Management Accounting Report: Financial Analysis for Marks & Spencer

This report delves into the core concepts of management accounting, examining its role in internal decision-making and financial analysis, with a focus on Marks and Spencer. It covers essential requirements of management accounting systems, including cost accounting, inventory management, job order costing, and price optimization. The report explores various methods used for management accounting reporting, such as performance reports, budget reports, and accounts receivable reports. It further analyzes cost calculation using different costing techniques and the preparation and interpretation of income statements, supported by marginal and absorption costing. The report also evaluates the advantages and disadvantages of planning tools used for budgetary control, and compares how organizations adapt management accounting systems to respond to financial problems, including the role of planning tools in solving financial issues. Overall, the report provides a comprehensive overview of management accounting principles and their practical application in a business environment.

Management Accounting

Table of Contents
INTRODUCTION
TASK 1
P1 Management accounting and essential requirements of its systems.......................... 1
P2 Different methods used for management accounting reporting................................ 4
M1 Importance of MAS ..................................................................................................4
D1 Integration between MAS and MA reports...............................................................4
TASK 2
P3 Calculation of cost using different costing techniques............................................. 5
M2 Techniques to prepare income statements................................................................6
D2 Interpretation of produced income statement..........................................................7
TASK 3
P4 Advantages and disadvantages of different planning tool used for budgetary control.. 10
TASK 4........................................................................................................................ 13
P5 Comparison of the way in which organisations are adapting management accounting
Systems........................................................................................................................ 15
M4 MA to respond financial problems.........................................................................16
D3 Role of planning tools to solve financial issues......................................................17
CONCLUSION
REFERENCES

INTRODUCTION
Management Accounting is the practice where different activities are perform like identifying,
observing, analysing, measuring, Communicating as well as interpreting. In this all the important
internal information related to finance are tends to be recorded so that suitable and effective
decision making can be done for the purpose to betterment of organisation. Different
management accounting tool give support to outside people such as Banks, , shareholders,
Underwriters, brokers, financial institutions, merchant bankers, debenture trustee, Qualified
institution buyers to analyse actual status of firm in terms to money. It tends to reflect financial
position of business entity. All the decisions regarding investment are taken by stakeholders on
the basis of market position of firm which leads to be evaluate on the basis financial
performance. Shareholders deploy their funds only if the company is financially sound. And
underwriters take underwriting only if they ensure that investment in specific firm is definitely
profitable. Management Accounting plays crucial role in every size of business. Organisation
which was chosen under this project is Marks and Spencer. It tends to deals in retailing industry.
The CEO of the company is Steve Rove. In the year 1884 it was founded in UK. The brand has
its headquarters in London. In the project various topics are discuss such as management
accounting meaning along with essential requirement of various different types of MA system,
methods used for management accounting reporting, through adopting suitable technique cost
analysis are tends to be done for the purpose to prepare income statement with support of
marginal costing as well as absorption costing. Discuss merits 7 demerits of planning tools
implemented for budgetary control. In last how company follow M A system in context to
respond existing financial issues are also discuss under the assignment (Tekathen, 2019)
PART 1
TASK 1
P.1 Explain the concept of management accounting and provide essential
requirement of various types of management accounting system?
Management Accounting: It is presentation of analysis of business activities to the internal
management to facilitate decision making. In this financial data are tends to be prepare as well as

provide important financial information to company’s managers. On the basis of these data
decisions are taken by them on time. Another name to M.A. is cost accounting because in this
different cost analysis are perform. As well as by taking important decision unnecessary
expenses or cost are tends to be eliminated. As equilibrium Assets management help Mark &
Spencer to conduct it all on continuous basis so employees of finance department do cost
calculation and measure business performance easily.
Management Accounting is the wider concept in which all the executives put their efforts
to improve performance of organization. It is a strategy where shareholders analyse the
actual status of the company and on the basis of that important decision making regarding
investment is taken. It is necessary for all business entities to concentrate on their
performance so that they can easily identify that they meet all defined objectives and
targets on time (Burritt, 2017)
Management Accounting system: To track all operational as well as financial records it is
commonly used. It is beneficial for outside people/ firms like Shareholders, QIB’s, merchant
banker, underwriters. M&S following this system in their supermarkets for the purpose to
analyse actuall status of company in terms to finance. Availability of funds can be check easily
with the help of it and helps to satisfy working capital needs. (Guffey, 2017)
Types of M.A.system
To run the business smoothly, various task are perform in systematic manner. For this effective
tool of management accounting system are followed. Some of their examples are explain in
below mentioned paragraphs:

Cost accounting system: this is very common to manufacturing industry because apportionment
of cost can be done easily and it helps to determine costing of each item. M& S use this system
to ascertain the product cost and bifurcate direct as well as indirect cost separately. Marks and
spencer separate the fixed, variable. Semi variable cost by using it and take initiative steps to
eliminate or reduce unnecessary expenses so that cost of items tends to become decrease. So
anyone can afford to purchase the product (Qian, 2018)
Essential Requirement: Every industry or manufacturing concern use this system in the
organisation because it helps to provide reliable information on the basis of which important
decision making step is tends to be taken. The cost information which is generated with the help
of this system helps the firm to set their product prices so that they can earn maximise profit.
Inventory management system: Marks & Spencer use following system to make control over
the stock that are available for their super market. Generally manufacturing concerns adopt this
method to maintain sufficient stock of their product so product are easily available to their
customers whenever they demanded. All the detailed information regarding inflow & outflow of
stock are easily get by implementing respective system in the organisation. For stock tracking
purpose it is followed by M & S. With the help of this appropriate number of orders are given
sob that stock available easily in their stores. It tends to maintain carrying and ordering cost
Essential Requirement: in every organisation it is important to maintain stock so that demands
of customer can be meet easily through offering the product on time and it become possible only
when inventory management system implemented in the organisation. Because it helps to get
updated the stock in the organisation.
Job order costing system: this process is commonly adopted in manufacturing concern as in this
system all the products are differ from each other because all the produced item has unique
features because it tends to be prepare as per customers specification. As the Job order may be
relates contract or t o single order. Although, engineering workshops, advertising firm, furniture
company, printing, foundries etc. this system is followed. Marks and Spencer use system for
price fixation purpose (Rickards, 2018)

Essential Requirement: As in this as per the demand of customer product/ goods are
manufacture so it is important to follow the respected system because details of specification can
be easily observe and according that manufacturing is done.
Prise optimisation system: this tends to be implemented by M&S, with the objective to set
prices of product in such manner so that to gain satisfaction at optimum level also it leads to add
value to the company. It tends to support to analyse such prices that fixed for their which offers
surety that whether clients expectations are satisfied or not (Hoang, 2019)
Essential Requirement: it is necessary to follow in the company because it helps to determine
the price which provide maximum revenue.
Various methods to management accounting reporting are explain in brief in below paras :
Performance report: It is prepare to maintain track record of organisation performance with
regards to overall operations activity. By analysing these reports decisions regarding bonus are
taken in the company M&S. Also proposed dividend are tends to be declared after analysis such
performance report and if reflects that company has sufficient amount to pay. With the help of
these reports only employees incentives are tends to be fixed or set. On the basis of their efforts
to achieve tasks which are allotted to them remuneration of workers are decided. It plays very
important role to develop effective strategies with the objective to raise the level of performance
and to gain competitive advantage (Osim, 2020)
Budget report: It is called as internal report that used by company to assign budget to different
Functional areas and to various units of operational department of business organisation. budget
report are used by Marks and spencers managers for the purpose to compare actual as well as
standard sending’s so they can easily measure their performance. It is most significant to the
business as it leads to support to execute all the business activities in allotted budget. With the
help of it, organisation can tends to be determine that, is they are capable to satisfy the
projections that set previously in advance (Dahal, 2018)

Account receivable report: In this detailed information of debtors are recorded who bought the
items without paying cash or amount and taken on credit. In include collection period
information such as date of credit purchase, name of party involved, their contact details such as
address and mobile no., their repayment date and amount are compulsorily be recorded. This
document tends to be prepare on daily basis and analyse on monthly basis. It helps to analyse
company’s credit worthiness. Mostly those organisation prepared such register / report who
provide credit facility to customers who are engaged with such company. It help entity to
determine total unpaid amount which is not paid on their by customers at the time purchase.
Therefore M&S (Bierma, 2017)
managers/ executives tighten their credit policies ,so that to avoid late payment situation
from customers
There are so many different management accounting systems as well as reports that are
integrated with organisational process. Debtors reports are used in the company to tighten credit
policies by observing total owed amount of various different clients/consumers (Greenwood,
2020)
P.2. Briefly describe different method used for management accounting reporting?
Different methods of management accounting reporting are described below in
detail:

Budget report: this is consider as internal report which are used by business entities to assign
budget to various different areas of Functional as well as to operational department of the
company. M&S managers use budget report to make comparison between actual and standard
spending’s so it become possible to measure their performance. As it is consider very important
for the organisation as it leads to support to execute all the business activities in allotted budget.
With the help of it, organisation can tends to be determine that, is they are capable to satisfy the
projections which was previously made (Vultur, 2018)
Performance report: This report are tends to be prepare with the intention to maintain track
record of performance of the organisation all the operations activity. To give bonus to staff
members of company it is most commonly adopted. With the help of these reports only
employees incentives are tends to be fixed or set. On the basis of their efforts to achieve tasks
which are allotted to them remuneration of workers are decided. This respective report is very
significant to the company as it tends to generate effective strategies for the purpose to increase
performance as well as to achieve competitive advantage (Godil, 2018)
Account receivable report: It tends to be create to maintain the detailed records of
debtors who purchase the product on credit. In this information regarding collection period along
with amounts and date are tends to be recorded. This helps to analyse the credit worthiness of
company.
It is commonly prepared by those organisations which are offering products on credit to their
end users and clients. It is very much beneficial to the organisation as it tends to helps business
entity to determine actual unpaid amount by customers, enterprise can tighten its credit policies
on the basis of these reports only so that late payment situation from customers can tends to be
ignored (Abernethy, 2018)

There are so many different management accounting systems as well as reports that are
integrated with organisational process. Accounting receivable reports are used to tighten credit
policies through observing total owed amount of various different customers.
M1 Importance of MAS.
System Name Benefits
Cost accounting system: It is an internal reporting system for an organisation own
management for decision making. It is more concern with short term planning and
reporting. It tends to be deal only with historical data but also has futuristic in approach.
It s main object is to emphasise on cost and it deals with collection, analysis, relevance,
interpretation and presentation for managerial decision making. In this system both
monetory and non monetary information is included.
Job costing system : It is costing system where all the cost are collected for particular job
activity that was perform by the company against specific order use this method of costing.
In this cost are defined separately. The primary importance of it is to bring together all the
cost incurred for completing a job. As job costing support managers to find out the work
which give maximise revenue / profit and also helps to analyse which project is not
profitable to them.. The system of job costing can be sub divided into two categories such
as factory job costing, contract costing. A variant of job costing system is batch costing in
which cost are accumulated for specific batches of product of a similar type ordered for
manufacture (Schaltegger, 2017)
Price optimization system.: It helps organisation to measure price elasticity and on the basis
of that outcomes of various pricing strategy to generate revenues are analyse. Price
optimisation is the process of finding that pricing sweet spot, or maximising price against
the customers willingness to pay. In ensures that their product will sell quickly at the right
price while still making a decent profit.
D1 Integration between MAS and MA reports.
Various systems are used in management accounting and in each of them reports
are prepared so that to analyse the business on the basis of cost and other managerial
activity. price optimization system is integrated with department of sales in term to raise

revenues of business. According to the reports analysis is become possible and after
performing it initiative action to make control over the system is become possible.
For example, their managers use specific reports for corrective action . like the finance
department is compliance with the accounts receivable report for analysis of credit facility
which was provided to clients and endusers. This link between company & accounting
systems helps to improve performance of business. (Lamberton, 2017)
TASK 2
P.3. calculate cost using most appropriate technique of cost analysis to prepare an
income statement with the help of using marginal as well as absorption costing?
Cost is the amount of resource given up in exchange for some goods or services . the resources
given up are money or money’s equivalent expressed in monetary units. As different cost must
be ascertained for different purposes and under different condition whereas the cost per unit is
sure to vary with in an increase in the volume of output and fixed expenses per unit of output
tends to be decrease (Jusoh, 2017)
There are various type of cost that are incurred in business as these are explaining as follows:
Indirect cost: As these are not directly allocated to cost centre and have to recover into cost
units are termed as indirect cost. Therefore all overhead cost is considered as indirect cost.
Direct cost: Direct cost are those which can be identified easily and indisputably
with a unit of operationor costing uinit or cost centre.

Variable cost: the variable cost is a cost that tends to vary in accordance with level of
activity with in the relevant range and with in a given period of time. An increase in the
volume means proportion increase in the total variable cost and decrease in volume will
decline the total variable cost.
Fixed cost: It remain constant in total regardness of change in volume.
Cost analysis: It involves an activity in which apportionment of cost is done. It is modified with
such term as fixed cost, sunk cost, prime cost etc. Due to bifurcation of cost it become easy to
analyse the cost.
Standard costing: It is a system of accounting where pre determined cost are used for analysis
of variance and control of entire organisation. It tends to be represent in the form of quantitative
as well as monetary terms.
Absorption costing: It is a principle where fixed as well as variable cost are allotted to cost
units. As per this system , fixed as well as variable cost are allotted to cost unit , as per this
system,, fixed as well as variable cost are allotted to cost unit and total overhead are
absorbed by actual and normal activity level. Since cost are ascertained after they have
been incurred. It is also called as historical costing.
Marginal costing:.It is the sum total of direct labour cost, direct material, variable expenses and
variable overhead,. The variable cost is the same as the variable cost.

M2 Techniques to prepare income statements.
Various techniques used to generate financial statements. The system they use to report
actually relies upon the companies. On the basis of absorption and marginal costing income
statements can tends to be prepare as different method use different cost due to this profit