Management Accounting Report: IKEA Systems, Techniques, Planning Tools

This report delves into the management accounting practices of IKEA, a global furniture retailer. It begins by defining management accounting and differentiating it from financial accounting. The report then explores various management accounting systems such as inventory management, cost accounting, price management, and job order costing, highlighting their essential requirements and applications within IKEA. It examines different reporting methods used in management accounting, including budget reports, inventory reports, and accounts receivable aging reports, and their benefits. The report further analyzes costing methods like marginal and absorption costing, illustrating their application in preparing income statements and determining net profit. It also discusses different planning tools, their advantages, disadvantages, and their use in preparing and forecasting budgets. Finally, the report compares how companies use management accounting systems to solve financial problems, emphasizing how these tools can lead organizations to sustainable success. The report uses IKEA as a case study throughout, providing practical examples of these concepts.

Management Accounting

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Various types of MA system and essential requirement..................................................3
P2. Different methods of reporting used in management accounting....................................5
M1. Benefits of management accounting systems and its applications.................................6
D1. Evaluation of MA systems and reporting linked with organizational process................6
TASK 2............................................................................................................................................6
P3. Costing methods to prepare income statement and detect net profit................................6
M2. Range of MA techniques and appropriate financial report...........................................11
D2. Produce a report that applies business operations correctly and interpretation.............12
TASK 3..........................................................................................................................................12
P4. Advantages and disadvantages of different types of planning tools..............................12
M3. Use of different planning tools and their application for preparing and forecasting
budgets..................................................................................................................................13
TASK 4..........................................................................................................................................14
P5. Comparison of companies in using of MAS to solve and responds to their financial
problems...............................................................................................................................14
M4. MA can lead organisations to sustainable success........................................................15
D3. Planning tools used appropriately to solving financial problems..................................16
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
MA is a discipline that involves involvement in policy taking, creation of success
assessment and management systems, including financial reporting and monitoring tools that
better monitor the organization's plan in the design and execution (Arnaboldi, Lapsley and
Steccolini 2015). The firm requires many other MA concepts to help manager decision-makers
achieve business objectives. In order to compile corporate accounting analyses, databases and
books, the company expense and activities are assessed. This study is focused on IKEA, a
Swedish-based, Netherlands-based, international company that produced and marketed entirely
ready-made furniture in 1943. It contains kitchen equipment, household products, goods &
services each time at household.
This report covers important requirements of different MA systems and reports. The report
provides an evaluation of the application of integrated budget preparation planning tools as well
as an evaluation of how the issue is quantified using such management techniques and financial
accounting. It also requires at least 2 examples to begin by contrasting the adaptation of
MA systems by organisations to deal with their financial challenges.
TASK 1
P1. Various types of MA system and essential requirement.
MA, during an organizational context, looks at operations somewhere like a corporation
while taking into consideration of customer needs. The MA method converts these assessments
and details into a vocabulary used eventually to make decision-making better. Management
accounting is a process where provisions of accounting information are used by managers for
deciding matters in their organisations and managing as well as controlling the crucial
operations. The major difference between accounting and finance is the internally or externally
priority (Cooper, 2017). In order to increase operational performance, managers of IKEA
implement MA system and maximize their outcome.
Essential requirement of management accounting systems:
Inventory management system: It’s a tool that enables companies to measure goods
throughout their supply chain. It maximizes the completeness of order placement with the
supplier to fulfil your customer and framework the whole path of even a manufacturing
company. This software offers responsibility and greatly influences an enterprise. Through

reliably tracking goods, companies may reduce data duplication, detect trends and focus on
better spending (Inventory Management Systems, 2020). Whenever company’s inventory is
being ordered, stored and used the whole process called inventory management. Management of
components and raw materials are included. Inventory management plays main role and it’s a
variable asset of the company. Inventory management helps to keep restock certain items and to
decide amounts of products of purchasing and selling and re ordering and tracking of stock and
determining the reorder points as well. IKEA’s Manager incorporates the way to measure the
accessibility of inventory in storage facilities on a frequent basis. It allows them to produce
furniture appropriately or to produce additional inventories as needed. In the sense of the
enterprise, additional managers may develop successful plans in order to operate their company
effectively.
Cost accounting system: This method is used by producers to monitor manufacturing processes
using an on-going inventory program. In these other words, it was an accounting method
developed for manufacturing firms that monitors the movement of goods across the various
phases of development and measures each company’s costs at various speeds (Fleischman and
Parker, 2017). The accurate cost of products is essential to productive products. An IKEA
manager must know which line of products is profited and which are not profitable, but can only
be reached if the appropriate product cost is predicted. Cost accounting is a thing which
determines cost in corporate or business the basic process of cost accounting is to establish
budgets and essential cost requirements of corporation and essential budget management. Cost
accounting helps in future data management of a business and details of efficiency of each data
process in case when a corporation increase and decrease any business prices or fix any price this
process also called cost accounting. Furthermore, IKEA management can develop strategies to
minimize or control costs over the entire operation period.
Price management program: The organization is using this tool as it is conscious that its
current clients are prone to demand variability. The degree to which businesses will achieve
established efficiency and productivity can also be addressed. Optimal level costing is essential
when IKEA try to communicate sales revenues and, more importantly, if it helped to improve
profits through the maintenance of the same customer satisfaction levels. Price optimization is
now becoming extremely important because of extremely competitive purchases in specific
business areas (Gray, 2015). So many firms in market emerging markets also seek to launch new

products at lower price. Throughout this context, having the right market value would be even
more important or a company can waste its competitors with significant clients.
Job order costing system: This system is beneficial in defining the total cost involved by
company on different jobs that are part of operating and non-operating activity. It further help to
detect the total spending of company on non-profitable activity and enables manager to make
certain plans to remove these jobs or add new activities. Job costing system is a system when it
involves all costs which are associated with a specific production and accumulating information.
Job costing system determines each and individual profitability and provides cost of material and
cost of estimation of cost of similar jobs. It helps in requirement of labour and overheads of each
and individual job as manager calculate job cost then it includes direct materials, direct labour
and applied overhead. In respective firm this system is effective enough to find the total cost
spend on various jobs working to increase the profit earning capacity.
The management of IKEA Furniture required each MA system mentioned above within their
operation to make proper decision that help to increase profitability. Through the successful
execution, the enterprise may work in a proper manner or accomplish corporate objectives and
targets.
P2. Different methods of reporting used in management accounting
MA reports are really a key element in building that participants get such a clear sight of
how well the company works. These reports advertise income reports that could include
information like cash transfers, operational costs, item profitability and provincial revenues
(Management Accounting Reports, 2020). These reports are aimed at making informed choices
for IKEA managers. When businesses depend on planned bookkeeping assistance, information
can be collected more professionally that assistances management guide the organization to
achieve its goals. The following are specific observing approaches:
Budget report: The report is important and helps companies to identify and cut prices
during accounting years that increase profit margin (Brustbauer, 2016). IKEA’s administrator
compiles the summary for efficient business planned organization to approximate the total price
and additional return that can be produced by selling forecasted volumes.
Inventory report: Companies making physical goods are quite beneficial with this report,
especially to those with a reduced fault tolerance in production (Gullberg 2016). The honest
circumstances provide original information for maximizing installation or machining on the

expense of inventories, labour, and other operating expenditure operational activities involved in
the manufacturing cycle. It contains data on stock, such as labour costs, transport costs, ordering
costs and other charges, followed by the company IKEA. This report is used by IKEA
management teams to document information that will be useful for management to develop
strategies and control stock level in order to increase overall profitability.
Accounts Receivable Aging Report: All companies that provide risky loans maintain this
report which shows an insight of the average credit account, typically for items 30, 60 and 90
days late. It could help to change the repayment terms to include both customers' payment
capacity. IKEA administrators use this tool to classify defaulters over a particular span of time.
A management should create stringent credit strategies to limit the amount of defaulters lists and
popular their liability.
M1. Benefits of management accounting systems and its applications.
MA systems are extremely important in the organisational culture and offer several
advantages also at time they are implemented in IKEA Company. IKEA managers may control
the whole stock volume by implementing a stock tracking program, which minimizes the
possibility of over sales, eliminates maintenance costs and improves operations. Cost
system helps IKEA managers to assess each item cost which really helps reduce manufacturing
overall costs and ensures that cost authority over the time frame is maintained (Harrison and
Lock, 2017). At the other side, the demand control program allows managers to fix rates for their
goods according to their market priorities and even to insure that they fulfil the needs of
consumers. This accounting system allows the management to operate and to ensure that
efficiency and effectiveness are maximised. It also maximizes efficiency and the success of the
organization.
D1. Evaluation of MA systems and reporting linked with organizational process.
Accounting schemes of administration and budgets are very critical for the company to carry
out its activities. Critically assessed, the costing system assists the management team in
estimating the value of the goods, which is included in the costing report. Moreover, the stock
management system is being implemented to governor the stock level as well as provides further
assessment of these details in the stock management report. There is an examination of the
relation between accounting records and programs. It further allows the executive of IKEA in

decision taking phase to operate operating cycle in effective group to attain market goals &
objectives.
TASK 2
P3. Costing methods to prepare income statement and detect net profit.
Marginal costing: This costing technique involved variable costs charged for units
produced and fixed costs are totally off-duty (Hoque, Parker, Covaleski and Haynes, 2017). The
term incremental expenditure applies to the additional costs engaged in the creation, depending
on the operating expenses assigned to a specific entity, of a supplementary entity. In order to
measure the commodity expense and prepare financial statements, Marwa Limited shall adopt
the marginal costing process.

Absorption method: It is mostly used for stock level assessment and is often defined as
full pricing with the consumption rate (Kenya and Kenyon, 2016). Not only supplies and
expenses and moreover operational costs in conditional and fixed manufacturing are covered.
The guide would explain how to calculate it and the advantages or disadvantages of utilizing this
type of accounts. Aarwa Limited has been using this cost benefit tool to measure the expense of
the commodity and to create a profit for respective time period.

Income statement of Aarwa Limited of 2nd year:

Working note
M2. Range of MA techniques and appropriate financial report
The profit according to both companies, measured over 3 years, is determined using the
form of marginalization or consumption price. In conclusion, Marwa Limited income through
using marginal costs for 3 years amounts to £65400, £123850 and £96900 individually. Through
the other hand, the income of Aarwa Limited is £83,600, £124,892, as well as £322,000
separately by way of the absorption costing process.
D2. Produce a report that applies business operations correctly and interpretation.
The above comparison shows that Aarwa Limited as well as the second year was the biggest
income during the first year. Marwa Limited seems to have a greater profit from the other edge
since last year. Profit shifts are triggered by high operating or output costs of all businesses,
which alter the profitability.

TASK 3
P4. Advantages and disadvantages of different types of planning tools
Budgetary control: This is a company process, in which management teams and
department heads established budget goals and stages of expenditure for each operating unit.
Unit managers attempt only at end of each month or half to equate real results with target sums
and respond dramatically. Plan preparation is a mechanism that allows senior executives to retain
project headings properly. This reform is necessary so because large amounts expenditure will
have an adverse influence on the firm revenues.
The IKEA firm have many planning tools to monitor its budget. Using such forecasting
methods, administrators may carry out their task properly and establish plans for executing these
budgets to achieve operational efficiency. The following are among the planning activities that
IKEA can use and its pros and cons:
Capital budgeting: It can be defined as an expenditure plan form linked to the
determination of long-term investment productive output in firms like machine tools, plants, etc.
This budget allows for long-term investment throughout the department of economics (Kerr,
Rouse and de Villiers, 2015). The IKEA reduced capital group generally means to this strategic
plan in order to see results in the appropriate control of financial cash required. In addition, this
budget contains some advantages and disadvantages:
• Benefit: The investment calculation can be conducted using many investment
measurement methods including the payback time, NPV, IRR, etc. in this form of
capital financial planning. Lesser payback time was chosen, higher was denied and
lower NPV or IRR was chosen on the other hand so because company is benefiting
from the investment.
• Drawback: The exact amount of capital is not taken into account in the payback
date estimate as well as the net current value measurement is solely dependent on a
discounting method, which may be adjusted according to the plan. The end results
can be different because the undervaluing rate is changing as well as the total success
of the property can be changed further.
Flexible budgeting: It is a schedule that adjusts or deforms in spite of modification of
quantity or behaviour. The financial plan is also much simpler than static budget and more
practical which gives higher results. It is the amounts that remain the same as those fixed