Management Accounting for Jaguar Land Rover

The report assesses the financial strength of Jaguar Land Rover through management accounting. It explains the concept of management accounting, essential requirements of different types of management accounting systems, and different methods used for management accounting reporting. It also discusses the benefits and application of management accounting systems and provides a cost analysis for preparing an income statement using marginal and absorption costs.

Unit 5
MANAGEMENT ACCOUNTING

Executive Summary
The report has assessed the financial strength through the tool of accounting present in the
management of Jaguar Land Rover. The growth of economic status has been evaluated through
the management accounting process. The financial condition of Jaguar Land Rover has been
assessed with the help of the accounting tools is provided in the report. Different planning tools
help organisations to achieve an effective strategy for the budgetary plan with estimated
planning. It increases the performance of the company. It also helps in measuring the
performance of the employees to acquire effective growth.
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Table of Contents
Introduction........................................................................................................................4
Activity 1............................................................................................................................4
Part A..............................................................................................................................4
Explanation of Management Accounting (P1)............................................................4
Essential requirements of different types of management accounting systems (P1) 4
Explanation of the different methods used for management accounting reporting
(P2).............................................................................................................................5
Management Accounting Techniques............................................................................6
Benefits of management accounting systems and their application (M1)..................6
Critical evaluation of the integration of management accounting systems and
management accounting reporting (D1).....................................................................7
Part B..............................................................................................................................7
Calculating the costs using appropriate techniques of cost analysis for preparing an
income statement using marginal and absorption costs (P3, M2, D2).......................8
Activity 2..........................................................................................................................12
Part A............................................................................................................................12
Compare and contrast three planning tools used in management accounting,
indicating how effective (P4, M3, D3)..........................................................................12
Planning tools ..............................................................................................................12
Part B............................................................................................................................14
Comparison of adapting management accounting systems to respond to financial
problems in different organisations (P5)...................................................................14
Conclusion.......................................................................................................................16
Reference List .................................................................................................................17
3

Introduction
The report has provided an analysis of the management accounting for Jaguar Land Rover to
assess their financial strength. Management Accounting has been one of the management
analytical tools for any organisations for increasing the growth in monetary status. It provides
the role of the management and technique for analysing the financial condition of the company.
The report has reflected the benefits of using management accounting along with the process of
implementation for the company. It provides a way to eliminate the financial problem from the
company effectively.
Activity 1
Part A
Explanation of Management Accounting (P1)
The advancement of technology has manifested a continuous change in the accounting system as
well as other aspects of life. The methods of creating a report of management through analysing
the accounts of any companies accurately with the period can be termed as the management
accounting. It provides statistical information which has been required by the managers for
evaluating the short-term and long-term decision. It provides both financial accounting reports
that analyse the external stakeholders; however, it has reflected a weekly summary of the
organisation's internal stakeholders. The report generally shows the current financial status of
any companies such as cash, sales revenue, debts and other inventory. As suggested by Messner
(2016), the concept of management accounting has accepted as tools of the manager to assess the
company’s financial report to understand the current state it and creating an easy way for
decision-making process. In order to sustainability in the market, companies have been shifting
from the traditional accounting system to the modern management accounting system. It
provides the information of both internal and external stakeholders to forecast the organisation's
inventory management for the value position of it in the market. The tool helps in tracking the
status of the stakeholders for identifying most efficient of them for the betterment of the
organisations.
Jaguar Land Rover has implemented the management accounting system which has been
controlled by Joshua Lee. He possesses the skill of management accounting form the CIMA
(Chartered Institute of Management Accountants). The management accounting has helped the
company to assess the current matrix and value position in the market. The accounting tools
have helped to assess both financial data and non-financial data for the present and future
prospects of the business. It has often contributed to identify the risk prevails in the organisation
and mitigate through quick decision and planning of operational development. It analyses the
cost and periodic cost along with constraints analysis for the organisation.
Essential requirements of different types of management accounting systems (P1)
The main purpose of the management accounting system is to provide relevant data to the
managerial department for creating a suitable decision-making process. As suggested by
Schaltegger and Burritt (2017), there have been various parameters which should be measured
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by the managerial department to prepare a report for the decision-making process. The essential
requirement has included the following parameters which should be assessed by Jaguar Land
Rover:
Organisation Structure: The organisational structure plays an important role in the company to
implement effective managerial accounting. The functional structure has helped the company to
acquire better management for it and increasing value position.
Management Style: The management style followed by Jaguar Land Rover is democratic, which
provides every employee with an equal chance to be part of the managerial decision. It helps the
company to assess most effective management accounting process. However, it should try to
improve the style and accumulate more employees for achieving the goal.
Reliability of the data: The security of data has been analysed in the management system to
acquire better information regarding the company. Moreover, it has been identified that Jaguar
Land Rover assesses the source of the data to analyse its reliability. In a further instance, the data
has been protected for securing the internal matter of the management.
Cost Systems: In order to identify the importance of the accounting system regarding its
application, the analysis of the cost has been essential. As suggested by Nitzl (2016), it would
provide better management system for the company. However, the cost analysis has been
performed by the company to understand the area for improvement in their accounting system.
Explanation of the different methods used for management accounting reporting (P2)
Methods of management accounting have been a central system which enables the management
for acquiring better decision by uses of private information. Different types of techniques used
for the reporting purpose has been provided as follows.
Budget report: This report has reflected the actual performance of the company and the
estimated performance. It provides the standards of the performance which has been focusing on
the revenues and expenditures of the company. According to Cooper et al. (2017), it helps in
scrutinizing the operation of the organisations to analyse the default in their management. Jaguar
Land Rover has been helped by the budget report to assess effective result for their performance.
Graphical report: This report provides the use of graphical tools to assess the current status of
the company. It has been analysed the internal performance of the company. Scatter graph, line
graph and pie charts are the tools for creating graphical report in the management accounting.
Accounts Report: This report has provided information about the company's client base along
with the amount of collection. It contains amounts which help in identifying the barriers in
accounting management.
Inventory report: Use of inventory report has provided Jaguar Land Rover to assess the stock of
inventories. As suggested by Johnstone (2018), it has also provides the labour cost, overhead
cost and material cost. The management of the company possesses information about the metrics
and provides an assessment of the current status of the company.
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Income Statements: The income statement format has separated the fixed and variable cost from
each other. The separation has helped the management to overview the expense of volume. It has
been necessary for gaining inventory cost-effectively. Jaguar Land Rover has been helped by
these methods as it provides a suitable decision for increasing the stock and inventory of it.
Cost report: Companies such as Jaguar Land Rover deals with the various project in one time.
As suggested by Kihn and Ihantola (2015), the revenue collected by the company should be
recorded in a report structure which can gather crucial information for the company.
Management Accounting has been helped by the cost report to provide vital information for the
company.
Management Accounting Techniques
Inventory management system : It makes use of software for managing the inventory
level, to order inventory, raw material etc. It is required by the Jaguar Land Rover to manage
their order quantity so as to meet demand in the market. By managing the inventory level it will
reduce the maintenance cost of the inventory and will help the organization to take the decision
regarding the order level and order the quantity which they require.
Job costing system : In job costing report task is divided in different job and each job is
evaluate on the basis of its importance to the organization. It tracks financial effectiveness and
efficiency of Jaguar Land Rover to focus on those activities as required to be improved. It helps
the organization to focus on the activities which generate higher profit rather than wasting time
on unproductive one.
Price optimisation system : An effective reporting method used to ascertain the price of
product and services. It helps them to meet their goal and objective by increasing their profit and
revenue of the company. Jaguar Land Rover require the price optimization system so as to
measure the price of each activity to accomplish the project of providing scientific tool to the
customer.
Cost accounting system : Record and track production activity by using perpetual
inventory system. Makes estimation of cost of product help to prepare the budget which evaluate
the performance of the company by comparing its performance to the previous month
performance. It includes the various costing method such as job order costing, process costing,
traditional costing, activity based costing etc. Process costing is used to estimate the
manufacturing cost of process separately, so they can evaluate the cost required by each process
and control the process separately. It also helps the company to manage time and cost by
focusing on the individual process rather than to whole process.
Benefits of management accounting systems and their application (M1)
In the present era, management accounting has been the internal part of organisations. It
helps the organisation in various ways to assess their growth in the market. Some of the major
benefits have been provided below.
Maximisation of the profit: The tools deal with the cost analysis for an organisation. It provides
most cost-effective strategy for Jaguar Land Rover which provides maximisation of profits and
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increases the revenue eventually. It helps in mitigating low-cost strategy with higher income to
gain higher benefit.
Communication and coordination: It mitigates communication process among the management
and employees of Jaguar Land Rover to achieve the goal of the organisation. According to Wang
et al. (2019), it provides better coordination and team collaboration among the employees.
Responsibility: Management accounting tools provides the managerial department knowledge
about their responsibility and distributes the task among the management of Jaguar Land Rover.
This increases the ability of the company for managing cost, revenue and profit.
Capabilities: The tools help in assessing the skills of the organisation which provides
opportunities for the managerial department to procure the most fruitful way to achieve their
growth and advantages in the market.
Progression in business: Management Accounting has provided Jaguar Land Rover to create
continues production which progressively leads the company. It also provides the estimation of
the production cost of the next year or future. As suggested by Maskell et al. (2017), this would
provide an effective strategy for the organisation to gain a competitive advantage in the market.
Critical evaluation of the integration of management accounting systems and management
accounting reporting (D1)
Management accounting has been one of the analytical processes which provide accurate
information for Jaguar Land Rover. It helps in assessing effective decision-making process and
risk management process that increases the capabilities and profit margin of Jaguar Land Rover.
On the other hand, it has been analysed that the operational process of the organisation has been
compared with action of finance. It procures the prediction of the production and result for the
betterment of the organisations. According to Appelbaum et al. (2017), it has mitigated an
effective method for the employees of Jaguar Land Rover to motivate for a better output. It
defines the performance of the organisation along with the way for enhancement.
The management accounting practice aims to improve the decision-making process for various
organisations. The process helps the management of Jaguar Land Rover to assess a suitable
method for decision-making. As suggested by Laudon and Laudon (2016), it provides direct
focus on the relevant areas which enables to achieve appropriate decision. However, the
application and function of the management accounting system have moved effectively. In
recent times, the process has been implemented in various organisations. On the other hand, the
process has been complicated and requires expertise in multiple fields. Moreover, it provides an
increment in the cost of labour for an organisation which creates problem for Jaguar Land Rover
to implement it in effective ways. Furthermore, it provides limited options for the management
system for the organisation. Therefore, implementation of the management accounting might not
be fruitful. On the contrary, the company acquire diverse expertise which has helped to achieve
efficient strategy for management accounting for the organisation.
Part B
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Calculating the costs using appropriate techniques of cost analysis for preparing an income
statement using marginal and absorption costs (P3, M2, D2)
A. Marginal costing: Period 1
Output Fixed Cost Variable Cost Total Cost
25000 410,000 1760000 2,170,000
Sales Of Tables 2566500
Sales Of Chair 1440000
Total Amount Recovered 4006500
The Marginal Cost Income
Statement
Sales 4006500
Less Variable Cost Of Production 1760000
Less Closing Inventory 743500
Less Fixed Cost 410,000
Profit 1,093,000
The has been a profit of 193000 in the 1st period
Marginal costing: Period 2
Output Fixed Cost Variable Cost
27200 482,000 2926000
Sales Of Tables 1003000
Sales Of Chair 1719000
Total Amount Recovered 2722000
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The Marginal Cost Income Statement
Sales 2722000
Less Variable Cost Of Production 2926000
Less Closing Inventory 2326000
Less Fixed Cost 482,000
Profit/ Loss -3,012,00
There has been a loss of 301200 for period 2
B. Absorption costing: Period 1
output fixed cost variable
cost
total cost
25000 410,000 1760000 2,170,000
sales of tables 2566500
sales of chair 1440000
total amount recovered 4006500
absorption cost income statement
sales 4006500
variable cost of production 2315500
fixed overhead 410,000
less closing inventory 743500
profit 537,500
In period 1 there is a profit of 537500
Absorption costing: Period 2
output fixed cost variable cost total cost
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27200 482,000 2926000 3,408,000
sales of tables 1003000
sales of chair 1719000
total amount recovered 2722000
absorption cost income statement
sales 2722000
variable cost of production 1611500
fixed overhead 482,000
less closing inventory 2326000
profit -1,697,500
In period 2 there is a profit of 1,697,500
C.The main reason for the difference in profit and loss figures in marginal costing and absorption costing
are:
In marginal costing, variable cost is assumed as production cost. On the other hand, in the absorption cost
variable as well as fixed cost is taken as product cost.
In marginal cost variable cost is assumed as the cost of production and fixed cost is taken as periodical
cost. In absorption cost, both fixed and variable cost is taken as product cost.
In marginal cost is done by using profit volume ratio and in absorption cost, the profit is reduced because
the fixed cost is considered as production cost.
In marginal cost opening and closing stock does not make any difference in the cost of each unit, on the
other hand, the cost of each unit is changed because of opening and closing stock.
Annex B
Dept A
Direct Material 3,280
Labour Hour 420
Total Labour Cost 3360
Total Cost 6,640
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Administration Cost 896
Selling Cost 8964
Selling Cost Per Unit 9
Administrative Overhead 864
Net Profit Per Unit 2.324
Dept B
Direct Material 3,280
Labour Hour 686
Total Labour Cost 3430
Total Cost 6,710
Administration Cost 906
Selling Cost 9058.5
Selling Cost Per Unit 9.06
Administrative Overhead 905
Net Profit Per Unit 2.3485
a. The selling price per unit is 18.06
b. The total administrative overhead is 1769
c. The notational profit per unit is 4.67
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Activity 2
Part A
Compare and contrast three planning tools used in management accounting, indicating
how effective (P4, M3, D3)
Project
X
Project
Y
Pv Of Project X Pv Of Project Y Payback Period Payback Period
0 -5,000 -8,000 ($5,000.00) ($8,000.00) 4.18 6.37
1 2,500 1,500 $2,232.14 $1,339.29
2 1,000 2,000 $797.19 $1,594.39
3 1,000 2,500 $711.78 $1,779.45
4 500 1,000 $317.76 $635.52
5 1,500 1,000 $851.14 $567.43
6 1,000 2,500 $506.63 $1,266.58
Project x should be accepted by the company because its value can be recovered in less than 6 years on
the other hand project y requires more than 6 years to recover its value, therefore, it is not a worthy
investment.
Planning tools
Flexible Budget – Makes adjustment with the change in the level of business activity & helps
Jaguar Land Rover in measuring actual revenues with estimated one while making of budget
after completion of an accounting period.
Advantages Disadvantages
 Change in business activity is evaluated
to increase results and takes corrective
action against variance identified.
 All the expenses and revenue amount
are continuously adjusted in this budget
for operating with current conditions.
 Considered as one of the most difficult
and complex process as it includes the
changes.
 A time consuming process for
preparing budget as it considers all the
changes while formulating the final
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budget.
Fixed Budget- It doesn’t changes with the increase or decrease in the volume of business
activity and other resources of business such as sales, units produced etc. Fixed budget is also
known as static budget.
Advantages Disadvantages
 This is a simple method as it doesn’t get
influenced with changes in sales volume
& turnover.
 Estimation of the tax amount by Jaguar
Land Rover can be done easily & helps
in analyzing data and forecasting.
 Has no flexibility in budget and
remains unchanged and any change in
expenses and revenue are not evaluated
which results in unrealistic budget.
 Forecasting is not supported due to
lack of actual changes with business
and market environment.
Cash Budget - Makes estimates about cash requirements of business for carrying on future
business operations. Also, helps in making forecast about cash inflow & outflow from future
business operations.
Advantages Disadvantages
 It restricts amount spend on business
which in turn reduces debt factor of
Jaguar Land Rover. It also assists in
evaluating cash related expenditure and
incomes.
 Provides a base for making comparison
of actual with estimated one.
 This budget helps in assessing current
liquid & financial position of the
company.
 It relies on estimates made. Allocation
made in previous year related to the
cash inflows and outflows are used for
making cash allocation to all the items
in the coming year budget.
 It affects decision making of business
as it are made keeping in mind cash
present in the business.
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Part B
Comparison of adapting management accounting systems to respond to financial problems
in different organisations (P5)
Management accounting system is defined as business practice that helps management in
formulating business plans, strategies. For mitigating any financial problems being faced by
Jaguar Land Rover. Using of various management accounting tools can be helpful:-
Benchmarking – business method which measures as well as compares all the business
processes, operations, procedures, products etc. from the best companies. It reviews actual
performance against standard set as benchmark and suggest improvement to be made. It also
helps in evaluating performance level by improving overall business as well as employee’s
performance. It can help in overcoming issue of low profit and cash balance which has been
occurred due to use of outdated business techniques and concepts.
Balanced scorecard – Such technique helps company in achieving its business goals by making
simple comparison of performance measures. It basically considers four attributes named as
business growth, processes of business, customers and finance. By understanding financial
information improvement in decision making process can be done. By imparting proper training
and workshop to employees related to use of financial models, company can resolve its issue of
non-liquidity.
Key performance indicator – It helps in monitoring and tracking success, growth and progress
level of company’s employees in comparison of goals as defined. This tool assesses business
operations of Jaguar Land Rover and assists management in taking mandatory actions for
betterment of business performance. Performance indicators are not in line with company goals
can be improved with this tool.
By using key performance indicator Jaguar Land Rover can overcome its financial
problem related to the poor inventory management function. This tool helps in inventory
valuation by evaluating current inventory level and controlling cost. On the other hand, Audi has
been using bench marking tool for improving its financial issue of low profitability and liquidity
situation arises because of lack of better improved business processes resulting in low
productivity and customer satisfaction level.
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Conclusion
It can be concluded from the above report that management accounting tools help in assessing
future growth focusing on the early experience of the organisations. It has benefited for Jaguar
Land Rover to acquire better management strategy for solving the problem of the company
regarding financial issue. Different planning tools help organisations to achieve an effective
strategy for the budgetary plan with estimated planning. It increases the performance of the
company. It also helps in measuring the performance of the employees to acquire effective
growth.
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