Management Accounting Systems Solved Assignment

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Part 1...........................................................................................................................................3
Different reporting methods under management accounting:.....................................................5
Benefits of management accounting system:..............................................................................7
Management accounting system and reports are integrate with company processes:................7
Part 2:..........................................................................................................................................7
Analysis the use of different planning tools and their application:.............................................9
TASK 2............................................................................................................................................9
Part 1...........................................................................................................................................9
Calculating cost though proper cost analysis' technique to preparing income statement:..........9
Part 2.........................................................................................................................................11
Analysis and interpretation of financial statement of NEXT PLC:..........................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
ANNEXURE..................................................................................................................................14

INTRODUCTION
Management accounting is crucial aspect of accounting. It comprises all the fiscal and
managing tasks necessary for retrieving information for company's key decisions. Management
personnels and accounting officials both play crucial character in management accounting's
processes. Account officers gathers data which is further used in various systems to accomplish
overall goals of management accounting (Agrawal, 2018). Organisation's implements
management accounting as per their existing capabilities and efficiencies while focusing on their
potentials. This study exhibits entire management accounting concept and its systems, how
managing personnels reports and to what extent management accounting systems are
advantageous in context of Next Plc. It is top retailer of clothings, home care products and foot
wears etc. in UK. Company is operating its retail chain through approx 680 stores. The study
also combines practical implication of cost techniques and application of planning tools.
TASK 1
Part 1
(A) Management accounting and types
Management accounting relates to interpreting, analysing, characterizing, identifying,
managing and presenting a commercial enterprise's data acquired through financial accounting
and cost accounting. Management accounting assists business organization's executives in policy
implementation, policy and decision making and even in the company's day-to-day tasks and
activities. Organising vital variables of an entity's performance and operations is important thing
which can be efficiently done through adaption of various systems (Bryson, Crosby and
Bloomberg, 2014). Routine working of a company generate events and transactions which
ultimately shows impact on their targets so management is divided into different layers, which
assist in monitoring such events and manage them to improve performance. The whole process is
incomplete without management accounting's systems because it provide help in fixation of
responsibilities and maintain accountability within company. Following headings contains
different systems and their requirements in context of Next Plc:
Inventory Management System: This system comprises formulating and implementing
policies for managing and directing usages of an entity's stock. Inventory are important fiscal

figure in computation of net results. It requires details of each stock items from processing heads
to enable effective tracing of inventory's usage. It provide the list of items causing excess in cost
of stocks, which help in reducing or eliminating such costs. As in Next Plc store managers and
other key officials transfers details of inventory in store, inventory in transit etc. that assist in
tracking value of wastages, sold units and items still unsold. This system provides details of
inventory store and outlet wise which also exhibits performance of each store. These are major
inventory recording approaches, as follows:
FIFO Method: It defines valuation of stock as per a that in a particular sequence first
bought or processed inventory is sold at first in such sequence.
LIFO Method: It emphasises on theory of valuation which consists that in a particular
sequence recently purchased or processes inventory is sold at first in such sequence.
Average Cost Method: In valuing process of inventory average going on stock value is
used under this method.
Cost accounting system: Expenditures are managed under this systems with intention to
achieve desired increment in company's performance profitability. This is significantly relevant
for companies to assess entire process's costs and related variables to know whether these are
within stipulated figures. A company can attain profitability without increasing their sales just
only by optimisation of numerous expenditures (Charifzadeh and Taschner, 2017). In Next Plc
this system determines the viability of decision of opening new store, launch new product range,
develop new processes and so on. Moreover, such system company can evaluate effect of costs
on company's results and profitability level. Relationship between costs and profitability is
analysed in this system to assess the need of improvement in existing operational efficiencies.
Price optimisation system: Main framework of this system consists of interrelation of
company's items price and their demand. Managers evaluates how effectively pricing strategies
are working in company. It ensures targeted demand is achieved along with adequate profit
figures. Prices are changed to an extent at which demand is at effective level. In Next Plc this
system is utilised to enhance the sales at particular store, achieve targeted demand potentials and
set pricing policies. Effective price of company's each items is determined and responses are
analysed by management for choosing most favourable price of its products. Company's internal
pricing structure are formed by applying this system.

Job order costing system: Job costing or Job order costing is a mechanism for
delegating and accumulating production expenses to an individual production unit. The costing
scheme for work orders is shown when the distinct products generated differ adequately from
one another and each one has a substantial price. As there is a substantial variability in the
products produced, of each item (each work or unique order) job order costing scheme needs a
distinct work price record. In Next Plc, it is applied to facilitate accountability in its different
products which are different from company's normal product chain. In company it is used in
some segments for effectively managing expenses by allocated to jobs.
Different reporting methods under management accounting:
Management Accounting Reporting: This is a structure which is responsible for
communicating effective informations within a corporate entity. Such communication being
formal in nature and information concerned should be used to determine company's actions.
Management accounting reports are often used for success prediction, regulation, policy-making
and measurement. As per the demands, these statements are produced continually all through the
books finalisation and accounting (Goh and Scerri, 2016). Since many sensitive choices rely on
the credibility of these accounts, specialists who are skilled at record keeping should thoroughly
prepare them. These reports are then analysed by managers to accentuate such trends and
transform them into helpful business data. Following are mainly used reports by managing
officials, as follows:
Budget Report: Budget accounting managerial reports are most crucial in evaluating the
efficiency of entity and are mainly produced as a whole for entire company and departmentally.
Each corporation, however, generates an general budget to comprehend their company's internal
system. However, in budget projected amounts are filled on the basis of past experiences, a large
budget often provides for possible unanticipated conditions. Budgets list out sources of income
and costs. A business is trying to accomplish its objectives and predetermined goals while
remaining within the quantity budgeted. In Next Plc along with financial budgets and small sub
budgets are also formed by officials to determine their efficiencies and future performance.
Performance Report: Performance reports are mostly framed to review and track
efficiencies performance as entirely along with considering every employee over a time-frame.
In Next Plc, departmental reports are issued by respective department's heads to review
department performance. Manager officials using such reports forms strategical judgements

about forthcoming performances. Individuals in respective company are oftentimes awarded and
honoured according to their task handling efficiencies and other performance measures. Whereas
for low performing personnels are recognised and more efforts are put on such individuals in
order to increase their performances. Such reports also facilitates in deep and effective insight on
acts of employees. Role of these reports is indispensable for company as it maintain an faithful
measurement of strategy dedicated to company's mission.
Cost Report: This kind of report is formed to evaluate each variable of costs and effects
of such variables on profitability and results. It is main aspect of cost accounting systems which
in long run assures company's performance in term of profitability. It offers a list of company's
all expenses and also exhibits any potential increment in expenses (Kaplan and Atkinson, 2015).
In Next Plc cost reports defines cost effectiveness of company's operations and any specific
project. Inventory wastage cost, hourly workers costs, and other effective overhead forming part
this report. These all generates an perfect perceptive of different expenses, that is vital for
controlling costs and increasing profits.
Account Receivable Ageing Reports: For business entities which are mostly relies on
extending loans and credits this ageing report is significant. Break-down of rest balances
different customers into particular time intervals allows managing officials to recognise possible
defaulters and to short out problems regarding company's collection process. This report provide
ground work for making credit policies and assess viability of existing credit period provided to
different clients. In Next Plc it facilitates company to know the status of company's major clients
and in fixing terms of credits provided by company. It also segregates current and long term
credits of company for better accountability.
Inventory Report: this report is mainly emphasised on analysing and evaluating status
of inventory in a business organisation. In wide entity like Next Plc this report is needed to
arrange their large volume of inventory's items. Store managers and inventory heads coordinates
with each other in order to prepare inventory report. In company they both hold their own stock
records and at the time of preparation of inventory report both provide informations. Any lost in
transit of stock, excessive stock holding charges and other related stock expenses are easily
minimised with help of data of inventory report.

Benefits of management accounting system:
Above discussed systems have various benefits for business and mangers also considers
these benefits before implementation of any system. Following table describes advantages of
different management accounting systems in context of Next Plc, as follows:
Systems Benefits
Cost Accounting System  It minimises the costs and allocates any
activity leading to excessive costs.
 It help in finalisation of annual fiscal
reports and budgets in respective
company.
Inventory Management System  It facilitates basic structure managing
items of variety stocks.
 Assisting in optimisation of expenses of
storing stocks, managing them and any
wastages (Lindholm, Laine and
Suomala, 2017).
Price Optimisation System  Help to fix particular price of each
selling item effectively.
 Boost the demand by determining
pricing policies.
Job order Costing System  It provides desired accountability in
tasks performance in Next Plc.
Management accounting system and reports are integrate with company processes:
Above explained systems and reports facilitates a basis for operating different processes
within a corporate entity. In Next Plc reporting and systems are interconnected to generate
simultaneous impacts on and benefits for each others. Foe intense, in company accounting tasks
and processes retrieves fiscal information which is at last used by managers thoroughly in
different managerial accounting systems.

Part 2:
Cash Flow Budgeting: This is planning tool which focuses on preparation of cash flow
statement while covering estimation of cash flows during a time-period. Through it accountants
summaries monetary cash transactions and prepares a summary of these transactions to asses real
flow of cash in or outside the entity. It also contains some sub techniques to easily manage the
movement of cash thoroughly. In Next Plc this budget assisting in allocating negative cash
figures and finding reasons for negative cash flow. It contributes in managing cash resources in
efficient manner to ensure proper cash management. It tracks the usage of cash in company's
different operations. Advantages and dis-advantages of cash flow budgeting:
Advantages: It assist company in maintaining adequate flow of cash and determines
appropriate cash level.
Dis-advantages: It shows ambiguous results as it combines cash flows arises through the
sale of capital assets, fines, security deposits and so on non-sustainable transactions.
Benchmarking: This is most applied planning tool which determines a basis for setting
standards and contains analysis of any over and under performance of company on the basis of
such standards. A benchmarking covers different performance variables which help to asses
company's operating effectiveness (Melnyk and et.al, 2014). In Next Plc, managerial officials
conduct routine analysis to determines variables to be analysed in Benchmarking Process, then
they fix criteria for performing benchmarking tasks. At last any difference is evaluated to know
main causes of such differences. Following are advantages and dis-advantages of benchmarking,
as follows:
Advantage: It help to minimise any adverse gape in performance by identifying
improvement fields within organisational structure.
Dis-advantage: This tool seem inadequate in determining entire performance of entity as
it covers only deviations in performance.
Activity based costing: This tool is mostly preferred in case of differentiated products or
items which are not consistent with company's traditional product line. Companies through it
determine each activity' costs. This tool contributes in arranging costs by allocating tasks in
different process and activities. It also includes ranking of activities as per their priority level. In
Next Plc this tool is used by departments for internal purposes to know which activity is causing
more expenses (Samuelsson and et. al., 2016). It classifies various expenses which are straight-

away related to selling of product and assign such costs to particular product-activity. These are
advantages and dis-advantage of activity-based costing, as follows:
Advantage: It enhance the accuracy of product's cost by recognising activities leading to
increase in costs.
Dis-advantage: Adoption of activity based along with traditional costing method leads to
complexities and also an expensive task.
Analysis the use of different planning tools and their application:
Controlling budgets is tuff task for business organisation, to provide easiness in this task
different planning tools are used by managerial officials. Budget are threshold for entity's
performance which determines overall effectiveness of company by making comparison with
budgeted figures. As respective company is using benchmarking to know usages of funds and
assess efficiencies, which ultimately help in process of monetary and budgetary control (Nitzl,
2016).
TASK 2
Part 1
Calculating cost though proper cost analysis' technique to preparing income statement:
Marginal costing: It is a costing technique which does not consider fixed overheads or
inventory while calculating cost of foods sold. The profit obtained under this is termed as
contribution and is attained by using profit volume ratio and changes with per unit of
production.
Absorption costing: This is a costing technique wherein fixed production overheads is
considered under cost of sales with direct material, labour. It includes valuation of both opening
as well as closing stock. This expenses all costs associated with manufacturing of a particular
product or service (Otley, , 2016).
Practical Sum:
Income statement under absorption costing method for month of May & June:
Particulars May June
(in £) (in £)
Total sales 10.5 4200000 3780000

Less: Cost of Goods sold
Opening stock -
Variable production cost 1300000 1300000
Fixed indirect production
expenditure 600000 600000
Closing stock 4.75 - 190000
Total cost of goods sell 1900000 1710000
G.P. (Gross profit) 2300000 2070000
Selling & Distribution expenses - -
Administrative cost - -
N.P. (Net profit) 2300000 2070000
Income statement under Marginal costing method for month of May & June:
Particular May June
(in £) (in £)
Total Sales 10.5 4200000 3780000
Less: Cost of Goods sell
Opening stock - -
Variable production cost 1300000 1300000
Less: Closing stock 3.25 - 130000
Total cost of goods sell 1300000 1170000

G.P. (Gross profit) 2900000 2610000
Fixed indirect production cost 600000 600000
Selling & Distribution costs - -
Administrative costs - -
N.P. (Net profit) 2300000 2010000
Part 2
Analysis and interpretation of financial statement of NEXT PLC:
Financial Statements comprises of income statement, Financial position statement, cash
flow statements etc. Which covers almost all the fiscal and monetary variables of company's
financials. In this context following is interpretation of Next Plc's financial statements, as
follows:
Income statement of Next Plc: Company has turnover amounting GBP Million 4056 in
2018 Which was GBP millions 4090 in year 2017 and 4170 millions in 2016. Which indicates
that Next's total turnover has been declined in these years. Major ground behind it is inflation in
recent time in economy and company's high concentration of Asian market. Company has
reported net profit of million 592 GBP in 2018, 635 million in 2017 and 667 million in 2016
(Next Plc. 2019). Exhibiting that company's ability in term of generating revenues has declined.
Balance Sheet of Next Plc: Aggregate amount of assets is 2562 millions in year 2018,
and in year 2017 and 2016 this figure was 2405 millions and 2330 millions. It shows an upward
trend in values of total assets. Sum of external liabilities in company in year 2018 is 2079
millions which was 1894 millions in 2017 whereas in 2016 it was 2018 millions. Indicating a
minor decrease in year 2017 but in overall it is increased.
Ratio Analysis: It is also a tool to analyse and interpret company's financial statements,
which covers different aspects of company. In this context following are the major ratio of Next
Plc, as follows:

Liquidity Ratios: These ratios mainly includes current and quick asset ratio which defines
company's liquidity position and how effective company's structure is to make payment of
current liabilities by utilising current assets (Quattrone, 2016).
Current Ratio: It exhibits company's capabilities to meet out different short term
payables by using current resources. Ideal ratio is 2:1.
2018 2017 2016
Next Plc 1.96 2.29 1.40
Company has favourable ratio only in year 2017 more than the ideal ratio. Whereas in
year 2018 and 2016. Next's current ratio is under the ideal ratio's range indicating area of
improvement. Overall declining trend indicates that company's efficiency to utilise its current
assets in context of current liabilities has reduced.
Profitability ratios: This ratio majorly consists of net profit margin, operating profit margin,
gross profit margin etc. These determines company's profit making efficiencies (Renz, 2016).
Net Profit margin: It presents efficiencies of organisation in term of generating net
earning after paying all expenses.
2018 2017 2016
Next Plc 14.59% 15.53% 15.99%
From above table overall decreasing trend is analysed, as company's net profit margin has
been decreased from 15.99% to 14.59%. Which shows that company's overall profit generation
efficiency has been declined.
CONCLUSION
At the last of the study it is articulated that managing financial and accounting tasks
simultaneously is significant for business entity and for this adopting of reporting and
management accounting's system is essential. Planning tools determines the actions of managing
officials for making effective planning for budgetary control. Various short of budgets allow
entity to assess their overall efficiency and performance over a specific time-frame. Benefits of
budgets are considered by managers while formulating strategies or make changes in pre-
implemented strategics.

REFERENCES
Books and Journal
Agrawal, R. K., 2018. Principle of Management Accounting. Educreation Publishing.
Bryson, J. M., Crosby, B. C. and Bloomberg, L., 2014. Public value governance: Moving beyond
traditional public administration and the new public management. Public administration
review. 74(4). pp.445-456.
Charifzadeh, M. and Taschner, A., 2017. Management accounting and control: tools and
concepts in a Central European context. John Wiley & Sons.
Goh, E. and Scerri, M., 2016. “I study accounting because I have to”: An exploratory study of
hospitality students’ attitudes toward accounting.
Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
Lindholm, A., Laine, T. J. and Suomala, P., 2017. The potential of management accounting and
control in global operations: Profitability-driven service business development. Journal
of Service Theory and Practice. 27(2). pp.496-514.
Melnyk, S. A. and et.al., 2014. Is performance measurement and management fit for the
future?. Management Accounting Research. 25(2). pp.173-186.
Nitzl, C., 2016. The use of partial least squares structural equation modelling (PLS-SEM) in
management accounting research: Directions for future theory development. Journal of
Accounting Literature. 37. pp.19-35.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Samuelsson, J. and et. al., 2016. Formal accounting planning in SMEs: The influence of family
ownership and entrepreneurial orientation. Journal of Small Business and Enterprise
Development. 23(3). pp.691-702.
Online
Next Plc. 2019. [Online]. Available through: <https://www.nextplc.co.uk/investors/reports-and-
presentations/2017-18>

ANNEXURE
Next Plc: