Analysis of Management Accounting Systems and Techniques at Unicorn

This report provides a detailed analysis of management accounting systems and techniques used by Unicorn, a grocery business. It begins by defining management accounting and its importance for decision-making. The report then explores various management accounting systems, including job costing, cost accounting, inventory systems, and price optimization, evaluating their advantages and disadvantages. It further examines different methods for preparing management accounting reports, such as budget reports, job cost reports, accounts receivable aging, and inventory reports. A significant portion of the report focuses on calculating net profit using both absorption and marginal costing systems for Unicorn, providing detailed calculations for three years. Additionally, the report discusses the advantages and disadvantages of different planning tools used in budgetary control. Finally, it compares various ways in which Unicorn uses management accounting to address financial problems, offering insights into the company's financial strategies and performance. The report concludes with a summary of the key findings and recommendations.

Management Accounting

Table of Contents
INTRODUCTION ..................................................................................................3
P1 Discussing and evaluating various management accounting systems and its essential
requirements within Organization................................................................................................3
P2 Explaining different methods which can be used for preparing management accounting
reports..........................................................................................................................................5
P3 Calculation of net profit /(Loss) using absorption and marginal costing system for Unicorn
......................................................................................................................................................6
P4 Discussing various advantages and disadvantages of different types of planning tools which
can be used in budgetary control...............................................................................................12
P5 Comparing different ways in which Unicorn is using management accounting system for
dealing with the various financial problems..............................................................................13
CONCLUSION .....................................................................................................15
REFERENCES .....................................................................................................17

INTRODUCTION
Management accounting can be defined as process in which main aim is on preparing
different managerial reports that helps in short term decision making (Management Accounting,
2019). Currently, companies generally adopt the different MA tools and techniques which is
useful in company in taking profitable business decisions. The report is based on Unicorn which
is consists of groceries industry for providing wide variety of choice to customers. It covers the
different tools and techniques in calculation of net profit under marginal costing and absorption
costing. The report will be providing deeper insight about the requirements of various
management accounting tools used by Unicorn. It also depicts that how various managerial
report will be helping the company in developing different strategies and policy framework for
the near future. This also discuss the appropriateness of costing system which can be used for the
company in costing and profitability assessment. In addition to this, company can also analyse
that which planning tool will be helping Unicorn in taking better financial decisions for the
company. Further, it also entitles various Management Accounting techniques which will be
assisting company in responding various monetary problems effectively.
P1 Discussing and evaluating various MA systems and its essential requirements within
Organization
Management accounting is the method of identifying, measuring, analysing, interpretation
and communicating various information which helps the manager in preparing organizational
goals for the company (Bogsnes, 2016). With regards to Unicorn, management accounting is
highly important because it helps manager in taking profitable decisions for the company. By
using management accounting system business unit can manage their operations more effectively
and efficiently which helps in increasing profitability of company.
Job costing system
Job costing can be defined as the process where the calculation of different jobs is been
allocated in various departments of Unicorn. The job costing helps the manager in knowing
where the extra cost has been allocated and where are loopholes in the company in order to
control the cost of the company.
Advantages Disadvantages
 It helps in determining profits for the
company of each job;
 It needs more clerical work to
complete the job;

 It acts as basis for estimating cost of
similar jobs in Unicorn;
 The system provides detailed
assessment about material, labour and
overhead cost.
 There is lack of job standardization
under job costing method;
 It is highly expensive method over
others.
Cost accounting system
Every business in the industry produces and sells product and services with the aim to
generate high profit margin for the company. Under this method, it is beneficial for the company
in making assessment of cost per unit. Hence, by determining direct and indirect expenses related
to product in company cost per unit can be determined (Chenhall, 2015). Calculation of per unit
cost by dividing total cost from number of units produced in the company. Thus, by adding profit
margin in cost per unit, total price can be calculated by Unicorn.
Advantages Disadvantages
 The system helps in controlling
financial performance as the method
gives input for standard costing
 This system helps in Facilitating
ascertainment of unit production cost
 It helps in setting new prices of
products or services
 It is complex in nature and needs
professional employees for applying
cost accounting method in Unicorn;
 It is expensive and time intensive
method
Inventory system
With regards to Unicorn, management of inventory is highly required because it directly
impact on cost of the company. Thus, managing both cost and profit firm should focus on
undertaking various method of calculating inventory such as LIFO, FIFO, EOQ etc method.
However, economic order quantity method clearly presents units which needs to be maintained
within the company. This in turn helps in controlling on both holding as well as ordering and
which in turn increases profit margin.
Advantages Disadvantages
 It helps in Tracking various inventory  It takes a lot of time for determining

level in the company becomes easier
 It helps in cost control and maximizes
profit
profits in the company;
 It needs highly skilled professional
employees.
Price optimization system
In this world of competition, business unit can attain success only when it offers products
or services at suitable price where the company’s profit maximizes (Elliot, and et.al., 2018).
However, now consumers are looking for the retailer which offers products or services to the
consumers at affordable prices. Hence, by undertaking this system business unit can assess price
on which product needs to offered for influencing customer decision making and gaining
competitive edge.
Advantages Disadvantages
 It helps in setting pricing policies for
the company;
 It assists in building strong consumer
base for the company.
 It needs employee training for
operating such software;
 It is very expensive and time-
consuming process.
P2 Evaluating different methods which can be used for preparing management accounting
reports
As per MA, various methods are available for company which can be undertaken for
reporting and decision-making purpose. Thus, by taking into account various reports Unicorn can
assess departmental performance and thereby can take appropriate business decisions.
Budget report
This report helps manager to evaluate business performance in all departments and which
helps in control cost of firm (Kaplan, 2015). Budget report clearly presents variances take place
in the income and expense level of firm over the budgeted standards set by management of the
company. Thus, helps in considering the causes of deviations occurred in firm which can be set
by setting up suitable monetary budget for upcoming time period. Moreover, budget report also
helps Unicorn in measuring and evaluating employee’s performance and providing incentives.
Job cost report

It presents the different expenses which are associated within different project in business
units. Job cost report is used by the firm to calculate figure of revenue in against to estimation of
set budgeted cost for the firm. This report provides assistance in high performed areas so that
there is better presentation of efforts can be made. In this report, various expenditure is analysed
and evaluated.
Accounts receivable aging
In the business unit, accounts receivable ageing report is highly important which helps in
managing cash flow in the firm. It clearly exhibits time period for which credit is taken by the
consumers. For example, by undertaking this report, manager of Unicorn would become able to
attain consumers or creditors who are making payments within the specified time period
(Bromwich, and et.al., 2016). Thus, using this report manager can know problems which take
place in collection process of Unicorn. In this way, Accounts Aging report helps in identifying
consumers who are unable to pay their money on time. Considering all such aspects Unicorn can
tighten its credit policies and can also reduce the level of bad debts occurring in the company.
Inventory and manufacturing report
Unicorn can make manufacturing process more effective and efficient by using Inventory
and Manufacturing report. However, Inventory report contains information about physical stock
or products, wastage level, hourly labour or overhead cost per unit. Hence, different assembled
lines in business unit can be easily compared through the means of stock report (Tappura, and
et.al., 2015). This in turn helps in clear indication about best performing departments in Unicorn
and other areas which requires more improvement.
P3 Calculation of Income Statement using absorption and marginal costing system for Unicorn
Cost can be defined as the total cost used at the time of production of goods of Unicorn.
Cost can be classified in two parts i.e. Fixed costs and variable costs. Fixed costs remain the
same with the change in level of activity. Variable costs changes with the change in the level of
activity in company. Normal costing is the method of calculating which occurred actually in the
company at time of production of goods. Standard costing is the budgeted cost which is set by
the management in order to compare those costs with actual costs of Unicorn.
Marginal Costing and Absorption costing
Marginal costing is the method where only variable costs are taken into account at the
time of calculation of marginal cost per unit. Under this method, all the variable production and

variable selling expenses are deducted first for calculation of contribution. Actual net profit is
calculated after deducting all the fixed production and fixed selling expenses from the
contribution(Aleem, 2016).
Absorption costing refers to the process where all the fixed and variable expenses are
taken into account at the time calculation of absorption cost per unit. Calculation of gross profit
is done after deducting all the variable and fixed production expenses. Net profit is calculated by
deducting all the fixed and variable selling expenses from the Gross profit.
Calculation of marginal costing method
Under marginal costing
Particulars Cost per unit (£)
D. M. 12
D. L. 16
Variable Overheads 20
Marginal C.P.U. 48
S. P. 60
Less: -Marginal C. P. U. -48
Contribution per unit 12
Particulars
Working
Notes
Amount
(£) Year 1
Revenue (36000*70) 2520000
COGS:
Opening Stock 0
D. M. (40000*12) 480000
D. L. (40000*16) 640000
Variable Overheads (40000*20) 800000
Interest Expense 1000
Administrative O/ H 15000
1936000
Less: -Closing stock (4000*48) -192000

-1744000
Contribution 776000
Less: -Fixed costs -64000
Less: - Selling & Distribution expenses -10000
Actual Net profit/ (Net Loss) 702000
Particulars
Working
Notes
Amount
(£) Year 2
Revenue (40000*70) 2800000
COGS:
Opening inventory (4000*48) 192000
Material (48000*12) 576000
Labor (48000*16) 768000
Variable overheads (48000*20) 960000
Interest Expense 1250
Administrative O/ H 15000
2512250
Less: -Closing stock (12000*48) -576000
-1936250
Contribution 863750
Less: -Fixed costs -64000
Less: - S & D Costs -10500
Actual Net profit/ (Net Loss) 789250
Particulars
Working
Notes
Amount
(£) Year 3
Sales (60000*70) 4200000
COGS:
Opening Stock (12000*48) 576000

D. M. (51000*12) 612000
D. W. (51000*16) 816000
Variable overhead (51000*20) 1020000
Interest Expense 1500
Administrative O/ H 15000
3040500
Less: -Closing inventory (3000*48) -144000
-2896500
Contribution 1303500
Less: -Fixed costs -64000
Less: - S & D expenses -11000
Actual Net profit/ (Net Loss) 1228500
Calculation of Absorption costing method
Under Absorption costing
Particulars Cost per unit (£) for year 1
D. M. 12
D. l. 16
Variable Overhead 20
Fixed Overhead 1.6
Absorption cost per unit 49.6
Particulars Working Notes
Amount
(£) Year 1
Revenue (36000*70) 2520000
Cost of sales:

Opening stock 0
Direct Material (40000*12) 480000
Direct wages (40000*16) 640000
Variable o/h (40000*20) 800000
Fixed costs 64000
Interest Expense 1000
Administrative O/ H 15000
2000000
Less: -Closing inventory (4000*49.6) -198400
-1801600
Gross Profit 718400
Less: - S & D expenses -10000
Actual Net profit/ (Net Loss) 708400
Particulars Cost per unit (£) for year 2
D. M. 12
D. W. 16
Variable Overhead 20
Fixed Overhead 1.33333
Absorption cost per unit 49.3333
Particulars Working Notes
Amount
(£) Year 2
Revenue (40000*70) 2800000
COGS:
Opening inventory (4000*49.6) 198400
D. M. (48000*12) 576000
D. L. (48000*16) 768000
Variable o/h (48000*20) 960000

Fixed costs 64000
Interest Expense 1250
Administrative O/ H 15000
2582650
Less: -Closing inventory (12000*49.33) -591960
-1990690
Gross Profit 809310
Less: - S & D Expenses -10500
Actual Net profit/ (Net Loss) 798810
Particulars
per unit cost (£) for
year 3
D. M. 12
D. L. 16
Variable Overhead 20
Fixed costs 1.2549
Absorption cost per unit 49.2549
Particulars Working Notes
Amount
(£) Year 3
Revenue (60000*70) 4200000
Cost of sales:
Opening stock (12000*49.33) 591960
Direct Material (51000*12) 612000
Direct Labor (51000*16) 816000
Variable o/h (51000*20) 1020000
Fixed costs 64000
Interest Expense 1500

Administrative O/ H 15000
3120460
Less: -Closing inventory (3000*49.25) -147750
-2972710
Gross Profit 1227290
Less: - S & D expenses -11000
Actual Net profit/ (Net Loss) 1216290
Unicorn can present the net profit of company under Absorption costing method. It is
because of the method is showing higher profits than Marginal costing method. In year 1 and
year 2 company is having higher profits under Absorption costing as compared to Marginal
costing method because of calculation of fixed costs per unit. Absorption costing uses fixed costs
per unit for the calculation of absorption cost per unit. Closing inventory is calculated on
absorption cost per unit whereas marginal cost per unit is calculation takes total fixed costs. This
is the major difference between both the methods because of which Absorption costing are
showing better profits as compared to net profits under marginal costing. Thus, Unicorn should
select Absorption costing method in order to present the better Income Statement for the
company.
P4 Discussing various advantages and disadvantages of different types of planning tools which
can be used in budgetary control
Budgetary control helps in controlling the different costs present in the company. It sets up
the standard budgets for the company in order to compare the actual budgets with standard
budget of the company (Van der Stede, 2015). It helps in finding out various deviations and take
corrective measures in order to solve the problem. There are various planning tools for budgetary
control: -
Zero Based Budgeting-
Zero based budgeting starts from ‘Zero- Base’. In this type of budgeting, company’s
manager has to justify each and every expense in the various department in order to know
reasons for allocation of expense in various department.
Advantages Disadvantages