Management Accounting: An Analysis of Bakkavor Group

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Management Accounting
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Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................4
Part 1............................................................................................................................................4
Part 2............................................................................................................................................6
Task 2...............................................................................................................................................8
Part 1............................................................................................................................................8
Part 2..........................................................................................................................................10
Conclusion.....................................................................................................................................15
Reference list.................................................................................................................................16
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Introduction
Because of the enlarging volume and sort of complexities in enterprises’ contexts, managerial
accounting, widely known to be management accounting, is now one of the crucial or vital
aspects for all enterprises. The study has been prepared while being appointed as the Junior
Management Accountant for the Bakkavor Group, a food manufacturer from UK. In this study,
one can assess the implication of managerial accounting within entrepreneurial contexts through
considering what it means, what its most effectual needs are, what are the differing kinds of
systems of managerial accounting along with its reporting principles, their benefits and
implementing management accounting reports and systems within firms. It would also conduct a
detailed evaluation of the planning tools and costing principles extended from the field of
managerial accounting to organisational contexts while practically showing how they can be put
to use within organisations.
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Task 1
Introduction
The Bakkavor Group is a global food manufacturing enterprise based in London (Bakkavor.com,
2019). This report has been created for the conveying of the techniques and systems associated to
managerial accounting present in this organisation. It will also discuss planning tools necessary
for the enterprise’s improved financial performance and stability.
Part 1
A. Explain management accounting and give the essential requirements of different types
of management accounting systems.
Management accounting, depending on its uses and role, can be defined as the profession that is
concerned with collaborating into making decisions, devising an enterprise’s planning while
enhancing the performance management systems that it has along with providing expertise in
terms of financial report development and performing various control functions (Malmi, 2016). It
plays its functions via the means of developing management reports while providing timely and
appropriate statistical as well as financial information so that all the long and short-term
decisions of an enterprise are optimised and appropriately taken. Primarily, there are four
essential systems that management accounting possesses (Otley, 2016). Each of these systems
hold considerable significance and serve as essential requirements or necessity for enterprises in
the ways discussed underneath -
 Cost accounting system - In various instances called the product costing system, the cost
accounting system is the framework that organisations use for the estimation of the costs
it has been spending over its product manufacturing while considering the profitability
earned from it (Kokubu and Kitada, 2015). Necessity of the system in Bakkavor Group is
for ascertainment of its cost control and maintenance of a proper cost structure.
 Job costing system - Systems that managerial accounting extend for the assignment and
the accumulation of costs of manufacturing in an enterprise while keeping a detailed
track how and where costs are being spent for executing jobs is known as the job costing
system (Schonsleben, 2016). Necessity of the system in Bakkavor Group is for
understanding which of its jobs is profit earning and which of them are loss generating.
 Price optimising system - Management accounting’s system wherein a detailed
mathematical analysis is conducted in an enterprise for the determine how its customers
would be responding towards its varying prices associated with goods and services via
differing channels along with setting prices of its goods and services is the price
optimising system (Nagle et al., 2016). Necessity of the system in Bakkavor Group is to
ideal prices so that customers are satisfied.
 Inventory management system - Another specialised extended from management
accounting that acts advantageous for the tracking of levels of an enterprise’s inventories,
their orders, their sales as well as the delivery of the orders is called inventory
management system (Sayed et al., 2018). Necessity of the system in Bakkavor Group
includes creation of proper work orders; accurate billing of its inventory inputs and
orders while tracking in and out movements of each of them.
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B. Explain different methods used for management accounting reporting.
Developing and creating reports is one of the most effectual as well as significant aspects in
managerial accounting (Appelbaum et al., 2017). There is a great benefit of using managerial
accounting for reporting purposes. In the following points, the methods that the Bakkavor Group
uses in order to create or develop its reports via managerial accounting have been evaluated -
 Variance report - A specific reporting principle within managerial accounting utilising
which enterprises can be summarising and summing up the variances in its financial
performance from diverse aspects such as the variances in its level of sales, the variances
in its production costs and such other aspects is the variance report (Fuller et al., 2016).
These variances are derived with the assistance of contrasting budgetary results with the
actual ones. Bakkavor Group can enhance its effectiveness related to identifying
variances while taking steps to eradicate them through this report.
 Departmental report - Specialised reports are also created into enterprises so that the
performances that an enterprise’s departments show can be compared to that of its goals
while their effectiveness can be analysed. Such reports are called departmental reports
(Gstaettner et al., 2019). In the context of Bakkavor Group, departmental reports are
going to be great benefits for the analysis of the enterprise’s desired or allocated targets
while finding out how effectually or ineffectually they have been performing over a span
of time.
 Accounts receivable aging report - Aging debtors are of the most common problems that
every enterprise has to be facing in the current scenario. The reporting system that takes
in record and summarises aging debtors in an enterprise while ensuring that their
respective invoices, their due dates, and such other details are entered within the report is
known as accounts receivables aging report (Officer, 2016). Bakkavor Group, with the
means of this report, can identify the causes of its delayed payments, its decreasing
liquidity while making all essential decisions to remove them from the enterprise.
 Investment appraisal report - Specialised reports, which are created through the means
of managerial accounting, wherein details regarding an enterprise’s investments are
recorded while each of their viabilities or feasibilities and the returns they can be
generating for it are included, are called investment appraisal report (Venables, 2017). In
the context of Bakkavor Group, investment appraisal reports play the role of ensuring that
proper decisions are taken within it when it comes to accepting investments or rejecting
them based on their feasibility and chances of returning invested sums.
C. Evaluate the benefits of management accounting systems and their application within an
organisational context.
Applying systems that managerial accounting provides is of great significance to enterprises
(Horngren et al., 2013). For example, when these systems are applied in Bakkavor Group, the
following benefits are enjoyed by it -
 Quantifying costs become easier when cost accounting system is used (Biondi et al.,
2017). Bakkavor Group, via this system, is able to ensure that all the essential measures
are taken so that costs spent within it could be minimised largely, whereas its profitability
can be enlarged to the highest possible extent.
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 Optimising profitable jobs while removing the non-profit generating ones become easier
due to the job costing system (Maskell et al., 2016). Bakkavor Group, via this system, is
enabled to be acting as a gauge for the derivation of profitability of its jobs while helping
it deciding whether jobs must be taken up in the future periods or not.
 Applying the inventory management system enables enterprises in keeping a detailed
track and note of stock in trade of an enterprise (Hoffman et al., 2016). Bakkavor Group,
via this system, can be accomplishing productivity as well as efficacy in its operations
while surviving during fluctuation of demands related to inventory, aiding in reduction of
chances of incurring loss, while eliminating chances of inventory loss because of
pilferage.
 Optimised and attractive prices can be developed and set by price optimising system
whenever it is applied (Ceraolo et al., 2016). Bakkavor Group, via this system, can be
achieving a superior customer base while ascertaining that each of them is satisfied with
the prices that the enterprise charges against its products.
D. Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes.
It is not only the departments or segments of an enterprise wherein management accounting’s
reports or systems could be implemented, but also the processes of the enterprise where they can
be implemented (Chenhall and Moers, 2015). This is because these systems integrated into
organisational contexts act as one of the most effectual modes for organisational process
performance and their effectiveness. For example, Bakkavor Group’s production process can be
integrated with not only cost accounting system but also the inventory management system and
variance reports and departmental reports. This is because the cost accounting system would be
providing inputs to the enterprise in terms of costs of production with which it can take all the
needed steps for lowering of the costs of manufacturing. Conversely, inputs from the inventory
management system are going to be assisting it in terms of understanding the stock it has in hand
and the volume it needs producing. While variance reports will help it in making its production
properly so that unfavourable cost and profit variances can be eradicated, departmental reports
will help in understanding which of the departments is affecting negatively on the production
process.
The process within the Bakkavor Group with which it takes its decisions can also be optimised
with the assistance of both management accounting’s systems and its reports. While job costing
system can be integrated into it for providing inputs for taking decisions on job optimisation,
unprofitable job eradication and such areas, reports such as the investment appraisal and the
accounts receivable aging integrated into the process are going to be beneficial for decision-
making on making investments and amending credit policy. Therefore, in such a manner, there
are differing processes in differing enterprises and all these could be optimised through
integrating management accounting’s reports and systems.
Part 2
Analyse three planning tools (such as benchmarking, activity based costing, cash flow
budgeting, discounted cash flow methods, breakeven analysis) used in management
accounting, indicating how effective you judge each to be and why.
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There is a range of planning tools, which are used inside enterprises, all of which are provided or
extended from managerial accounting (Weygandt et al., 2018). However, the type of aid that
these tools extend to enterprises is dissimilar from that of one another. In the section below, a
detailed evaluation has been conducted on how effectual the planning tools extended from
management accounting are and what are their individual pros and cons -
 Benchmarking - One can define benchmarking as the procedure utilised for the
measurement of the performance that an enterprise’s goods, services or processes have
against that of another enterprise for being the best or finest within the industry (Duan et
al., 2016). It acts as the biggest aid for the identification and verification of internal
opportunities underlying in enterprises for improvement. The effectiveness or advantage
of the use of benchmarking lies in terms of the manner in which it acts as an aid for
bringing about improvements in the quality of an enterprise’s products while planning on
how labour costs incurred within it can be reduced. It also helps in planning how profits
and sales of an enterprise along with its departmental performances can be facing
improvements (Altenhoff et al., 2016). However, its con is that the comparison done in it
can be inappropriate in nature since the goals, objectives, policies and other aspects of
one company differs from another, thereby making their contrast ineffectual by nature.
 Activity based costing - It is a tool based on which enterprises are enabled to assign the
overhead expenses it incurs for manufacturing its products in a more logical way through
identification of the cost units, products or the departments that lead to the generation of
these overhead expenses during the procedure of production (Gurcanli et al., 2015). The
merit or effectiveness of this tool include the increasing reliability of enterprises in the
planning of its product costs in an accurate manner while providing information
associated with behaviour of costs while making better decisions on cost planning and
management. However, its cons include its complexity as well as expensiveness along
with the difficulties of implementing within enterprises (Kaplan and Atkinson, 2015).
 Breakeven analysis - According to Calabro (2017), one can be defining the BEP
(Breakeven point) as the level of an enterprise’s activities at which it neither makes a
profit nor does it face losses. In the breakeven analysis, fixed costs as well as variable
expenses are contrasted with an enterprise’s sales revenues for the derivation of the sales
level, the sales worth or the production at which the enterprise’s costs equal its earnings.
The effectiveness of this tool lies in terms of the measurement of an enterprise’s gains
and losses at various production and sales levels, along with analysing relations between
variable and fixed expenses, predicting the consequences of changes within its sales
prices while planning its target profit and the desired sales volume to earn profit
(Batkovskiy et al., 2017). However, it is limited in certain aspects because it is dependent
over assumptions that sales and production are equal while selling prices are unchanged
(Kampf et al., 2016).
All these planning tools can be integrated into the Bakkavor Group, as each of them would be
facilitating the enterprise in the enhancement of its planning activities, be it planning for its costs
or planning for the products of the enterprise.
Conclusion
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Thus, one can conclude from this report’s findings that both managerial accounting reports and
systems are significant to all enterprises while gaining an understanding on three major planning
tools provided by managerial accounting.
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Task 2
Part 1
Complete a simple statement of profit or loss, under absorption and marginal costing
principles for the months of May and June
Application of the principle of absorption costing -
The principle of absorption costing, which is often referred to as either full costing method or
absorption costs method, refers to a cost principle in managerial accounting wherein all costs
related to a company’s specific product manufacturing are expensed and considers anything and
everything spent for production expect for the ones that have been spent on non-production
purposes (Christian, 2018).
The following are the workings based on which the absorption costing principle has been applied
for profit and loss statement development in Eymen Ltd -
Net costs spent on manufacturing purposes = (£ 550000 + £ 750000 + £ 600000) = £ 1900000
Total volume of goods manufactured = 400000 units
Consequently, per unit cost of manufacturing = £ 1900000 / 400000 units = £ 4.75 for every unit
Thus, closing stock valuation = £ 4.75 for every unit
In Eymen Ltd’s books
“Statement of profit and loss”
For the months of May and June
Based on absorption costing principles
May June
Amount Amount Amount Amount
Total amount of sales (@
£10.50 for every unit)
£ 4,200,000.00 £ 3,780,000.00
Less: Cost of goods sold
(total costs)
Beginning stock in trade £ - £ -
Expenses on
manufacturing
Materials (direct) £ 550,000.00 £ 550,000.00
Labour (direct) £ 750,000.00 £ 750,000.00
Fixed overhead cost £ 600,000.00 £ 600,000.00
Total costs related to
manufacturing (£ 550000
+ £ 750000 + £ 600000)
£ 1,900,000.00 £ 1,900,000.00
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Less: Closing stock in
trade (40000 units * £
4.75 per unit)
Nil £
190,000.00
Net cost of sales £ 1,900,000.00 £ 1,710,000.00
Net profit / Net gain £ 2,300,000.00 £ 2,070,000.00
Table 1: Eymen Ltd’s profit and loss statement through application of absorption costing
principles
(Source: Created by the learner)
Application of the principle of marginal costing -
Marginal costing is largely different from absorption costing. In the words of Brierley (2017),
marginal costing, more popular as the variable costing method, is another cost measurement
principle that managerial accounting extends to enterprises wherein only the variable expenses
are charged to the units of costs whereas the fixed expenses for the period are totally written off
against contribution. It accounts for the fixed expenses as periodical costs or expenses, all of
which are deducted from the total revenues that an enterprise earns.
The following are the workings based on which the marginal costing principle has been applied
for profit and loss statement development in Eymen Ltd -
Net costs spent on manufacturing purposes = (£ 550000 + £ 750000) = £ 1300000
Total volume of goods manufactured = 400000 units
Consequently, per unit cost of manufacturing = £ 1300000 / 400000 units = £ 3.25 for every unit
Thus, closing stock valuation = £ 3.25 for every unit
In Eymen Ltd’s books
“Statement of profit and loss”
For the months of May and June
Based on marginal costing principles
May June
Amount Amount Amount Amount
Total amount of sales
(@ £10.50 for every
unit)
£ 4,200,000.00 £ 3,780,000.00
Less: Cost of goods
sold (variable costs)
Beginning stock in
trade
£ - £ -
Expenses on
manufacturing
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Materials (direct) £ 550,000.00 £ 550,000.00
Labour (direct) £ 750,000.00 £ 750,000.00
Total costs related to
manufacturing (£
550000 + £750000)
£ 1,300,000.00 £ 1,300,000.00
Closing stock (40000
units * £3.25)
£ - £ 130,000.00
Marginal cost of sales £ 1,300,000.00 £ 1,170,000.00
Contribution margin £ 2,900,000.00 £ 2,610,000.00
Less: Periodical cost
Fixed overhead cost £ 600,000.00 £ 600,000.00
Net profit / Net gain £ 2,300,000.00 £ 2,010,000.00
Table 2: Eymen Ltd’s profit and loss statement through application of marginal costing
principles
(Source: Created by the learner)
Part 2
Write a business memo to the management of the organisation to communicate the results
of your financial analysis and recommendations.
MEMO
Date:
To:
From:
Subject: Conveying the results found from Unilever Plc’s financial analysis while providing
recommendations on further improvements
One of the most famous transactional consumer goods enterprises throughout the world is
Unilever Plc. Dually listed, this British-Dutch enterprise is headquartered in both Rotterdam in
Netherlands and London, UK with an average of 155000 workers and a wide range of product
portfolio comprising of personal care, beauty, food, cleaning and refreshment products and
presence in 190 countries (Unilever.com, 2019).
However, financial analysis is a significant aspect to be considered for Unilever Plc as well, as
the financial conditions and performance of enterprises can be derived only from financial
analysis. According to Easton and Sommers (2018), financial or accounting ratios could be
referred to as the results computed from the utilisation of numerical values obtained from an
enterprise’s financial statements through which the financial health as well as efficacy of
enterprises can be evaluated. In the section below, financial analysis has been executed in detail
in the context of Unilever Plc through applying accounting or financial ratios.
Accounting ratios 2014 2015 2016 2017 2018
1. Profitability ratios -
Net profit ratio (%) 11.38616 9.871978 10.52302 12.07484 19.23816
Operating profit ratio (%) 16.47535 14.10685 14.79901 16.48888 24.58711
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2. Efficiency ratios -
Total asset turnover ratio (times) 0.114831 0.100558 0.098301 0.107589 0.164962
Inventory turnover (times) 9.706334 10.55525 10.49836 11.32206 8.939084
3. Liquidity ratios -
Quick or acid test ratio 0.662428 2.395874 2.537021 0.561807 0.565446
Current ratio 1.0 2.612418 2.745135 0.732752 0.782976
4. Solvency ratios -
Debt ratio 0.703021 0.692493 0.699091 0.376893 0.46071
Debt Equity ratio 2.367244 2.251959 2.323263 1.579273 2.228441
5. Investment ratios -
Price Earnings ratio 21.27473 25.04046 1799.18 1909.954 1178.571
EPS (pence) 1.82 1.73 1.83 2.16 3.5
Table 3: Accounting ratios of Unilever Plc during the last five years
(Source: Unilever.com, 2019)
The presentation of the table in the above section shows the accounting ratios of Unilever Plc
throughout the past five years as obtained from its recent financial statements. Based on these
accounting ratios, the following financial analysis has been conducted on Unilever Plc along
with recommending on its results -
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