Management Accounting Report: Strategies for Nisa Retail's Growth

This report provides a comprehensive analysis of management accounting principles and their application to Nisa Retail, a UK-based grocery store. The report covers various aspects of management accounting, including cost-volume-profit analysis, budgeting, and cash flow statements. It delves into different costing techniques like marginal and absorption costing, along with their implications for financial reporting and decision-making. The report also explores planning tools for budgetary control, compares different management accounting systems, and assesses how an entity can address financial problems. The analysis includes illustrations such as retail performance, break-even points, budgets, and ratio analyses. The report emphasizes the importance of management accounting in providing valuable insights for business decisions and improving financial performance.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explain management accounting and give essential requirements of different types of
management accounting system in the given case scenario...................................................1
P2 Explain different methods used for management accounting reporting...........................8
Task 2.............................................................................................................................................15
P3 calculate cost using different techniques by preparing income statement under marginal
and absorption costing..........................................................................................................15
TASK 3..........................................................................................................................................16
P4 Explain advantages and disadvantages of different types of planning tools for budgetary
control...................................................................................................................................16
P5 Compare how an entity adopt management accounting systems in order to deal with the
financial problems................................................................................................................18
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................20

Illustration Index
Illustration 1: Retail performance....................................................................................................2
Illustration 2: BEP............................................................................................................................2
Illustration 3: Budget.......................................................................................................................4
Illustration 4: Ratio analysis............................................................................................................8
Illustration 5: Cash flow analysis...................................................................................................10
Illustration 6: Capital budgeting....................................................................................................13

INTRODUCTION
Role of management has increases with the introduction of higher amount of
complexities in the external business environment. Nisa Retail store has been selected for this
project report which is growing gradually in boosting the overall economy of the UK. This report
focuses on management accounting systems and management accounting reporting techniques in
complying all kinds of systems fruitful for the business enterprise. Marginal and absorption
costing has been chosen by an entity in improving the business fall under retail sector in the UK.
TASK 1
P1 Explain management accounting and give essential requirements of different types of
management accounting system in the given case scenario
Background
The current sector is regarded as most important sector in the United Kingdom which
generates higher amount of sales and the revenue every year. The economy is boosted by getting
higher revenue from this particular sector which increases the overall scope of all the businesses
fall under this category (Farías, Torres and Mora Cortez, 2017). There are different kinds of
businesses involves in this sector such as furniture, food and grocery, clothing and accessories
and electronics.
Nisa retail store has been selected in the present report which is small scale entity located
in the United Kingdom. It deals in providing grocery market products or services in order to
facilitate the needs and expectations of all the consumers. Management accountant of Nisa retail
store will take important decisions for the betterment of the current business as their desired
market aim is to achieve all the aims and the objectives within a given span of time. Analytical
ability of a manager gets increases by taking important decisions in their business.
Financial perspective
1

Illustration 1: Retail performance
The current business has generated higher amount of sales and the revenue from this
particular sector which helps in increasing higher scope. The scope will be increases with the
passage of time as this would help in enhancing the value of an entity in relation to its variety of
users. The recent study has revealed that this particular sector has produces 358 Billion GBP
every year. The financing goals of the economy will be accomplishes as this would attract
variety of users in investing lots of investments in different areas of business.
Employee strength
The biggest strength of this sector is an employee who represents an entity by their
actions as every wrong action will further ruin the performance of the business in the external
market. Total base of employees is 2.8 million in this retail sector which is collaboration of
various business enterprises (Tiwari and Debnath, 2017). There are 290315 number of retail
firms in this particular sector will be helpful in gathering large sum of revenue for the current
economy. It has been inferred that almost one third proportion of overall consumer spending
goes to the economy of UK through this kind of retail sector.
Illustration 2: BEP
2

Cost volume profit- This technique is regarded as one of the important approach in management
accounting which involves three components such as cost, volume and profit. It can be said that
this trilogy involves major involvement of cost and volume of the business which will directly
affects on the production of profit in the business enterprise. Nisa retail store inspire to earn
profit in the business as their primary motive of opening the firm is to gain higher amount of
profit after dealing all their current products or services. The primary concern of the top
management of Nisa Retail store is to seek for various techniques in order to reduce overall cost
incurred by an entity in their business. Cost reduction strategies are crafted by an entity in which
major principle followed by an entity owner is of optimum utilisation of resources. The input
applied in the business needs to be check properly as wrong one would destroy the current image
of the business in front of all competitors who intends to suppress the current skills and the
capabilities of an enterprise. The different approaches will be applied by an entity as their
primary motive is to analyse the existing cost incurred in the business in order to reduce the
burden of the external market (Wouters and Stecher, 2017).
Break even point will be applied by the owner in improving the skills of their business as
this point will be helpful for an entity in boosting their skills and the capabilities. An entity
determines this break even point as the sales units produced by the firm above than this point
will lead to earn profit otherwise loss.
This point is regarded as shutdown point where an entity will only recover overall cost
incurred by them in their business and no provision of profit earned by them.
Break even point= Fixed cost/Contribution per unit
Particulars cost per unit Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8
Units produced 8000 10000 12000 14000 16000 18000 20000 22000
Sales 10 80000 100000 120000 140000 160000 180000 200000 220000
Variable cost 5 40000 50000 60000 70000 80000 90000 100000 110000
Contribution 5 40000 50000 60000 70000 80000 90000 100000 110000
Fixed cost 10000 10000 10000 10000 10000 10000 10000 10000
Profit 30000 40000 50000 60000 70000 80000 90000 100000
3

Particulars
Year
1
Year
2 Year3
Year
4
Year
5
Year
6
Year
7
Year
8
Year
9
Year
10
Fixed cost
1000
0
1000
0 10000
1000
0
1000
0
1000
0
1000
0
1000
0
1000
0 10000
Contribution
per unit 5 5 5 5 5 5 5 5 5 5
BEP 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000
Particulars
cost per
unit
Yea
r1
Year
2
Year
3
Year
4
Year
5
Year
6
Year
7
Units produced
800
0
1000
0
1200
0
1400
0
1600
0
1800
0
2000
0
Sales 10
800
00
1000
00
1200
00
1400
00
1600
00
1800
00
2000
00
Profit
300
00
4000
0
5000
0
6000
0
7000
0
8000
0
9000
0
Relationship percentage change among
sales and profit
63
% 60% 58% 57% 56% 56% 55%
Illustration 3: Budget
Budgeting- Nisa retail store prepare budgets in order to analyse their current resources in order
to devise future business strategies. Sales budgets prepared by them is used to forecast the future
sales earned by an entity within a short span of time. The performance can be compared by using
the current resources as this would help in gaining competitive advantage over its variety of rival
4

members in the external market. It is regarded as corporate strategy which gives ultimate
direction to different strategic business units just like budgets prepared for different business
departments of an organisation. It can be said an entity will be able to maintain perfect balance
among income and expenditure incurred by them in a particular year. The budget plan prepared
by an entity in regulating all the expenditures incurred by them in accomplishing their goals and
the objectives as their primary motive is to gain higher image in entire external market (Hiebl,
Gärtner and Duller, 2017).
Cash budget is another important statement of cash flow prepared by Nisa retail store in
order to ensure its current earnings in relation to all the expenditures incurred by them in a
particular financial year. Cash flow of future of Nisa retail store are forecasted as being a
supermarket owner they are required to analyse all the resources or inventory currently utilised in
their business in relation to the future targets of their business. Budgets prepared by an entity
will act as forecasting tool which emphasises on predicting the higher performance of the
business in relation to its external market as their primary motive is to gain the trusts of all the
employees working for the sake of an enterprise. Finance imposed by an entity in meeting their
business requirements can be tracked by preparing the budgets. These budgets can be act as
tracking system which helps an entity in order to make important decisions as delayed actions
can be rectified by preparing budgets.
Particular
s
Jan Feb Mar
ch
Apr
il
Ma
y
Jun
e
Jul
y
Au
g
Sep
t
Oct Nov Dec
Initial cash 5000
0
Bank loan 5500
0
Income
from
online
sales
3200
0
40000 3500
0
380
00
410
00
420
00
360
00
280
00
270
00
275
00
280
00
330
00
Income 2240 56400 5680 571 588 620 664 687 654 600 608 644
5

from in-
store sales
0 0 00 00 00 00 00 00 00 00 00
Sales
income
from
fashion
clothing
1000
0
10000 1000
0
100
00
100
00
100
00
100
00
100
00
100
00
100
00
100
00
100
00
Sales
income
from hair
and beauty
products
1200
0
12000 1200
0
120
00
120
00
120
00
120
00
120
00
120
00
120
00
120
00
120
00
Receipts
from
disposal of
old store
building
300
000
Total
interest
receivables
300
00
300
00
Total cash
income
1814
00
11840
0
1138
00
117
100
121
800
456
000
124
400
118
700
114
400
109
500
110
800
149
400
Cash
disburseme
nt
Store and
warehouse
building
lease rental
1440
00
Purchase
of office
8000
0
6

and fire
Equipment
Purchase
of delivery
van and
cars
1500
00
Shelves
and store
furniture
5000
0
Purchase
of fork lift
for
warehouse
7000
0
Store
worker’s
wages
1100
0
11000 1100
0
110
00
110
00
110
00
110
00
110
00
140
00
140
00
140
00
140
00
Heating
and
lighting
2000 2000 2000 200
0
200
0
200
0
200
0
200
0
270
0
270
0
270
0
270
0
Council
taxes
1500 1500 1500 150
0
150
0
150
0
150
0
150
0
150
0
150
0
150
0
150
0
Purchase
of cloths
4000
0
4000
0
400
00
400
00
550
00
550
00
Insurance 5000
Fuel and
maintenanc
e
1800 1800 1800 180
0
180
0
180
0
180
0
180
0
180
0
180
0
180
0
180
0
Total cash
outflow
5503
00
21300 5630
0
163
00
563
00
163
00
563
00
163
00
750
00
200
00
750
00
200
00
Net cash
balance
-
3689
97100 5750
0
100
800
655
00
439
700
681
00
102
400
394
00
895
00
358
00
129
400
7

00
Opening
cash
balance
0 -
36890
0
-
2718
00
-
214
300
-
113
500
-
480
00
391
700
459
800
562
200
601
600
691
100
726
900
Closing
cash
balance
-
3689
00
-
27180
0
-
2143
00
-
113
500
-
480
00
391
700
459
800
562
200
601
600
691
100
726
900
856
300
Sales Budget
Particulars Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10
Sales units 8000 10000 12000 14000 16000 18000 20000 22000 24000 26000
Sales 160000 200000 240000 280000 320000 360000 400000 440000 480000 520000
Expenses budget
Particulars Cost per unit Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9
Quantity produced 5000 7000 9000 11000 13000 15000 17000 19000 21000
Variable cost
Advertising 2 10000 14000 18000 22000 26000 30000 34000 38000 42000
Direct material 3.5 17500 24500 31500 38500 45500 52500 59500 66500 73500
labor 2.5 12500 17500 22500 27500 32500 37500 42500 47500 52500
Commission 0.5 2500 3500 4500 5500 6500 7500 8500 9500 10500
Fixed cost
Bills 5000 5000 5000 5000 5000 5000 5000 5000 5000
Loan amount 12000 12000 12000 12000 12000 12000 12000 12000 12000
Rent 5000 5000 5000 5000 5000 5000 5000 5000 5000
Royalties 5400 5400 5400 5400 5400 5400 5400 5400 5400
Fees 8000 8000 8000 8000 8000 8000 8000 8000 8000
8

P2 Explain different methods used for management accounting reporting
Financial accounting method
Illustration 4: Ratio analysis
Ratio analysis- Comparative performance measurement tool that analysed the current
performance of an enterprise in accordance with its previous year performance in uplifting their
current conditions of the business. The ratio analysis is widely used technique of assessing the
current financial statements. Different forms of financial statement of several stores of Nisa retail
store are compared in relation to the headquarter of its supermarket to determine their current
performance. Income statement of all the stores contain sales and the revenue which are
compared in relation to the common goals framed by the main branch of the supermarket store in
order to ascertain the financial performance in order to gain higher competitive advantage.
Different variety of the ratio analysis states that it ascertains the performance of the business in
relation to various parameters such as profitability and liquidity (Müller-Stewens and Möller,
2017). The favourable or adverse results of all these ratios to the notice of the management as the
adverse results can be rectified by the management by making important decisions in order to
regulate their performance. The performance of an entity can be managed or regulated by
removing the causes of incurring adverse ratios. The deficiency from the management can be
rectified by focusing on capabilities of the business as an enterprise owner focuses on reducing
their weaknesses. Cost of sales and taxation are those deficiencies that reduce the capability of an
entity which will be regulated. On the other hand, liquidity is essential for the management as
expenses incurred in the business can be managed
Profitability ratios
Particulars Formula 2015 2016
9