Analysis of Management Accounting Practices at Kanes Food Ltd.

This report provides a comprehensive analysis of management accounting practices at Kanes Food Ltd., a British food manufacturing company. It begins by outlining the principles of management accounting and the role of management accounting systems in identifying, analyzing, and interpreting data for decision-making. The report then explores the application of various management accounting techniques, such as variable costing, inventory valuation, break-even analysis, and capital budgeting, to facilitate business growth. Furthermore, it evaluates the integration of management accounting within Kanes Food Ltd., highlighting its benefits, including improved coordination, cost allocation, and financial planning. The report also compares different planning tools, such as budgetary control, common costing tools, and strategic planning, to manage financial resources effectively. Finally, the report offers recommendations for enhancing management accounting practices to support business expansion and maximize profitability, including the use of economic order quantity and timely product delivery.

UNIT-5 MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Part 1................................................................................................................................................3
Principles of management accounting.........................................................................................3
Role of management accounting and MA systems......................................................................4
Use of management accounting techniques for business growth................................................5
Evaluation of integration of management accounting within Kanes Food ltd............................6
Benefits of the management accounting functions to the Kanes Food ltd..................................6
Recommendation.........................................................................................................................7
Part 2................................................................................................................................................7
Comparison of different of different planning tools....................................................................7
Advantage and disadvantage of planning tool used in management accounting........................8
Effectiveness of management accounting for solving and preventing financial problems.......10
Different ways by which management accounting responding to financial problem can lead
organization to sustainable success...........................................................................................11
Recommendation.......................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting (MA) is a way through which the company can prepare precise
report and records which provide them expected and budgeted data. This further help the
company in making decision for the sake of the internal and external stakeholders (Pelz, 2019).
So, in this context the report will discuss the different principles and management accounting
systems operate in the Kanes Food Ltd. Kanes Food Ltd. was a British privately held food
manufacture company having 1716 employees in the company. The company offers the food
item for the age type customers such as ready to eat salads, fresh stir fry vegetable, fresh noodles,
Sause, salad dressing etc. The report will also cover the benefits the company are enjoying with
the incorporation of management accounting systems in the organization. The report will also
evaluate the integration of management accounting within the organization along with the
income statement using variable costing. The report will also define the role of management
accounting and MA systems.
MAIN BODY
Part 1
Principles of management accounting
With the help of effective management accounting principles company can easily improve their
overall decision-making process. It helps the Kanes food ltd. in taking the long-term decisions
and also help in analysing their financial statement (Rikhardsson and Yigitbasioglu, 2018). The
principles include:
 Influence: Sound communication is one of the principles of MA which helps the
company in identifying the critical information regarding the business process and it
encourages integrated thought process.
 Relevance: It is significant for the company that they must prepare budgets and reports
on the basis of relevant information and resources. And thus, MA provides best and
materialistic information to company for making decisions. It includes past, present,
future dependent, internal, external, financial and non-financial information (Novas,
Alves and Sousa, 2017).

 Value: MA help the company in linking the business process to its core business model
with the help of which they can adopt new opportunities, concentrate on risk factors and
minimize their expenses. For this the company can involve situational analysis to review
organization decision.
 Credibility: This provides the responsibility and scrutiny of looking out the whole task to
the authorized personnel. Management accounting experts with their knowledge and
commitments help the company in decision-making and growing business to the next
level.
Role of management accounting and MA systems
MA systems plays crucial role for managers of the company in order to achieve the business
goals and objective by making appropriate and best decision. For making any decision the
company always need data and thus MAS helps the Kanes Food ltd. in taking decisions. This
includes:
 Identifying data: It helps the manager of the company in identifying the relevant data
from the financial statement of the company. MAS also crucial for identifying the
information from the external sources such as government policy, rules, tax rate regime
for the purpose of decision making.
 Analysing data: After identifying and collecting data, MAS analyse such data with the
help of tools of management accounting such as ratio analysis, variance analysis, break-
even analysis, cash flow & fund flow analysis, budgets etc.
 Interpretating data: With the help of such analysis the company can easily interpretate
the performance of the company. MAS helps the manager of the company in indicating
that whether the performance of the company are good or not (Novas, Alves and Sousa,
2017).
 Preparing performance report: For identifying the gaps if any arises between the actual
figures and the expected figures, MAS plays significant role by providing performance
report tool.
 Communicating information: After all the analysis and performance report preparation
such information related to the performance of the company and any gaps are get
communicated with the all the staff members of the company in order to improve them.

Use of management accounting techniques for business growth
Calculation of Income Statement under variable costing
Particulars Details Amounts (€)
Sales 70000Kg * 25 1750000
Less Variable cost:
Direct material 70000kg * 10 = 700000
Direct Labour wages 70000kg * 5 = 350000
Direct Variable manufacturing
cost
70000kg * 2 = 140000 (1190000)
Gross contribution 560000
Fixed manufacturing overheads (100000)
Fixed selling overheads (150000)
Net Profit 310000
 The income statements help the company in knowing the fixed and variables cost so that
they can manage their variable cost by reducing wastage of the resources.
 The inventory valuation helps the managers in using and allocation cost information for
the purpose of setting price of the product.
 Kanes Food ltd. can use break-even technique to know the no profit no loss sales point of
the company so that they can take steps towards improving sales. This can also be used
for collecting cash and controlling stocks of the company (Azudin and Mansor, 2018).
 Capital budgeting technique used for the purpose of selecting the best source for
acquiring the funds from the markets such as equity, debt etc. so that the company can
expand their business.
 Company can also use constraint analysis for identifying the inefficient production line in
the company and their impact on the company’s ability of generation sales revenue.
 Trend analysis and forecasting used by the company’s manager to identify the trend of
the product cost and helps in business growth and success.

Evaluation of integration of management accounting within Kanes Food ltd.
Management accounting helps the company in maintain the coordination among the
departments because for preparing the budgets gathering information from each department is
necessary. By using the activity-based costing the managers of Kanes food ltd. can allocate the
cost on the basis of the activity occur to produce food products. By this the unprofitable and low
performance activity can be identifiable as well as removable. Implication of management
accounting helps the company in planning the finances for the growth of the business. By capital
budgeting company can find out best sources of funds as well as with the help of investment
appraisal the company can investment the funds in high return proposals. With the help of
budgetary control, marginal costing and standard costing of the management accounting the
company can analyse the variance between the standard cost and actual cost (Ali and et.al.,
2019). After that they can also adopt proper strategy to remove the gaps if any arises. With the
help of cash flow and fund flow analysis the Kanes food company can identify the sources from
where the cash is coming and where is going from the business. Not only that MA incorporation
helps the company in preparing cash budgets with the help of which they can maintain minimum
cash balance. However, such integration may also bring clashes among the deparments and
employees if the company unable to communicate properly with them. So, it is important for the
company that before implementing MA they must minimize the communication gap if any and
keep motivated their staffs.
Benefits of the management accounting functions to the Kanes Food ltd.
MA helps the company in many ways which indicate that if company really wants to increase
their productivity and performance than they must adopt and implement MAS in the premises.
The benefits it provided to the company involve:
 With the help of forecasting the company can visualize and analyse the past and future
trends and identify the answers related to important questions such as whether company
should invest in equipment’s or not? etc.
 MA also helps the company in making the decision regarding whether to buy food
products from the supplier and sell it in the market or to make all the food products in the
organization only.
 It also helps the company in analysing the rate of return offer by the investment proposals
by using investment appraisal technique. With this the company can analyse all the

probability and expected returns and select the project with higher NPV (Doktoralina and
Apollo, 2019).
 It helps in overall decision-making process of the company and identifying the main area
led to business problems by using the variance analysis tool.
 The structure of the management accounting is flexible and shape itself as per the
requirements of the company. So, for Kanes Food manufacturing company shapes the
MA in the business so that they can produce high quality food products.
Recommendation
For expansion of the business and maximize the profits of the company the management
accounting is recommendable to the Kanes Food ltd. It is because the foods that the company
offer to their customers are fresh in which ready to eat salads are includes. So, this require that
company have to manage the stocks all time in the organization so that they produce food
products at any situation. To manage the stock the company is recommendable with the
economic order quantity tool of the cost accounting (Al-Khasawneh, Endut and Rashid, 2020).
By adopting this the company will not bear loss of ordering cost and holding cost of stock in the
warehouse. With this the company can also determine their products prices and also the demand
and supply of the fresh foods in the market. To attract more customers the company can also
deliver the products to their customers on time. It is also recommendable to the company because
they can prepare budgets to know the expected cost required to produce the fresh foods. By
preparing operating and capital budgets the company can analyse the gaps and also the reason
behind variance in order to overcome those differences even though it is expensive for company.
It also helps the company in achieving their goals and objectives after considering both internal
and external information and data’s.
Part 2
Comparison of different of different planning tools
The three different planning tools that the Kanes company can use in order to manage and stable
its financial resources are budgetary control, common costing tool and strategic planning tool.
With the help of this planning tools the company is able to understand and analyse their finance
management.

Budgetary control tool: This is a process of planning and controlling all the functions of the
business by preparing budgets such as Cash budget, Profit budget, Sales budget, Fixed and
Variable cost budget etc. After that it also compare and analyse the budgeted figures with the
actual one in order identify the actual performance of the company. It is one of the effective tools
which help the Kanes company in measuring the performance of each department, individuals
and also cost centres. In order to ensure financial stability, this tool help in improving the
coordination between the departments managers which further lead to cost reduction which every
company’s primary target (Azudin and Mansor, 2018).
Common costing tool: In order to manage its financial performance, the Kanes company need
to adopt the common costing tools such as standard costing, job costing, batch costing, process
and marginal costing etc. By using this tool, the company is able to identify the variance between
the actual data and budgeted data and also able to identify the point where company neither earn
profit nor incur loss. This also help the Kanes company in distributing the total cost between the
different process of the products so that the company can identify the process which cause loss to
the company.
Strategic Planning tool: Here, the Kanes company can use the SWOT, PESTLE and Porter’s
five forces tool to identify and ensure the operational and financial opportunities and challenge
available to the company. The strategic planning is important because it provides the direction to
the organization and also help them in making decision by analysing the internal and external
factors. It basically forces the managers of the company to think and rethink external risk which
might causes financial loss to the compan. Analysing the political and economic factors help the
company’s managers to identify resistance of changes and also to take remedial action wherever
necessary and appropriate.
Advantage and disadvantage of planning tool used in management accounting
Three planning tools include cash flow budgets, variance analysis and investment appraisal
techniques for removing the financial issues from the organization.
 Cash flow budget: In every organization cash is the most crucial part for operating the
day-to-day activities of the company (Eimani and Moin, 2017). Because cash is related to
the working capital of the company preparing monthly cash budgets help the company in

maintaining the minimum cash in the company for emergency case. The cash budgets
help the business in evaluating the future figures by analysing recent trends.
Advantage:
 For any future cash shortages, the cash budgets work as a advance strategy for the
company.
 With the help of this the company can distribute the resources among the department in
better way.
Disadvantage:
 The company might face accuracy problems because cash budgets is based on estimates
and does not show accurate data.
 In case of lack of coordination among the staffs this might create problems for the
company.
 Variance analysis: This planning tool helps the company in comparing the pre-budgeted
standards data with the actual outcomes. The company can use this for both for both
financial and non-financial aspects. By this the company can determine efficiency of the
business operations.
Advantages:
 The company can use this tool for eliminating the unnecessary cost and evaluating the
performance of each department.
 This also help the company in determining whether the gaps between actual and standard
are big or low.
Disadvantages:
 Detailed market research is required which require funds and become expensive for the
company.
 For using this tool, knowledge of financial items is required.
 Investment appraisal: By adopting this tool the company can easily make decision
regarding whether to invest the money of the company in order to get high returns. And
for that the company mainly use net present value method to select the best investment
plans and projects (Pavlatos and Kostakis, 2018).

Advantage:
 Through this the company can evaluate the suitable and profitable capital budgets for the
purpose of investing the saving of the company.
 One of the most important things is that this tool considers the time value of money by
converting the future flows into the present value.
Disadvantage:
 For this the company have to hire the personnel with advance knowledge of data analysis
skill.
 Other economic factor influences the result of the investment appraisal technique.
Effectiveness of management accounting for solving and preventing financial problems
Management accounting ways through which Kanes Food ltd. can prevent financial problems:
 By Establishing KPI which support business goals: With the help of management
accounting techniques such as budgetary targets and key performance indicators such as
benchmarking the company can not only identify the financial issues area but also resolve
them without any delay (Chouhan, Soral and Chandra, 2017).
 By Preparing report containing relevant data: By using the reports, the company can
identify social and environmental trends which affects the ability of the company in
building the value of the business.
 By Using investment appraisal techniques: Investment appraisal helps the company in
identifying whether to incorporate new plants for the purpose of production or not. As
their case, in which JDC corporate finance in the UK advise the Kanes Food ltd. to
acquire plant and machinery from the administrators of southern salads for providing the
fresh and ready to eat salad to their customers. They can easily supply fresh produce to
the large number of supermarkets even in the busy summer season (Liu and Wang, 2017).
 By describing impact of sustainability issues: It also helps the company in describing the
impact of the sustainability issues over the business performance and selecting what
campaigns they need to consider to resolve this issue.
 By applying MA tools and techniques: The company can incorporate natural resources
availability planning tool for avoiding the sustainability issues and contributing towards

the development of natural resources. These steps help the company in attracting more
and more customers and increasing their sales and profitability.
Different ways by which management accounting responding to financial problem can lead
organization to sustainable success
The different ways which help the company in sustainable success are as follow:
 The use of management accounting such as break-even analysis and standard costing
helps the Kanes company in developing the plan and taking the most effective decision.
For example: Sainsbury company uses the costing system to analyse their actual and
budgeted figures and also to identify their contribution & margin of safety percentage.
 It also helps the company in developing the effective financial governance and
formulating the sustainable goals and objectives for the business future operations.
 With the help of management accounting tool, the company are also able to identify the
issues which create lose to the company and affect their sustainability. For example, the
accounting scandal of the Tesco company in 2013 where the company’s burger contains
horse meat and the impact of which their customer base decreases (Azudin and Mansor,
2018).
 After analysing the sandal, the company uses appropriate strategy such as online
campaigns which reflect their quality of the product in order to correct and overcome the
challenges.
 In this way, the Kanes company can use the management accounting to solve the
financial problems.
Recommendation
The best method of management accounting that is recommendable to the Kanes Food ltd.
is inventory valuation and product pricing technique. For this the company must go with the
activity-based costing. It is because the company is a food manufacturing and deals in producing
offering fresh foods to the customers. For them maintenance of stocks all the time is necessary.
Not only that they also need to determine the cost they incur to produce single product. Because
such cost ascertainment further helps them in setting the standard and real price for their
products. With the help of FIFO, LIFO and AVCO method of inventory valuation, the company

can identify the value of stock sold or in hand (Simeon and John, 2018). As the company offers
fresh food products to the customers so it recommendable to the company that they must use first
in first out (FIFO) methods. It is because if the company make delay in sending the products than
their products get vanish or spoil. It also helps the company in maximizing the sales even at the
time of shortage of an item or also help in manage sales in every seasons. The company with the
help of inventory accounting can use seasonal sales trends to build promotion.
CONCLUSION
The report concludes the principle and role of management accounting systems in the
business along with the benefits of the management accounting to the company. The report also
concludes the income statement under variable costing and states how the company can use this
technique. The report also concludes the implication of management accounting in the Kanes
Food ltd. along with the inventory valuation and accounting for analysing and managing the
stocks in the warehouse of the company. The report also describes that if company really wants
to expand their business than they must adopt the investment appraisal technique of the
management accounting in the business.