Management Accounting Systems Report: Decision Making at Heath Retail

This report provides a comprehensive analysis of Management Accounting (MA) systems, focusing on their application within Heath Retail. The report begins by introducing the significance of MA and its tools, emphasizing how it assists in cost control and resource optimization. It explores specific MA systems such as inventory management, price optimization, job costing, and cost accounting, detailing their advantages and disadvantages within a retail context. The report then examines managerial reporting, highlighting its role in decision-making, with examples like performance reports, costing reports, and debtor reports. Furthermore, it evaluates costing methods, comparing absorption and marginal costing, and their impact on profit margin calculations. The report offers practical insights into how these MA tools and techniques can enhance financial strategies and improve decision-making processes within Heath Retail. This document, contributed by a student, is available on Desklib, a platform for students offering AI-powered study tools and resources.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................1
P1 Reporting to the management team of Heath about the need of MA systems within the
firm.........................................................................................................................................1
P2 Stating how managerial reports help manager in decision making..................................3
P3 Evaluation of cost and profit margin on the basis of absorption and marginal costing
method....................................................................................................................................5
P4 Identifying planning tools associated with the field of MA.............................................8
P5 Presenting and evaluating ways of MA that assist in responding monetary problems or
issues....................................................................................................................................10
CONCLUSION........................................................................................................................11

INTRODUCTION
In order to carry out business operations & functions smoothly it is required for the
manager to undertake the tools and techniques of management accounting. Moreover,
techniques of MA provide highly level of assistance in exerting control on cost and hrps in
making optimum use of resources. By undertaking tactics of MA firm can evaluate the
performance of each & every department and thereby would become able to take suitable
measure for performance management as well as improvement. For the project of MA, Heath
retail store has been selected that provides customers with the grocery and other services at
suitable price level. The main motive of such retail store is to enhance customer base and
profitability aspect by exerting control on expenditure or cost. In this, present report will
provide deeper insight about the systems of MA that firm can undertake for optimum
utilization of funds. Further, it also entails the manner in managerial accounting report offers
valuable information to the management team for decision making. Along with this, it also
depicts or describe the planning tools and other techniques of MA that assist in mitigating
financial deficiencies.
P1 Reporting to the management team of Heath about the need of MA systems within the
firm
To
Management Team
HEATH
Date: 7th December 2017
Subject: Management Accounting Systems
Introduction: This report is prepared on the systems of management accounting which in turn provide
information to the management about the extent to which use of tools are essentially required.
Main body:
Meaning of Management Accounting: It is the process that helps in preparing day to day managerial
reports. Hence, MA is highly concerned with the process of collecting, analyzing and reporting
information to the management team that is associated with the internal operations.
Significance of Management Accounting:
 MA provides accurate financial information to the manager and aid in decision
making aspect.
 By using MA tools and techniques HEATH can develop competent plan for the

upcoming time period.
 MA assists in increasing efficiency of business operations as it helps in measuring
performance and gives indication for performance enhancement.
 By undertaking MA tools HEATH can take suitable decision whether to produce in
house or buy outside.
Types of MA
Inventory management: This tool of MA facilitates effective supply chain management and give
indication about the limit to which inventory needs to be ordered as well as stored. There are several
techniques that can be undertaken for effective inventory management such as Just in Time (JIT),
economic order quantity (EOQ), stock requirement planning etc (Messner, 2016). It is highly required
for HEATH to maintain inventory by using management tools which in turn ensures smooth
functioning of operations.
Advantages: By using the tools of inventory management, HEATH can control cost and enhance
profit margin. In addition to this, by providing customers with product on time firm can enhance their
satisfaction to a great extent.
Disadvantages: Company faces difficulty in assessing suitable tool that needs to be considered for
managing inventory. Further, for managing record of stock firm requires highly talented personnel
which in turn also impose issue in front of firm.
Price optimization: In the dynamic business arena, firm can attain success only when it offers product
or services to the customers at competitive prices. Thus, by employing the system of price
optimization HEATH can identify how much customers want to pay for the products or services. This
system of MA helps in developing plan in against to the competitors and contributes in the success.
Advantages: It encourages HEATH to exert control on operating cost or expenses and helps in
grabbing high market share. Further, price optimization system of MA also helps company in making
planning pertaining to both price as well as profit margin.
Disadvantage: Price optimization system of MA is not suitable for all the industries because in some
sectors customers give high level of preference to the price level. On the other side, in some industries
customers compare price with the quality of product or services.
Job costing: In the field of MA, job costing method is highly effective which in turn lays focus on the
accumulation of cost pertaining to material, labour and overhead. HEATH can use this tool for
tracking the cost of individual jobs and become able to examine that it can be reduced in later jobs or
not.
Advantages: Business entity of HEATH can estimate basis for further evaluation by taking into
account job costing method. By using such technique, manager can do detailed analysis of each in the
context of material, labour and overhead expenses (Kristensen, Nielsen and Grasso, 2016). Along
with this, job costing is suitable when price of the contract is determined on the basis of cost.

Disadvantages: In this, detailed clerical work or analysis is required to create framework for decision
making. Due to the more clerical work high level of probability exists in relation to error.
Cost accounting: It may be served as a process that is undertaken by the business unit with the motive
to collect information about the cost incurred in relation to performing activities. Requirement of
using cost accounting system in the context of concerned retail unit is highly significant. By using
such system manager can collect information about cost incurred and would become able to take
decision about pricing and profitability aspect (Weetman, 2016). Cost accounting system enables firm
to assess the areas where business unit is earning or losing money.
Advantages: Cost accounting system of MA helps in identifying unprofitable activities and enables
management to take strict measure for the elimination of wastage. In addition to this, cost accounting
system also helps in disclosing both profitable and non-profitable activities. Hence, by doing
assessment of the cost, management can assess unprofitable activities and explore operations in the
profitable area.
Disadvantages: Lack of uniformity in the process is recognized as one of the main weaknesses of cost
accounting. Along with this, principles and conversions of cost accounting are not highly developed
which in turn places direct on outcome assessed for the purpose of decision making (Otley, 2016).
Conclusion: For getting success in the competitive business environment HEATH is required to
consider the tools of MA for evaluating performance. By undertaking, cost accounting, inventory
management and price optimization system HEATH can develop effective future plans.
Sincerely
Management Accountant
P2 Stating how managerial reports help manager in decision making
To
Management Team
HEATH
Date: 7th December 2017
Subject: Managerial Reporting Systems
Introduction: The present report will depict the significance of managerial reporting and its
contribution in the decision making. It also entails different reports that can be prepared by HEATH
for measuring and examining the performance of department in a prominent way.
Main Body
Managerial reports contain information about the performance of each department and helps in taking
effective decisions. It is the process that focuses on summarizing information pertaining to financial
aspects.
Need and significance of managerial reports

 Managerial reports timely furnish information the management, day to day basis
about cost, sales, production etc.
 By using managerial reports firm can identify the training and development need of
personnel.
 Such reports also give quick indication to the management team in relation to
taking strategic measure for the maximization of both productivity and profitability.
Different types of managerial reports that can be prepared by Heath store are enumerated below:
 Performance report: Such managerial report includes information about the extent to
which goals are met. In this, manager records and report deficiencies occurred in the
context of different segment such as material, labour etc. In such report, after
comparing the actual performance in against to the standards manager finds
deviations (Chung and Hsu, 2017). Along with this, in the budget report, manager
also mentions causes due to which deficiencies are assessed. Thus, considering all
such aspects business entity can undertake necessary measure for improving
performance.
 Costing report: Such report of management accounting helps in getting insight about
the cost level. Moreover, it includes information about the expenses incurred by the
company to offer products or services to the customers. By using such report, firm can
assess whether cost is controlled over the time frame or not. In addition to this, by
considering such report business entity of convenience store can develop suitable
budgeting framework. Along with this, costing report also helps in doing profit
planning.
 Stock evaluation report: For making appropriate valuation of inventory business unit
considers specific method such as LIFO, FIFO, ACO etc. Thus, stock report helps in
making of cost, wastage etc. Hence, by evaluating all such reports firm can determine
whether cost regarding storage and ordering decreased over the time frame or not.
 Debtor’s report: Bills receivable report helps in assessing the time period within
which customers, who purchased good on credit, are making payment. Under
receivable report, manager makes different columns pertaining to time period such as
30, 60 and 90 days firm can make estimation about the potential defaulters (Stefanov,
Vasilev and Bliznakov, 2016). Thus, by making evaluation of receivable period and
working capital position management team can decide whether they need to tighten
the credit policies or not.
Conclusion: At the end of this report, it can be concluded that by preparing managerial reports

HEATH can identify deviations within the suitable time. Along with this, through preparing and
evaluating debtors as well as inventory report firm can develop appropriate policy framework for
decision making.
Sincerely
Management Accountant
P3 Evaluation of cost and profit margin on the basis of absorption and marginal costing
method
Absorption costing: In the modern business context, now business units are making
focus on undertaking full costing method which is also known as absorption. Moreover, it
considers both fixed and variable cost while doing valuation of inventory as well as margin.
Under absorption costing method, value of inventory is higher because it valued at total
production cost. International Accounting standards 2 also exhibit that absorption costing is
the best method of inventory valuation as compared to others. Thus, by using such full
costing method manager of Heath can do valuation of stock and profit margin more
effectually. Moreover, such costing method assumes that fixed cost can be recovered by the
firm so it needs to be considered at the time stock as well as gross and net profit evaluation.
Marginal costing: This costing method helps manager in getting information about
the cost that needs to be incurred on the production of one additional unit. Hence, direct
material, labour, overhead and other components that are considered while doing evaluation
of cost as well as profit margin as per marginal costing method (Difference Between
Absorption Costing and Marginal Costing, 2017). Hence, referring the same, it can be
presented that in marginal costing method variable expenses are recognized as product cost,
whereas fixed expenditures considered a periodical. Marginal costing method aid in decision
making and grab the attention of management about the changes take place in results or cost
under consideration. By using such method, management team of Heath can assess the
contribution and profit margin associated with per unit of output. Hence, through undertaking
such method manager can present the effect of changes take place in activity. Further, in
marginal costing, closing stock, WIP and finished goods are valued at variable cost.
Unit cost assessment (absorption and marginal costing method)
Particulars
Absorption costing ( per unit)
in £
Marginal costing (per unit in
£)

Material cost 6 6
Labour cost 5 5
Production overheads
Variable 2 2
Fixed (2100 / 700) 3
Unit cost of
production 16 13
Calculation of gross and net profit (absorption costing method)
Particulars
Amount (in
£)
Total sales revenue (600 * 35) 21000
Less: Total production cost
Material (700 * 6) 4200
Labour (700 * 5) 3500
Variable production overheads (700 * 2) 1400
Fixed production overheads (700 * 3) 2100
Total manufacturing cost 11,200
Add: Opening inventory 0
Less: closing inventory (100 * 16) 1600
9600
Over-absorbed fixed overheads (Refer working note 1) 100
Costs of goods sold (COGS) 9500
Gross profit (GP) (2100 – 9500) 11500
Less: Other overheads
Administration expenses 700
Selling expense 600
Variable sales overheads 600
Total overheads 1900
Net profit (NP) (11500 - 1900) 9600

Income statement (Marginal costing method)
Particulars
Amount (in
£)
Total sales revenue (600 * 35) 21000
Less: Total production cost
Material cost (700 * 6) 4,200
Labour cost (700 * 5) 3,500
Variable production overheads (700 units @ 2 PU) 1,400
Total production cost (4200 + 3500) 9,100
Add: Inventory at the beginning of the year 0
Less: Stock at the end of year (100 * 13) 1300
Costs of goods sold (COGS) 7,800
Add: variable sales overheads 600
Total variable cost 8,400
Contribution 12,600
Less: Other overheads
Administration expenses 800
Selling and distribution expenditure 600
Fixed production cost 2000
Total overhead cost 3400
NP (12600 – 3400) 9,200
Reconciliation statement as per marginal and absorption costing is enumerated below:
Particulars Amount (in £)
NP (absorption costing method) 9,600
Less: Fixed production overhead on closing stock (100 * 3) 300
Less: Over-Absorbed overheads 100
Net profit on the basis of marginal costing method 9,200
Interpretation: The above depicted table shows that unit cost of production under
absorption and marginal costing method accounts for £16 & £13 respectively. The rationale

behind increasing cost as per absorption method is the inclusion of fixed production overhead
implies for £3 significantly. By doing assessment, it has found that gross and net profit
margin under absorption costing method accounts for £11500 & £9600. On the other side, as
per marginal costing method contribution of £12600 & net margin of £9200 has found.
Referring the overall evaluation, it can be said that due to the consideration of fixed
production overhead GP as per absorption costing method is lower as compared to
contribution determined through marginal technique. Thus, absorption costing presents
solution by taking into account both fixed as well as variable cost while determining gross
and net profit margin.
P4 Identifying planning tools associated with the field of MA
Financial planning and decision making is highly important for the business
organization to build or sustain competitive edge over others. Thus, by preparing competent
financial plan Heath can employ monetary resources in an appropriate manner. Hence, by
undertaking or considering below mentioned tool firm can do effectual planning such as:
Zero base budgeting (ZBB): By using ZBB, Heath can set suitable budgeting or
financial framework for the upcoming time period. Such modern technique of budgeting may
be served as a bottom-up approach and sustainable cost philosophy which in turn facilitates
optimum allocation of financial resources. It allows firm to save cost and reinvest the same in
the long term growth opportunities such as innovation and product development. Moreover,
in this, manager starts with zero bases and after justifying all the expenses set budgeting
framework (Zero-Based Budgeting, 2017). This method encourages manager to find cost
effective ways to perform business activities and functions. By taking into account all the
above depicted methods, it can be presented that such technique helps in developing
competent financial plan.
Advantages: Technique of ZBB is highly significant which in turn assists firm in
reducing cost and improving both efficiency as well as competitiveness. Such technique of
budgeting helps in preventing take over and assessing top performers. By using ZBB, firm
can indulge cost conscious culture within the firm.
Disadvantages: Sometimes, ZBB technique negatively affects employee morale and
motivation. Moreover, company that follows such technique take strict measure or action
who failed to perform as per the budgeted figures. Along with this, to prepare budget in
accordance with ZBB business unit requires more financial and human resources.

Activity based budget: From assessment, it has identified that cost determination as
per ABBs highly accurate and reliable. Moreover, in this, on the basis of relevant cost driver
firm makes assessment and allocation of overhead expenses. Thus, in the modern business
arena, ABB may be served as the most effectual technique that helps business in developing
competent framework.
Advantages: It helps in determining cost and effect relationship between the concerned
activities. Along with this, by undertaking ABB Heath can set fair prices for multi-products
because in this allocation is based on relevant drivers (Advantages And Disadvantages Of
Activity-Based Costing (ABC), 2017). Further, by using ABB, Heath can take prominent
decision pertaining to the profitability of different product lines.
Disadvantages: In ABB, concerned authority faces difficulty in evaluating the activities that
have an impact on cost aspects. Along with this, in ABB, accountant also faces issue in
evaluating cost on the basis of activities (Disadvantages of Activity-Based Budgeting, 2017).
Further, it is suitable for only large sized manufacturing firms rather than small one.
Moreover, for setting budgeting framework as per ABB company has to organize training
session for personnel.
Responsibility budgeting: In the case of such budgeting, manager of different
departments are accountable to give report to supervisory head on routine basis. Hence,
reports which are presented by different responsibility centre’s such as sales, profit, expenses
etc contain information about operational results of the areas as well as items for which they
are responsible to control. Thus, management team of the firm can take timely input from the
managers and would become able to make suitable modifications in existing strategic as well
as policy framework.
Advantages: Responsibility budgeting system establishes sound control system within the
firm and thereby improves performance. By using such budgeting tool management team of
Heath can delegate roles and responsibilities of personnel. Promptness in reporting is
considered as major strengths or advantage of responsibility budgeting system.
Disadvantages: Under responsibility budgeting, way of expenses classification is the subject
of further analysis and highly difficult. Further, regular reporting system is considered as time
intensive activity or exercise.

Standard costing: It may be presented as the powerful system that provides assistance
in controlling cost to the significant level. System of standard costing enables company to do
planning pertaining to budget more effectually. In this, manager makes estimation of the cost
pertaining to production process. Hence, before the initiation of new accounting period firm
sets standards regarding material, labour, overhead, sales and profit. Thus, on the basis of
such method, standards are used to set a plan or budget for the production process.
Considering the standards setting down as per such costing method firm performs the
evaluation of actual outcomes in against to the budgeted figures (Standard Costing -
Meaning, Advantages and Disadvantages, 2015). On the basis of such aspect, by identifying
deviations and taking corrective action for improvement firm can attain success. Hence,
Heath will get following benefits by undertaking such budgeting tool or method:
Advantages: Standard costing method helps in controlling cost through eliminating wastage
and inefficiency. It also helps in locating areas that demand for improvement and fixing the
accountability of personnel for each variance. In addition to this, standard costing method
assists in making improvement in the methods and operations through providing guidance in
relation to production as well as pricing policies.
Disadvantages: In this, when deviations are assessed then personnel entail that standards
which are setting down by Heath not realistic in nature (Kim and Schmidgall, 2017). Further,
sector where changes take place in the technological aspects standard costing method does
not give suitable outcome. In addition to this, for setting standards business entities require
technical skills.
Variance analysis: Contribution of such technique is vita in the planning as well as
decision making aspect of firm. Moreover, it provides management team with the information
about the reasons due to which firm failed to attain predetermined results. Hence, by
investigating the causes of deviations and taking appropriate measure firm can significantly
improve deficiencies. Hence, through undertaking this, Heath store can prepare plan and
become able to get favourable outcome or results.
P5 Presenting and evaluating ways of MA that assist in responding monetary problems or
issues
For the attainment of goals, it is highly required for the business unit to resolve
financial problems within the appropriate time frame. Hence, by adapting following aspect
Heath retail store avoid monetary issues in the best possible way such as: