Management Accounting Systems and Financial Analysis: Morrisons

This report provides a comprehensive overview of management accounting principles and their application within the context of Morrisons. It begins by defining management accounting and outlining different types of systems, such as cost accounting, inventory management, job costing, and price optimization, along with their essential requirements. The report then explores various management accounting reporting methods, including performance reports, cost managerial accounting reports, accounts receivable reports, and budget reports. A key focus is placed on evaluating the application of these systems to enhance internal decision-making and improve operational efficiency within Morrisons. The report includes the calculation of appropriate techniques related to cost analysis for preparation of income statements using marginal and absorption costing. Different planning tools used in budgetary control, such as activity-based budgeting, zero-based budgeting, and incremental budgeting, are explained, along with their advantages and disadvantages. Finally, the report evaluates the adoption of management accounting systems by organizations as a response to financial problems, offering insights into how Morrisons can use these systems to address financial issues and achieve sustainable success.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Explanation of different types of management accounting systems and its essential
requirements:................................................................................................................................3
P2 Explanation of different management accounting reporting methods:...................................4
M1 Evaluating the system of management accounting and its application in context to
business:.......................................................................................................................................5
TASK 2............................................................................................................................................6
P3 Calculation of appropriate techniques related to cost analysis for preparation of income
statement with the use of marginal or absorption costs:..............................................................6
M2 Applying techniques of management accounting and producing documents of financial
report accordingly:.......................................................................................................................7
TASK 3............................................................................................................................................7
P4 Different types of planning tools that is used in budgetary control are explained along with
its advantages and disadvantages:................................................................................................7
M3 Analysis of different tools of planning accompanied with preparation and forecasting
budgets:........................................................................................................................................9
TASK 4............................................................................................................................................9
P5 Evaluating adoption of management accounting systems by organizations as a response to
financial problems:.......................................................................................................................9
M4 Analysis of way of responding to financial issues by applying management accounting for
leading sustainable success:.......................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting, which can also be termed as managerial accounting, can be
explained as an activity of recording and interpreting financial data in a company with the
motive of enhancing process of strategy making (Agrawal, 2018). It is utilized by internal team
of management in an organization. Basic function of managerial accounting is enhancement of
decision-making in an entity, in such a way that efficiency of company improves. Only
requirement for implementation of management accounting is that financial data provided should
serve its motive, that is, data should be accurate and logical. Basis of this report is evaluation of
management accounting for Morrisons. It was founded in 1899 and the founder of a company is
William Morrison. Firm is headquartered in UK and is a public limited company.
This report consists demonstration of management accounting systems. Further,
management accounting techniques are applied. Planning tools are explained along with its
utilization in management accounting. In addition to it, application of management accounting in
regards to financial problems are compared.
TASK 1
P1 Explanation of different types of management accounting systems and its essential
requirements:
Management accounting is a procedure of developing business reports that enhances
decision making process of management. Identification, management and communication of
management accounting helps business in pursuing objectives. Management accounting systems
is a tool for tracking efficiency of an entity (Alsharari, 2016). Following are types of
management accounting systems accompanying with its essential requirements: Cost Accounting System: This system refers to a framework that is utilized by
organizations with the purpose of estimating cost of products sold by company. It enables
profitability analysis of Morrisons.
Essential Requirements: Implementation of cost accounting system in guiding expenses
that business should incur. It eliminates over expenditure and helps in reduction of costs
in Morrisons, that is, cost control is assisted due to it (Bennett and James, eds., 2017).
Inventory management system: It tracks entire supply chain of an organization from
purchasing of materials to production of end products. In other word, inventory
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management system is applied with the motive of governing or managing inventory of
business.
Essential requirements: It enables Morrisons in evaluating situation of inventory in
company. It ensures on time order of stock, maintenance of safety stock, elimination of
more than required ordering of stock and other similar benefits. Job costing system: This system helps in identifying cost related to each specific job that
are performed in an enterprise. Applying this system helps in detecting profitable or
unprofitable jobs in Morrisons. It provides base for future planning (Collis and Hussey,
2017).
Essential requirements: It helps management of business in preparing estimate of
expenses required in each job. Efficiency of Morrisons can be identified through it. It
provides tool for cost analysis related to labour, overheads as well as materials. Price optimisation system: implementation of this system helps in identifying variations
in demand of customers in relation to price of product. Hence, this technique enables firm
in determining pricing strategy of Morrisons.
Essential requirements: Desired output as well as required input is selected through this
model. It clarifies value proposition of business and helps in setting strategy for effective
price formulation of an organization.
P2 Explanation of different management accounting reporting methods:
Management accounting report is an efficient technique that provides detailed analysis of
company’s financial data. It identifies current state of company in relevance to its financial
information (Gusc and van Veen-Dirks, 2017). It involves preparation of report by interpretation
of financial as well as statistical information for making proper managerial decisions in
Morrisons. Different methods of management accounting reports are elaborated below:
 Performance reports: It reviews performance of employees of company. Hence, it is an
important tool that overviews how an organization is performing. This analysis helps in
forecasting of revenues and expenses for future year. It pertains identification of issues
and hence, helps in effective planning of business goals. Performance report enables firm
in monitoring progress of business towards its objective by comparing actual and
estimated performance. It helps company in making continuous improvement.
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 Cost managerial accounting reports: It computes costs related to raw materials or
labour or any other manufacturing related expenses. This report summarizes information
related to costs incurred in business. Cost information of Morrisons is essential for
analysis of periodic accounting summaries and cost accounting summaries. It determines
profitability of business by enhancing profit margin (Kure, Nørreklit and Raffnsøe-
Møller, 2017).
 Accounts receivable report: This report evaluates amount that firm has to receive from
debtors. It specifies time period that managers can allow to the payers of debt so that the
cash flow in business is not hindered. Hence, effective credit policies than Morrisons is
required to adopt for the purpose of maintaining adequate business operations.
 Budget reports: It plays a critical role in evaluation of performance of an organization
on the basis of comparing actual financial data of company along with decided or desired
result. It enables Morrisons in managing funds effectively and provides direction to
company for meeting its objectives.
M1 Evaluating the system of management accounting and its application in context to business:
Management accounting or managerial accounting system is a platform that gives
opportunity to business to evaluate and track data related to finance in an organization. It
improves efficiency in internal decision making of Morrisons and makes its operations more
adequate and directed towards goals of business. It helps in long term decision making of
company by properly managing funds of company and tracking its revenues as well as operations
(Lowe, 2019).
Cost accounting system tracks cost assigned with different activities of an organization
and helps in implementing cost control activities in Morrisons.
Job costing system tracks performance of each activity by comparing decided cost and
actual performance of financial in each department for evaluating area of high profitability.
Price optimization system provides estimation of sales or demand by customers that is
about to be generated in Morrisons along with decided or forecasted data. It helps in detecting
flaws in operations of company and provides base for long term as well as short term planning.
Inventory management system manages stock related to company by efficient overviews
purchasing and utilization of inventory for converting it into finished products
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TASK 2
P3 Calculation of appropriate techniques related to cost analysis for preparation of income
statement with the use of marginal or absorption costs:
Income statement (with marginal costing method)
Particulars Amount
Sales revenue 5250000
marginal cost of goods sold 100000
gross profit 5150000
administration cost 10500
selling and distribution
cost 10000
salaries 200000
depreciation 21000
fixed expense 100000
variable expense 1050000
net profit or loss 3758500
Income statement (with absorption costing method)
PARTICULARS AMOUNT
Sales 5250000
Less variable cost of goods sold 700000
Opening inventory 450000
Add: variable cost of goods
manufactured 2300000
Variable COGS 2750000
Less: closing inventory 1000000
Gross contribution margin 1750000
Less: variable expenses 1050000
Salaries 200000
Fixed manufacturing costs 120000
Administration and selling costs 20500
Depreciation expenses 21000
Fixed expenses 100000
Net Operating Income 4088500
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Calculation of marginal costing:
Particulars Amount
opening stock 1350000
add: variable cost 1750000
less: closing stock 3000000
marginal cost 100000
M2 Applying techniques of management accounting and producing documents of financial
report accordingly:
Management accounting enables business to monitor key insights of company’s financial
and helps management team of Morrisons in making efficient decisions. It evaluates financial
information related to company. It administers financial data and provides opportunity for
control of business operations and its financial reports.
TASK 3
P4 Different types of planning tools that is used in budgetary control are explained along with its
advantages and disadvantages:
Budgetary control is a procedure of preparing a budget for upcoming period by comparing
real or actual performance of business with estimated one. It is an effective tool that ensures
taking of corrective actions of management of Morrisons by finding out any problems in working
of business (Maas, Schaltegger and Crutzen, 2016). Following are different planning tools of
budgetary control:
Activity based budgeting: This approach evaluates inputs that are required in company. It
refers to cost accounting system that records and analyses performances that lead to expenses or
costs of company. It is developed on the basis of results. Here, the resources have been allocated
on the basis of activity.
Advantages:
 It provides competitive edge to company. It helps in an effective evaluation.
Disadvantages:
 It requires high understanding of resources.
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 It is a complex method.
 It is useful for short term,
 Involves high cost.
Zero based budgeting: It refers to an assumption that budgets of every department starts
with zero, in other words, it is built with scratch. Here, management of Morrisons is able to
justify each expense. This approach is required for cost containment. For the purpose addressing
discretionary costs, this budgeting method is best suited.
Advantages:
 It provides efficiency in allocation of resources.
 This budget changes if change is implemented in Morrisons It emphasizes the process of decision making.
Disadvantages:
 This method of budgeting is rigid.
 It is subjective in nature.
Incremental Budgeting: In this method of budget, incremental amounts are supposed to be
added to the existing budget with the motive of arriving at new budget. It is an appropriate
method if cost drivers are not intended to change every year (Messner, 2016). It ensures
reasonable allocation of funds for Morrisons for upcoming year.
Advantages:
 This method is easy to implement and does not involve complex procedures.
 It ensures continuity of funds for various departments in Morrisons. It enables firm to have stable budget.
Disadvantages:
 It leads to lack of invention or innovation in an organization.
 It encourages higher spending.
 It neglects changes in trends or market situation.
M3 Analysis of different tools of planning accompanied with preparation and forecasting
budgets:
Planning tools are vital for enhancing efficiency of business. It directs ways for achieving
targets of Morrisons by setting operations or activities of business with the motive of achieving
it. Following are different budgetary control or planning tools that organization can apply:
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 Activity based budgeting: It allows controlling of process of budgeting which enables
management of Morrisons to direct its operations towards success (Velte, 2019).
 Increment based budgeting: It enables reasonable allocation of money for future period.
It is a simple and efficient process that provides stability in an organization which
enhances clear and effective strategy making in Morrisons which provides success to
company (Oyewo, Ajibolade and Obazee, 2019).
 Zero based budgeting: This budgeting method diminishes chances of redundancy. It is
an effective approach of preparing budget as it enables management to start with zero
base and helps it to focus more on mission by eliminating past data.
TASK 4
P5 Evaluating adoption of management accounting systems by organizations as a response to
financial problems:
Financial problems can be defined as an insufficient availability of funds for operating an
entity. While referring to financial problems faced by Morrisons, following issues can be
identified:
 Insufficient cash: Day to day operations of Morrisons are hindered due to
mismanagement of cash. It leads to problem in maintenance of liquidity in an
organization (Tucker and Lawson, 2016).
 Delayed payment by debtors: It indicates that accounts receivables of Morrisons are not
paid on time by debtors. This leads to arrival issues related to maintenance of working
capital.
For identification and monitoring of performance of business and identifying problems in an
enterprise, following monitoring tools were applied:
 Benchmarking: In this technique, actual operations or performance of business is
compared with performance of another company that is set as benchmark. It is a practice
that pinpoints comparison of business performance with best practices of another
enterprise (Phornlaphatrachakorn, 2019).
 KPI: This indicator of performance metric that provides opportunities for internal
improvement of financial and non-financial indicators of Morrisons.
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Following table provides comparisons of systems of management accounting with financial
problems:
BASIS MORRISONS TESCO
Financial problems Firm is facing the issue of
insufficient cash inflow or
improper management of
cash in an organization.
Company is facing problem
of late payments by
receivables which also
hinders other activities of
business.
Monitoring tool that should
be applied
KPI tool is best suited for
coping up with the problem if
cash mismanagement as it
directs financial and non-
financial indicators of
business (Quattrone, 2016).
Here, technique of
benchmarking should be
applied as it enables company
to compare time-period of
another organization so that
effective policy can be
applied from coping with late
payments by customers.
Management accounting
systems
Cost accounting system is
referred for facing issue of
improper cash flow in
Morrisons. Reason is that,
cost incurred in various
activities of business can be
judged and managed by the
use of this system.
Accounts receivable system is
best applied in this situation
of improper receipts of
payment. As, this system
provides platform for
recording and monitoring
payments by debtors.
M4 Analysis of way of responding to financial issues by applying management accounting for
leading sustainable success:
Management accounting refers to recording and analysis of financial problems. Hence, it
provides opportunity to Morrisons for pinpointing problems or issues related to finance in
business so that management of company can identify hindrances and take corrective actions.
This technique provides deep insight of financial details of Morrisons and links it with
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formulation of strategies for business, so that the desired target can be achieved (Saeidi and
Othman, 2017).
CONCLUSION
Management accounting or managerial accounting is a procedure of analysing financial data
of company with the intention of enhancing strategy formulation of decision makers of internal
management. It improves the process of planning, controlling, and directing in company as
loopholes and hinderances in business can be identified with the technique. It increases
efficiency of company and provides direction for objective achievement. It enhances
communication flow in an organization and boots motivation of employees. This report consists
elaboration of management accounting along with its types and essential requirements. Different
types of management accounting systems can be stated as job costing system, inventory
management system, cost accounting system and price optimisation system. Further, while
evaluating reports of management accounting, cost accounting report, performance report,
accounts receivable and budgetary report. Pros and cons of different budgetary tools are
explained, such as, activity-based budget, increment budget and zero-based budget. Further,
effectiveness of adopting management accounting system as a response to financial problems are
stated.
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REFERENCES
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438.
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Management Accounting. Emerald Group Publishing Limited.
Velte, P., 2019. What do we know about meta-analyses in accounting, auditing, and corporate
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