Management Accounting Report: Jaguar Land Rover Case Study Analysis

This report provides an in-depth analysis of management accounting practices within Jaguar Land Rover (JLR), a prominent British multinational automotive company. It begins by defining management accounting and its significance in measuring, monitoring, and controlling business activities for internal stakeholders, emphasizing its role in strategic decision-making. The report then delves into the specific management accounting systems employed by JLR, including price optimization, cost accounting, job order costing, and inventory management, detailing their functions and benefits. It further examines management accounting reports such as budget reports, accounts receivable aging reports, cost management accounting reports, and performance reports, highlighting their utility in assessing financial performance and guiding operational strategies. The report also critically evaluates how these systems and reports contribute to JLR's overall success, emphasizing the importance of effective cost management, inventory control, and performance evaluation in achieving profitability and meeting business objectives. The analysis underscores the practical application of management accounting principles in a real-world business context, providing valuable insights into how JLR utilizes these tools to enhance its financial performance and strategic planning.

Management
Accounting

INTRODUCTION
Management accounting is a technique which is used by managers of different business
entities in order to measure, monitor, analyse, plan and control all the activities so that
sustainable success can be acquired (Hilton and Platt, 2013). With the help of it members in
management teams form strategies decisions for the purpose of accomplishing all the tasks on
time and reach to predetermined goals of business. It is mainly conducted for internal
stakeholders because it guides them to analyse performance of company and form strategic
decision for its betterment (Hopper and Bui, 2016). Main aim of this project is to develop
understanding of management accounting and its importance for success of business. The
enterprise which is selected for this report is Jaguar Land Rover. It is a British Multinational
entity in automotive sector. It was founded in year 2008 and its headquarter is in Whitley,
Coventry, UK.
This assignment covers various topics such as demonstration of management accounting
systems and methods of reporting, application of a range of it techniques for calculation of cost
and use of planning tools in budgetary control. It helps the manager to develop various strategy
in order to maximise profit margin. In addition, different types of budget will helps in
maintaining their activities and try to follow in proper way. Along with this, comparison of the
way in which organisations use it to respond financial problems is also covered under this
project.
ACTIVITY 1
PART 1
Management accounting system
Management accounting: It can be defined as the process which helps managers to
determine, analyse, monitor, assess and control performance of the company so that higher
profits could be generated in future (Laudon and Laudon, 2015). With the help of it, internal
stakeholders measure that company is performing well or not in order to form strategic decisions
for future period. In Jaguar Land Rover management accounting is conducted by managers on
regular basis so that actual status of business can be assessed. It also guides top level executives
to analyse that enterprise is able to generate targeted profits or not. Basically management
1

accounting used for the purpose of external analysis and it helps the stakeholders in their
decision making process regarding future investment.
Management accounting systems: Tools that are used to analyse actual status of the
company are known as management accounting systems. It guides internal stakeholders to
determine profitability of organisation which can help to enhance performance of whole
business. In Jaguar Land Rover, managers use them to keep a track record of each and every
activity of enterprise so that possibility of challenges which may take place in future can be
reduced. Different systems that are used by managers in Jaguar Land Rover are as follows:
Price optimisation system: This system is used by most of the companies to set
appropriate price for their products so that large number of customers could be attracted towards
the organisation (Lavia López and Hiebl, 2014). In Jaguar Land Rover it is used by top level
executives in order to meet the expectations of clients by setting best suitable prices for the cars
that are sold to them. With the help of it they also try to achieve the long term business
objectives such profit and sales maximisation. It is essentially required for the entity because it
can help managers to determine response of customers on different prices that are set by
company for its products.
Cost accounting system: This is the system which is used by the company to record the
amount which has been incurred in the process of manufacturing goods. With the help of it
managers can determine cost of each and every unit which is produced by their company. In
Jaguar Land Rover it is used by management in order to measure the cost which is related
different cars engineered by enterprise (Leitner, 2013). It also guides them to allocate funds to all
the departments according to their requirements. It is vital for managers of organisation to use
this system as it helps them to estimate actual cost of products and ability of business to generate
profits.
Job order costing system: All the business entities perform different activities and job
order costing system is used to record all of them. With the help of it tasks could be segregated
according their status. In Jaguar Land Rover it is used by managers to keep a track record of
different processes that are conducted according to specifications of different clients. It is very
important for the company because it can guide management to determine cost of each and every
job separately (Maas, Schaltegger and Crutzen, 2016). With the help of it, managers can analyse
2

profitability of all the activities and identify such jobs that are not profitable for organisation so
that higher profits could be generated in future.
Inventory management system: It is mainly used in manufacturing and engineering
companies because it helps managers to keep an eye on inventory which is used for business
operations. In Jaguar Land Rover, it is utilised by management to track their inventory and
determine that the organisation is having sufficient stock to conduct operational and executional
activities in appropriate manner. It guides managers to analyse that goods are in transit,
warehouse or delivered to clients. There are three different types of inventory management
systems which could be adopted by companies according to their choices. All of them are
discussed below in brief:
 FIFO (First in First out): In this method old inventory is used for the purpose of
manufacturing business units.
 LIFO (Last in First out): When recently bought stock is used for production activities
then it is known as LIFO.
 AVCO (Average cost method): In this method, inventory is used for production on
average basis.
From the above described methods managers in Jaguar Land Rover use FIFO method to
engineer different models of cars.
All the above described systems are used by managers of Jaguar Land Rover for different
purposes such as determination of performance, analysis of actual status of company etc. The
information which is gathered with the help of all this is used to formulate strategic decisions.
Management account report
Management accounting reporting: It is the process of recording all the financial
information for the internal stakeholders to opposed the external stakeholders (Modell, 2014).
Under this process manger develop different types of report which help the organization to
analyse the operational or functional activities and develop strategy in order to achieve business
goals & objectives. In the Jaguar land Rover, manager use different reporting method to analyse
internal performance of the business. With the help of this, management decide whether their
employees required improvement or not. Or if they required then, they have to develop effective
strategy and implement which enhance employees as well as organizational performance. There
are different types of management accounting report which is mentioned below:
3

Budget report: This report also called internal report which is used by the top
management to estimate the revenue or expenses of the organization. It also helps in measuring
performances of the operational functions. Management compare actual performance of the
business with projected one in the financial year (Nielsen, Mitchell and Nørreklit, 2015). In the
context of Jaguar land Rover, manager evaluate the performance or if it is lower than the
expected one then manager have to develop further strategy in order to achieve the goals &
objectives. If final outcomes are satisfactory then business try to maintain their performance or
improve for the efficient results. Manager of Jaguar land Rover produce budget on previous
financial information and then evaluate how realistic and accurate prediction they were done. It
also helps the manger to develop effective incentives policies through cost cutting in the various
activities.
Account receivable aging report: This report includes the invoices of unpaid customers
and it will be arranged as per the date. It can be used by those organizations which heavily deals
in the credit term, so they have to develop account receivable report because it is very difficult to
remind all the creditors (Plumb and et. al., 2017). With the help of this report, business easily
identify the defaulters who still not paid their invoices. In the Jaguar land Rover, organization
use this method of reporting to identify their creditors and total defaulters. It is beneficial for the
manager to maintain proper records because it further helps in developing tight credit policy
which will reduce the defaulters. Manager of Jaguar land Rover use this accounting report to
maintain their records which further helps in developing strategy and decision making process.
Cost management accounting report: This report includes the cost of each item which
is required for the production. It includes the cost of material, labour and other overheads which
required to estimate. Because with the help of this manager can develop further strategy in order
to reduce each unit cost of product. Lower the cost will increase the demand as well as
productivity which further helps in increasing profit margin of the company. In the Jaguar land
Rover, manager analyse all the activities and reduce non valuable activities which do not
generate any kind of profit (Senftlechner and Hiebl, 2015). So this report includes all the cost as
well as selling price of the product where manager analyse then develop strategy in order to gain
the profit. It will further increase the efficiency or effectiveness of the business. Jaguar land
Rover use cost accounting report which include different types of cost and then manager have to
4

complete all their operational activities according to this cost. If organization effectively follow
this cost report, then it will provide high efficiency as well as profitability.
Performance report: This report includes the performance of individual as well as
organization. Here performance will be evaluated on annual basis and it will help the
management to take their further decision in respect of the business. Manager analyse the
success of project and how they follow the budget in order to complete their task. With the help
of this report, manager develop various strategy and take decision for the future which help in
achieving their business goals & objectives. Along with this, it increases the chances of
incentives of individual which decided by the manager as per their performance (Soin and
Collier, 2013). This report provides the deep information because if employees outcomes is not
good then Jaguar land Rover have to conduct training program to enhance their efficiency which
required for the completion of task.
With the help of above mention reporting methods, manager of Jaguar land Rover
increases their organizational productivity or profit margin. It further helps in achieving business
goals & objectives.
Benefits and application of management accounting system in organisational context
There are various management accounting systems that are used by Jaguar Land Rover.
Benefit of all of them with applications are as follows:
Management accounting
system
Benefits and application
Price optimisation system In Jaguar Land Rover price optimisation system is used by
managers for the purpose of setting appropriate prices for
products so that expectations of clients can be met.
Cost accounting system Cost accounting system is used by managers of Jaguar Land
Rover for the purpose of analyse cost of engineering activities
of cars so that profit can be estimated (Stein, M. K. and et.al.,
2015).
Inventory management
system
In order to manage inventory and keep a track record of it
managers in Jaguar Land Rover use inventory management
system as it helps to conduct all the operational activities
5

appropriately.
Job order costing system In Jaguar Land Rover job order costing system is used by
managers as it is beneficial for keeping track record of all the
activities that are performed according to specifications of
clients.
Critical evaluate that how management accounting system and reporting interlinked with
organisational processes
When managers are adopting a management accounting system, they develop strategies
for easy integration of whole accounting system/process. Integrated accounts are used by
management for formulating management accounting and reporting of facts under it. Integration
of accounting provide all relevant information at one place making decision making easy.
PART 2
Calculation of cost using different cost accounting techniques
Marginal Costing Method- It is a method in which variable costs are charged to unit of
costs and fixed costs of that period are written off in full again aggregate contribution. This
technique only assumes variable costs as fixed costs (Turban, Volonino and Wood, 2015). The
main purpose of this technique is to control the cost of the company. This technique is presented
by outlining the total contribution. It is used to fix the selling price and selecting the best sales
mix. Jaguar Land Rover should use marginal costing method to calculate costs.
Absorption Costing Method- This method of calculating costs assumes both fixed and
variable costs as product costs. The basic aim of calculating costs by this method is to show forth
the accuracy and fair treatment of product costs. As it adopts practical approach, this technique is
more acceptable (Ward, 2012). This method is used for accumulating costs associated with a
production process and apportioning them to individual products (Heise, Crisan and Theuvsen,
2015).
ANNEX (A)
Income statement by marginal costing method:
6

7

Income statement by absorption costing method
8

Working notes:
9

10