Management Accounting Report: Financial Analysis of Unicorn Grocery

This report provides a comprehensive analysis of management accounting principles, focusing on a case study of Unicorn Grocery. It defines management accounting, its various types, and the necessary requirements for effective financial management. The report details the methods used for management accounting reporting, including performance reports, inventory control reports, job costing reports, and variable analysis reports. It explores cost calculation methods such as marginal costing and absorption costing, essential for preparing income statements. Furthermore, the report examines the advantages and disadvantages of different planning tools for budgetary control and discusses how management accounting systems can resolve financial problems. The report provides a practical application of accounting principles to a real-world business scenario, offering valuable insights into financial management and decision-making processes. The report also provides suggestions and techniques for resolving financial issues faced by the Unicorn grocery.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Define management accounting and its types as well as their necessary requirements........1
P2 Methods used for management accounting reporting............................................................3
M1...............................................................................................................................................5
D1................................................................................................................................................5
TASK 2............................................................................................................................................5
P3 Calculation of costs by using appropriate methods of cost analysis......................................5
M2...............................................................................................................................................9
D2................................................................................................................................................9
TASK 3............................................................................................................................................9
P4 Advantages and disadvantages of different planning tools for budgetary control.................9
M3.............................................................................................................................................11
P5 Usage of management accounting systems to resolve financial problems..........................11
M4.............................................................................................................................................12
D3..............................................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is a term which shows the administration of financial systems
and information used by budgetary manager for effective decision making process. In fact it is a
process of making financial reports as well as accounts which provide precise and timely
statistical information needed by supervisors for making short term decisions on daily basis.
Basically major purpose is to produce annual or half yearly fiscal assignments by considering
various necessary accounts for example balance sheet, profit and loss, or factory account.
Unicorn grocery is a small co-operative business which is situated in Charlton-cum-hardy,
Manchester England, which serve fresh, dried and processed food stuffs with drinks (Macintosh
and Quattrone, 2010). It is controlled and managed by existing employees or owner of a
company who is liable for running the organization. This report is classified into three different
segments for highlighting the accounting system of a company and usage of different tools of
reporting. Apart from this, it also throws few lights on methods of calculating cost with the use
of suitable cost analysis process for making impressive income statement. Instead of this, this
report also demonstrates benefits and limitations of appropriate planning tools for budgetary
control. Lastly, assignment is going to assist unicorn organization various suggestions and
techniques for resolving financial issues.
TASK 1
P1 Define management accounting and its types as well as their necessary requirements
Definition: - Management accounting is a term which consist of financial information
utilize by manager while decisional process. Furthermore, it involves methods of making and
offering well-timed fiscal data to business managers which is used by them while preparing long
term and short term decisions (Baldvinsdottir, Mitchell and Nørreklit, 2010). In every business
enterprise there is requirement of effective systems so that directors can use it for acquiring
precise data for fulfilling the demand of customers as well as employees. Moreover, higher
authorities are liable for making any decision due to their power and designation. Therefore, they
are considering various systems for acquiring financial evidences which is used by them while
making plans and policies for whole company. Thus, there are numerous of systems which are
engaged in providing essential data are described as follows :-
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 Inventory management system: - Unicorn grocery is a very small company by having
nearly 70 employees due to which it is easy to manage their inventory system and easily
acquire necessary data about opening or closing stocks. In fact it is very indispensable
for referred company to manage and control warehouses in an appropriate manner
which resulted in a effective functioning of company. Therefore, it is essential for
inventory manager to control wastage of stock by maintaining a balance between
opening and closing commodity (Bodie, 2013). Along with this one of major obstacle
faced by enterprise is a shortage of inventory which must be resolved while considering
relevant evidences. Basically number of tools are used by manager of unicorn grocer for
minimizing their problem for example economic order quantity which is a one of useful
method of controlling extra stock or wastage by managing demand and supply. Job costing system: - According to this method an organization is trying to analyse the
cost of different jobs while manufacturing goods and services. Therefore, determination
of costing of particular occupation is required for controlling wastage for profit
maximization. Every expenditure is made which is going to aggregated and after that
division will be occurred on the basis of per unit. Thus, all the identified information is
used by authorities while setting final price for acquiring maximum returns on
investment (Parker, 2012). Along with this, it has been understood that job costing
system analyse the price as per job performance and functions. Price optimisation system: - This method shows the technique of setting price by
considering relevant facts and figures for earning maximum profits. Major motive of
this enterprise is to increase return on investment by setting affordable price for
capturing attention of millions of consumers. There is an inverse relationship between
supply and demand it means if there is an increase in price then demand will
automatically decrease, but if price decreases then demand of a product get increases.
Thus, it shows that manager of cited company requires to analyse overall production
cost as well as market rate before setting their price (Weißenberger and Angelkort,
2011).
 Cost accounting system: - As per this system expenditure or cost which incurred in a
company while performing their task and activities is recorded for proper measurement
so that managers can control it appropriately. In fact effective monitoring process is
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conducted for identifying extra or unwanted cost for conducting proper management of
accounting system. Basically, system is going to be segmented into different parts for
determining total cost of a company and to assess the losses or profit.
Therefore, all these above factors show the requirements of necessary information and
role of management accounting in minimizing losses of a company by maximizing their profit.
Additionally, analysis of cost is very much indispensable for acquiring extra return on
investment by considering essential factors which influence overall company (Cinquini and
Tenucci, 2010).
P2 Methods used for management accounting reporting
Reports or assignment plays a very vital role in decision making process because it
highlights hidden aspects and shows accurate information which helps managers while making
strategies. In fact major purpose of accounting reports is to record necessary data in a statistical
form for defining overall performance of a company as well as employees which influence
success of an enterprise (Fullerton, Kennedy and Widener, 2014). In addition to this, , unicorn
grocery is a small organization due to which it is easy for them to make an impressive report of
necessary factors on which decisional process of a company is indirectly based. Therefore there
are numerous methods are available which is used by a manager for management accounting
reporting is highlighted below:- Performance report: - Major factor which is necessary to analyse is a performance level
of employees for making effective report based on assessment process. It is very useful
method which shows the actual learning of workers by measuring their performance
level. In fact this assignment is all about identification of employees presentation and
assist them on the basis of requirement (Vaivio and Sirén, 2010). If target is not attained
by labours, then training programme is conducted by higher authority for improving the
skills of employees. Main motive of performance report is to enhance the talent and
knowledge of staff members by getting aware about their problems. Inventory control report: - This report is all about measuring the need of stock for
unicorn grocery so that proper management is conducted by considering demand and
supply (Van Helden, and et. al., 2010). Hence, proper examination process is
implemented for identifying the total requirement of inventory by arranging it in a proper
way. Basically, this report is helpful in controlling wastage of a company by matching
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need with supply for maximizing profit. Apart from this inventory control report is an
overview of a warehouse which support company while estimating cost of a product.
Therefore, it has been understood that an organization is going to make this report for
precise calculation of a cost which will be advantageous for unicorn grocery. Job costing report: - According to this, manager of accounting is trying to record the
amount which is required for particular job role on the basis of overall production. In
fact, major purpose of this report is to use in future for further decision making process
while assigning of job to different employees as per their talent and skills (Banerjee,
2010). Basically this will also help in deciding cost of a product after knowing the
production price. Job costing report is an appropriate method which is used by managers
while setting the price as well as salary of specific employees. It means this report is
going to define the role of a particular job. Variable analysis report: - Total cost of a company is segregated into two parts that is
fixed and variable. In this, fixed cost will remain same whereas variable is always
changes due to reformation in other factors or unit of production. For example,
production is considered as a variable because it deviates on the basis of customer
demand and preferences. Fundamentally, assessment of these costing is comes under
variable report which shows the changes in uncertain factors which influence profit and
budget of a company. Basically, elements which falls under this category, varies in
every single unit of production department because it majorly depend upon requirement
of a society.
 Budgets: - This report is a representation of an overall expenditure incurred in an
organization for conducting enterprise activities with different motive. In fact it covers
estimation of capital for managing or controlling extra amount which is used by
company to attain their set goals and objectives (Shah, Malik and Malik, 2011). Apart
from this budget is an overview of transaction occurred in a company and shows
necessary accounts for example balance sheet, factory, and official accounts for making
effective decision which is beneficial for unicorn grocery.
At the end it has been understood that all the above accounting report is very much
supportive and helpful for manager while making decision because it highlighted overall budget
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of a company. Therefore, with the use of budget overview unicorn grocery may succeeded in
controlling their losses by maximising profit in a minimum duration.
M1
Management accounting is very much beneficial and advantageous for unicorn grocery
because it helps in identifying hidden costing problems with the help of different reports which
shows accurate data. Major benefit of a financial system is that it shows the corrective path to
managers while making strategy or policies. Apart from this, an organization can easily reduce
the cost and expenditure incurred in an enterprise while executing their managerial activities.
Instead of this, it helps in earning maximum profit by analysing mistakes of a company.
Additionally, major role which is played by accounting system is to manage the fixed and
variable cost in a proper manner (Lee, 2011).
D1
Above discussion was explained the interrelation between reporting process and systems
in various manner. It means if systems is not appropriately managed and controlled then its not
easy for employers to make impressive reports which is used by them in a decision making
process. In fact main reason behind proper working of systems is that gathered data is used by
management for further use while performing their task and activities. Apart from this it also
helpful in assessing the shortcomings for overcoming it as soon as possible. Instead of this one of
a major reason is to reduce the chances of mistakes and errors as well as supports in attaining set
objectives in a given time frame.
TASK 2
P3 Calculation of costs by using appropriate methods of cost analysis
Production process undertaken by unicorn grocery is a very long process which consume
number of cost due to its complexity due to which it shall be accumulated. Therefore, for this
numerous techniques is adopted by cited company in which appropriate tool which is used by
them is a marginal costing and absorption costing (Contrafatto and Burns, 2013). With the help
of these costing method financial manager can easily identify the total cost which is incurred in
an enterprise as well as it must be considered by company while making income statement.
Therefore, these costing is going to carried in different way which is described below in brief :-
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Absorption costing: Segmentation of expenditure is implemented and they are treated in
a totally different manner and require to understood for executing accurate calculations which is
consider by company while cost analysis. In fact under this category fixed and variable cost both
the costing is allocated among every unit of productions which are made. Therefore for this
appropriate distribution is going to conducted for getting aware about actual profits which is
earned by a unicorn grocery. Apart from this for knowing the amount of profits actual will be
compared with the capital which is budgeted under absorption costing which will be very helpful
for company. Instead of this, this costing method consider all the variable and fixed overheads
related to manufacturing on priority bases as well as covers other expenses which may be
incurred in a production process (Taipaleenmäki and Ikäheimo, 2013).
Marginal costing: This method of calculating cost is fully different as above explained
tool because in this method all the variable cost either they are related with manufacturing
process or administration or marketing is going to include on a priority base and after that it will
be going to subtracted from cost of sales revenue. Therefore with the help of this procedure
amount which comes out is consider as a contribution. Instead of this, it will help an enterprise to
get aware about the actual place of an organization for deriving closing profit by considering
available expenses and reduces all the fixed cots from it. Expenses which are linked with
production process is always fluctuating due to which amount which is considered as a profits is
fully influenced by it. Along with this if manufacturing prices of unicorn grocery is increases
then entire costing is also maximize and the scenario will be fully opposite in other
circumstances (Figge and Hahn, 2013).
Above information shows in which manner all the cost was treated. Apart from this
absorption costing and marginal costing is fully different from each other which is stated as
follows :-
Basis Marginal costing Absorption costing
Meaning Variable cost is going to
considered in this costing
because it fluctuate due to
changes in unit of production.
According to absorption cost
every expenditure which is
taking place in an enterprise is
taken into consideration.
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Identification of cost In fact variable cost is
identified as a period cost
because it reforms whereas
other will be consider as
commodity cost.
Expenditure which is incurred
in this method is seen as a
product cost.
Profitability measurement In this method for measuring
the gross profits, profit volume
must be considered.
Fixed cost is mainly focussed
in this method because it will
influence the profits of a
company.
Categorisation of expenses Basically entire capital is
segregated into two different
parts that is fixed and
changeable overheads.
In this costing method
classification is based on
commercialism, administration
and manufacturing cost.
Cost of unit Additionally, there are few
variance is available which is
involved in a closing and
opening stocks is having a
greater impact on a cost of one
unit.
Changes is seen on the cost of
one unit by the change in value
of opening and closing stock.
Income statement as per marginal costing
Amount
Sales value (35*600) 21000
less:
Cost of Production (6+5+2) -9100
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closing stock (100*13) -1300
variable overheads -7800
Contribution 13200
less:
variable sales overheads (600*1) -600
fixed cost -2000
Admin & selling cost (700+600) -1300
-3900
Total 9300
Income statement as per absorption costing :
Amount
Sales value (35*600) 21000
less:
Cost of Production 9600
Gross Profit 11400
LESS:
Fixed and variable cost:
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Amount
variable sales overheads (600*1) 600
Admin & selling cost (700+600) 1300
Less: over absorbed fixed production overheads -100 -1800
Net profit 9600
M2
In an organization it is very indispensable for employees to gain maximum knowledge
with the help of different tools and techniques which are available and with the help of this they
can easily make effective decisions which will be advantageous for unicorn grocery. In fact these
methods which is used by workers for enhancing their skills are known as a management
accounting techniques and with the use of these tools manager of an organization is going to
managed their accounts in a impressive manner. Most commonly technique adopted by unicorn
grocery is a budget because it supports management during planning process and strategy
making. Apart from this it also useful in conducting all the activities in a prescribed manner
which will help an association for achieving their set targets and objectives which are specified
(Lukka, 2010).
D2
Methods which are used above for calculating profits is totally opposite from each other
due to which answers which was calculated is different because it will help at the time of making
decision and interpretation for an organization. Therefore it has been noticed that earnings in
absorption costing is more as compare to marginal costing due to one of major reason that is
allocation is taken in respect of fixed overheads by which it will be considered for the units
which are implemented in a present period. Profits is a 9600 in absorption costing whereas its
9300 during marginal costing method. Therefore profits of a company is fluctuated due to
improper distribution of fixed expense in variable method.
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TASK 3
P4 Advantages and disadvantages of different planning tools for budgetary control
Budget is a blueprint of financial planning or strategies which is carried by organization
for smooth running. In fact it consider as a official document which shows the sum of money
allocated for a specific purpose and the summary of a expenses as well as assist employees how
to meet their set target (Caglio and Ditillo, 2012). Basically budget is a quantitative information
which shows the monetary planning of a company in a proper manner. Main objective of
various budgetary plan is to minimize the chances of losses because it highlighted the roles and
responsibilities of a employees and management team towards success of a unicorn grocery.
Apart from this there are numerous of budgetary form which shows the overall description of a
capital. Therefore budgets have some advantages and disadvantages which are stated as
follows :-
Merits of budgets:- Utilization of resources:- One of major benefit of a impressive budget is that it helps in
allocating available assets in a proper manner by considering relevant data and statistical
information. It means it plays a very vital role in managing all the resources in a effective
manner. Timely study:- Another advantages of a budget is that it assist and motivates organization
for regular reviewing or measuring for improving their condition. Motivates management:- Budgets also encourage employees and overall management
team towards their personal and professional goals by showing job costing report. Minimization of losses:- It helps in estimating future cost and expenses which incurred in
an enterprise due to which they can timely control it by minimizing their losses (P.
Tucker, 2014).
 Regular monitoring:- Budgets also helpful in monitoring entire information which is
stated in a official document as well as strategy for identifying hidden issues and
obstacles which may influence profit of a company.
Demerits of budgets:- Inaccuracy:- Future is a uncertain due to which no one have the ability to conduct
appropriate forecasting which resulted in a lack of accuracy and it affect overall budget or
capital of an organization.
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