Understanding Management Accounting Systems: Jaguar Land Rover Report

This report provides a comprehensive analysis of management accounting systems within Jaguar Land Rover Automotive Plc. It begins with an introduction to management accounting, its significance in decision-making, and the essential requirements of its systems. The report then delves into the different types of management accounting systems, including cost accounting, inventory management, job costing, and price optimization systems, highlighting their advantages. Furthermore, it explores various methods of management accounting reporting, such as budget reports, account receivable reports, performance reports, and cost reports. The core of the report focuses on calculation methods, including marginal costing and absorption costing, with detailed calculations and comparisons presented in the annexure. The report also provides financial analysis, including calculations with cost analysis techniques and preparation of income statements, offering a clear understanding of how Jaguar Land Rover uses management accounting to address financial challenges and improve business operations. This report is a valuable resource for students studying management accounting.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is related with the process of preparation and formation of
financial reports containing both the financial as well as non financial, statistical information. It
assists management of the business organization so that they can facilitate decision-making in
the business. It involves evaluating and providing the company's internal reports to the managers
which helps them to make further decisions and strategies for the organization. Management
accounting represents the internal errors and complications related to the company's financial
position and helps the managers to set effective measures to overcome those problems. This
report is on Jaguar land Rover Automotive Plc, which is one of the British multinational
company engaged in Automotive services. The company is having its headquartered in Coventry,
United Kingdom. The company manufactures luxury vehicles and sport utility vehicles. This
company carry a strong brand name in the market and they are famous for its unique designs.
The company has the revenue of over £25.8 billion and consists of 43,224 employees across the
world.
This report will demonstrate the understanding of MA systems with different methods
used in framing reports. The report will also include calculations with cost analysis techniques
and preparation of income statement. Report will define different planning tools as used in
management accounting along with their benefits and drawbacks. At last, emphasis will be made
on comparing how organization uses MA system for dealing with financial problem.
MAIN BODY
LO 1
P1 Understanding MA and essential requirements of its systems.
Management accounting- It provides base for effective decision-making process
thereby framing plan and improving performance of the business. It also helps in providing
assistance in financial report making for managers in framing and implementing the strategies
and effective measures for the organization. It involves preparation of various components such
as Capital budgeting, valuation of stock, break even analysis, cost estimation for a product,
forecasting the demand of the market and strategies to overcome the financial problems which
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drives towards the long term sustainable growth of the organization (Mack and Goretzki, 2017).
Management accounting helps the businesses to eliminate their costs as well as reduce their
risks.
MA systems- It helps in making improvement in performance level as well as making overall
efficiency of production of the organization in order to possess higher profitability and greater
market share for its business growth and development. It helps in decision-making for the
managers related to the various issues and problems in an organization. Management accounting
systems are classified into-
Cost accounting system- It is a technique that enables Jaguar Land Rover Plc in cost
estimation for various activities in order to determine profitability analysis, inventory valuation
and controlling cost factor (Maskell and et.al., 2016). It mainly used to determine the cost of
different products in relation with the production department of the organization. This in turn
helps the organization to determine the profitability and revenue as well. It includes activities
such as work in progress, inventory and finished goods cost etc.
The important elements of the cost accounting are direct and indirect material, labour
costs, overhead expenses- fixed and variable. Cost accounting is helpful and effective in
analysing and evaluating the future cost of production of goods and considers direct costing in
relation to production function. It includes factors such as salary, wages, production expenses,
etc. and other direct cost of production.
Inventory management system- A method of determining the levels of finished goods in
warehouse, delivery of products and sales demand. In simple words, it involves management of
the supply chain process. It enables organization to monitor on the movement of business
operations which further enables the company in effective decision-making and investments. It
manages the orders from the market and the products supplied and all the activities related to
these activities and helps the organization in better delivery of goods in market to overcome the
sales demand. Inventory management system uses various methods for managing the stock as
such- First in First out method (FIFO), Last in first out method (LIFO), ABC analysis, Just in
time approach and weighted average method.
Job costing system- It monitors all the expenses thereby allocating costs to every product
manufactured to keep track on expenses incurred. The manufacturing costs covers overheads,
material cost and labour costs and estimating their actual value. Jaguar Land rover uses such
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system to control raw material usage, labour time and equipment cost which all in turn
determines the cost of single unit of product which in turn helps in making estimates of the
profits and preparation of financial reports for strategic decision-making for the company.
Price optimization system- Helps in assessing prices of the products and services as
delivered by the business firm It helps the company to maximize its profits and pursue its goals
and objectives for the growth its business. It understands the change in behaviour of customer
due to change in the price level thereby determining demand and supply of such products in the
market. Price optimization system includes collection of historical data, product volumes,
company's product prices, competitor's prices, economic conditions of the market and the
determination of prices of the products is done by considering these factors (Mills, 2018). With
the help of all these factors the organization can set effective prices of their products so that the
customers are influenced and also the company earn profits and understands the behaviour and
reaction of customer towards the set prices.
Advantages of MA system- It enables Jaguar Land Rover Plc in planning, organizing,
controlling and coordinating its business activities for betterment and growth of the organization.
It also improves the efficiency and performance as well as productivity in order to attain
different economies of scale. Management accounting reports enables the stakeholders in
identification of the problem in the organization and frame effective measures and strategies to
overcome those problems. It also helps in budget planning and various cost estimations for the
organization.
P2 Methods of MA reporting
Are different tools which helps in determining and understanding the business operations
of an organization accurately. It provides relevant information to the managers which further
enables in making effective decisions related the different issues being identified in the report.
This reports highlights performance of the business consisting all the elements of the
organization and helps the managers and the top-level personnel to understand the productivity
and capability of the company and what all things to be planned to match the actual one with the
primary objectives of the business. The following are types of such reports-
Budget report- Assist in performance evaluation by comparing actual outcome with the
prepared budgeted plan in order to identify the differences between them. It is concerned with
comparison of the company's past performance with the current one and implements necessary
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steps and actions to initiate higher profits. Budget report involves estimation of the revenue and
expenses of the company in the future, which in turn later helps to determine the variances in the
performance as well.
Account receivable report- This report consists of amount to be received by the company
from different individuals and stakeholders. It represents the time of the money to be receive and
the amount received, Greater the time limit lower will be the credit limit to be initiated by the
company (Otley, 2016). It helps to determine the credits to be provided to the customers by the
company. Account receivable report includes all the information regarding the people who owe
the company's money and keep track on it.
Performance report- Performance report analyses and evaluates the performance of the
company. It provides detailed understanding of the company's performance which further
represents the productivity of Jaguar Land rover company. It provides all the necessary data
related to the performance of the company to the stakeholders so that they can make the
decisions for the improvement of the same. It also helps in estimation of the profitability for the
company by representing the current status of its performance.
Cost report- It is concerned with the identification of the cost incurred for undertaking
business operations. Such report determines cost of every element of the organization that
includes products, services, manufacturing process, distribution and other elements. This in turn
enables the managers to keep a watch on each and every cost and assist in determining strategies
to reduce down extra cost and expenses in certain areas.
LO 2
P 3 Calculation
Methods for Management accounting systems
Marginal costing- Marginal costing refers to the change in the actual cost with adding up of
one more unit in the production. It helps Jaguar Land Rover company to determine the
additional cost being incurred by the company while producing one extra unit. The
following are the advantages and disadvantages of marginal costing-
Advantages- An easy way of determining and controlling cost of production. It also eliminates
the differences in the cost as there is no change in fixed overheads of the production process.
It helps to determine the production capacity from the available raw materials and determine
the ways for optimum production.
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Disadvantages- It is complex in determining the degree of variances as marginal costing does
not consider all the variable costs in it. Marginal cost remains constant for shorter time
duration only.
Absorption Costing- Absorption costing is concerned with calculating and considering all
the cost involved in the process of production. It includes direct, indirect and all other cost to
derive accurate results and helps in decision-making further (Quattrone, 2016). The
following are the advantages and disadvantages of absorption costing-
Advantages- It is the simplests method and ideal for decision-making process by the managers as
it contains fewer fluctuations in calculating the profit margins. This method determines the
profits accurately as it considers all the costs of production.
Disadvantages- This technique is not suitable in improvement of business operations. It is only
concerned with the profits of the company and is not useful for comparing different product
lines.
Annexure A
Question 1
Calculation of costing of Table under marginal costing and Absorption Costing
Marginal costing
Particulars Cost per unit (£)
DM 215
DL 90
Variable O/H 25
Marginal cost (PU) 330
SP (per unit) 590
Less: MCPU -330
CPU (contribution) 260
Period 1
Particulars Workings Amount (in £)
Net amount (in
£)
Sales (4350*590) 2566500
COGS (opening stock +
purchase – closing
inventory)
Stock at the beginning 0
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of period
Material (5000 * 215) 1075000
Labour (5000 * 90) 450000
Variable overhead (5000 * 25) 125000
M 1650000
Less: Closing stock (650*330) -214500
-1435500
1131000
Contribution 1131000
Less: FC -307500
NP 823500
Period 2
Particulars Workings Amount (£) Net amount (in £)
Revenue (1700*590) 1003000
COS
Opening stock (650*330) 214500
DM (5200*215) 1118000
DL (5200*90) 468000
Variable o/h (5200*25) 130000
1930500
- inventory at the end of
period (4150*330) -1369500
-561000
442000
Cont. 442000
Less: FC -361500
NP 80500
Under Absorption Costing
Determining cost per unit
Particulars
Period 1
Amount (in £)
Period 2
Amount (in £)
DM 215 215
DL 90 90
VO 25 25
FO 61.5 69.52
Total absorption cost
per unit 391.5 399.52
Period 1 Period 2
Particulars Figures (in Figures Net Figures (in £) Figures (in Net
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£)
(in £) Figures (in
£)
£) Figures (in
£)
Sales (4350*590) 2566500 (1700*590) 1003000
COS
Opening stock 0 (650*391.50) 254475
Material (5000*215) 1075000 (5200*215) 1118000
Labour (5000*90) 450000 (5200*90) 468000
VO (5000*25) 125000 (5200*25) 130000
FC 307500 361500
1957500 2331975
- Closing
inventory (650*391.50)
-
254475.00 (4150*399.52) -1658008
-1703025 -673967
GP 863475 329033
NP 863475 329033
Calculation of costing of Chair under marginal costing and Absorption Costing
Marginal costing method
Particulars Cost per unit (£)
DM 20
DL 30
Variable Overhead 5
MCPU 55
SP 90
-Marginal cost per unit -55
CPU 35
Period 1 Period 2
Particulars Figures (£)
Figures (in
£)
Net figures
(£) Figures (£)
Figures (in
£)
Net figures
(£) Period 2
Sales
revenue (16000*90) 1440000 (19100*90) 1719000
COGS
Opening
inventory 0 (4000*55) 220000
Add:
Material (20000*20) 400000 (22000*20) 440000
Add: Labour (20000*30) 600000 (22000*30) 660000
Variable o/h (20000*5) 100000 (22000*5) 110000
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1100000 1430000
Less:
Closing
stock (4000*55) -220000 (6900*55) -379500
-880000 -1050500
560000 668500
Cont. 560000 668500
Less: FC -102500 -102500
NP 457500 566000
Absorption Costing
Assessment of CPU
Particulars For Period 1 (in £) For Period 2 (in £)
Direct Material 20 20
Direct Labour 30 30
Variable O/H 5 5
Fixed o/h 20.5 23.17
Total absorption cost per unit 75.5 78.17
Period 1 Period 2
Particulars Workings Amount (£)
Net Profit /
(Loss) for
Period 1 Workings Amount (£)
Net Profit /
(Loss) for
Period 2
Sales (16000*90) 1440000 (19100*90) 1719000
Cost of sales:
Opening
inventory 0 (4000*75.5) 302000
Material (20000*20) 400000 (22000*20) 440000
Labour (20000*30) 600000 (22000*30) 660000
Variable o/h (20000*5) 100000 (22000*5) 110000
Fixed cost 102500 120500
1202500 1632500
-Closing
inventory (4000*75.5) -302000 (6900*78.17) -539373
-900500 -1093127
Gross
Profit/Loss 539500 625873
Actual Net
profit/(Net
Loss) 539500 625873
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Particulars Under Marginal Costing
Total Profit
under
marginal
cost
Under Absorption
Costing
Total Profit
under
absorption
cost
Period 1 Period 2 Period 1 Period 2
Table 823500 80500 904000 863475 329033 1192508
Chair 457500 566000 1023500 539500 625873 1165373
Overall
Profit 1281000 646500 1927500 1402975 954906 2357881
Net Profit determined under absorption costing is much high as compared to value
obtained in marginal costing as closing inventory is assigned with fixed cost per unit leading to
the decrease in companies overall cost. In case of marginal costing, calculation of closing
inventory is based on variable and charges total fixed cost. This leads to making of profit under
absorption costing.
Annexure B
Company should select part related to selling of 650 units at £63 per unit. At this plan
company is earning the highest profit as compared with the other plans. Company will be earning
£7690 profit if company will be selling 650 units at £63.
Contribution to Sales ratio means which measures the amount of contribution to every 1£
sale of the company. It shows the contribution to selling every unit of product.
Break Even Point is defined as point where company is in the situation of no profit or no
loss. Company is neither earning profit nor is having loss. All the costs of the company are equal
to the revenues of the company. In this situation company will be at breakeven point if company
sells 356 units at £70 per unit.
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LO 3
P4 Advantages and disadvantages of different planning tools
Planning tool is mainly used to manage their accounts and improve their performance by
adapting various strategies and method to control the factors which raises to maintain the
sustainability. It assists in making effective decision and formation of sound business plan
various objectives to achieve goal and success in the near future. Thus, major planning tool is
usually implemented by planning the proper budgets (Ax and Greve, 2017). Thus, budgets are
mainly prepared by company to examine their income and expenditure and interprets accurate
flow of income to identify the company structure to expand their business activities into
international market. Following are the types of budget:
1. Cash Flow Budgets: Prepared to examine actual cash incurred by estimating the cash
inflow and outflow from day to day activities. Through the cash flow budget, it helps
company to analyse actual cash balance for determining amount required for the project
for carrying any other activities for long term growth in the market (Cost Accounting
Systems, 2019). The advantages of cash flow budgets are as follows:
 If company had surplus cash balance, it can can buy more resources to increase their
stability in the market.
 They can easily borrow loan from investors and bank by presenting their stability and
reputation by having the surplus cash.
The disadvantages of Cash flow budgets are as follows:
 There are more chances of theft and fraud which can manipulates the interests of
employees by viewing the surplus cash in the company (Chenhall and Moers, 2015).
 If the budgets are not properly managed and accountable by the accounts, it results in
chances of loss of the money and also it eliminated the company to pay surplus rewards
to their employees.
Thus in case of Jaguar land Rover Automotive Plc, they use such planning tool to
examine the estimated cash inflow and outflow at the time of dealing in certain activities to gain
more profits. This also helps them to balance their process by analysis their expenses which is to
be incurred in near future and plan the strategies according to such activity.
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