for the company.
 Targeted budget: This techniques provides guidelines to a company in maintaining
standard of a product. It supports company in eliminating irrelevant activities of
operational department.
CONCLUSION
From the above assignment, it can be concluded that management accounting system
would support ASDA Stores in managing its funds in proper ways. Cost-volume-profit analysis
would support company in eliminating unnecessary costs of the company. This could increase
the profit and improve selling price per unit. Various tools and techniques of Budgetary control
supports company in control its activities to achieve planned budgets and it also helps in
decision-making process of ASDA Stores.
13

REFERENCES
Books and Journals
14

15