Management Accounting Report: Analysis of BAT's Business Structure

This report provides a comprehensive analysis of management accounting practices applicable to British American Tobacco (BAT). It begins with an introduction to management accounting and its importance, followed by a discussion of various tools such as budgetary control, standard costing, benchmarking, and cash flow analysis. The report then applies absorption and marginal costing techniques to BAT's products (B&H Strawberry and B&H Cherry) to determine selling prices and profitability. Findings highlight the need for improvements in BAT's costing system, including a switch to activity-based costing and the adoption of budgetary control and benchmarking techniques. The conclusion summarizes the key findings and recommendations for enhancing BAT's business structure through effective management accounting practices.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
1.0 Introduction................................................................................................................................2
2.0 Discussion..................................................................................................................................2
2.1 Importance of Management Accounting...............................................................................2
2.2 Range of Management Accounting Tools.............................................................................3
2.3 Application of Management Accounting Tool......................................................................4
2.4 Findings and Recommendations............................................................................................5
3.0 Conclusion.................................................................................................................................6
4.0 Reference...................................................................................................................................7

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1.0 Introduction
The main purpose of this assessment is to analyse the business structure of British
American Tobacco and identify the management accounting practices which can be beneficial
for the business. The management of the company is considering two of its products such as
B&H Strawberry and B&H Cherry and comparison between the costs and prices of the products
would be considered for the analysis (Maas, Schaltegger and Crutzen 2016). The assessment
would be focusing on the importance of management accounting tools which are applicable on
the business. The assessment would be assessing the importance of such tools in business and
recommend best alternative management tool available to the business.
2.0 Discussion
2.1 Importance of Management Accounting
Management accounting may be defined as the process of applying tools and formulating
management reports for the purpose of taking important management decisions of the business.
The management accounting tools can be used effectively for the purpose of taking major
decisions relating to the business (Contrafatto and Burns 2013). Management accounting is an
internal management tool which can be used for internal decision making and it is directly
responsible for improving the business structure. In the case of BAT, management accounting
tools can be used for the purpose improving the decision-making process of the business and also
improve the overall business structure. The importance of management accounting tools in the
business of BAT is be further explained in details below:
 Forecasting of Future: One of the key advantages of using management accounting tool
in the business of BAT is that it can help the management in forecasting the future more
effectively. The management can forecast revenues of the business effectively and
thereby as per the estimation plan for achieving the targets of the business.
 Decision Making Process: Some of the management accounting tool are used
extensively for the purpose of taking major decisions for the business. For instances,
budgeting is a tool which can be used by the management of company for setting targets
for revenue and costs and take major decisions accordingly.

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 Combating Competitive Pressure: Another importance of management accounting tool is
that the same is used by management of a company for combating competitive pressure
in the market (Agasisti and Johnes 2015). There are tools such as benchmarking, business
process reengineering which are used by the management of company to bring about
changes in the business and appropriately meet market rivalry. In the case of BAT, the
management of the company recognises that the competition in the market is immense so
management accounting tools are of utmost importance for the business.
 Allocation of Costs: The allocation of costs is an important consideration which the
management of BAT needs to consider as the same has direct impact on the selling price
and profitability of the products which is offered by the business. The management needs
to appropriately allocate the overhead costs for which it has the option of using either
marginal costing techniques or absorption costing techniques (Bromwich and Scapens
2016). These techniques are more often used in the business for the purpose of treating
the overhead costs of the business.
2.2 Range of Management Accounting Tools
There are a wide range of management accounting tools which are available to
management for improving the structure of the business effectively. The different types of tools
which are available to BAT are listed below in details:
 Budgetary Control: The management of the company needs to appropriately formulate
budgets which can be used for forecasting and planning of expenses and revenues which
are associated with the business (Lewis 2013). The management of the company can also
use budgets for the purpose of controlling the activities of the business and ensure that
the same are as per the goals and objectives of the business. Budgets are also a means for
ensuring effective communication is established between different departments. Standard Costing: Another important tool which is available to the management of the
company is standard costing which allows the management of the company to make
comparisons between actual results and budgeted results and identify the variance in
results (Griffith, Stephenson and Watson 2014). The standard costing is a tool which can
appropriate control the activities of the business and it is mainly used along with budgets
so that comparisons can be made effectively.

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 Benchmarking: This is another effective tool which is used by the management of the
company for making comparisons between their business structure and the business
structure of its competitors (Santini 2013). The management of BAT needs to consider
this tool as the level of competition in the market is immense and this can help the
management to effective formulate plans for combatting competition in the market. Cash Flow analysis: This is another very important tool which can significantly help in
the decision-making process of the business. The cash flow statement helps the
management to identify the cash inflows and outflows of the business and appropriately
take decisions regarding the cash flows of the business. The cash flow analysis is also
useful for taking liquidity decisions.
2.3 Application of Management Accounting Tool
Absorption Costing
Profit and Loss Statement under Absorbtion Costing
Particulars B&H Strawberry B&H Cherry
£ £
Material Costs 100000 220000
Labour Costs 110000 240000.0
Overhead cost
Set up costs 42000 63000
Inspection costs 47250 57750
Material Handling costs 28000 112000
Total Overhead cost 117250 232750
Total Cost 327250 692750
Add: Mark up 81812.5 173187.5
Total Selling price 409062.5 865937.5
Figure 1: Table shows computation of selling price under Absorption Costing
Source: (Created by Author)
Marginal Costing

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Profit and Loss Statement under Marginal Costing
Particulars B&H Strawberry B&H Cherry
£ £
Material Costs 100000 220000
Labour Costs 110000 240000
Overhead cost 175000 175000
Total Cost 385000 635000
Add: Mark up 96250 158750
Total Selling price 481250 793750
Figure 2: Table shows computation of selling price under Marginal Costing
Source: (Created by Author)
The above tables effectively show the application of management accounting tools in the
area of cost accounting for measuring the costs of the business. The above table shows the
treatment of overhead costs for the purpose of computing selling price of the products which are
considered in the analysis (Drury 2013). The products which are considered by the management
of BAT are B&H Strawberry and B&H Cherry. The costing techniques which are demonstrated
above shows that different selling price can be achieved using different management techniques.
2.4 Findings and Recommendations
The above results show that the management of the company can apply marginal costing
technique or absorption costing technique for the purpose of treating the overhead costs of the
business. The above table effectively shows that the under marginal costing the total costs for
B&H Strawberry is higher than the cost which is shown in absorption costing technique.
Whereas the total costs for B&H Cherry is shown to be lower in case of marginal costing and the
same is shown to be higher in case of absorption costing technique. In overall findings, it can be
established that the management needs to make changes to the costing techniques which are
followed by the business. The management of the company also needs to ensure that the costs
which are incurred by the business are maintained so that they do not reach a high level.
The recommendations which can be suggested to the management of BAT for further
improving the business structure of the business are listed below in details:

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 The management of the company needs to switch to activity based costing techniques so
that a proper costing structure of the business can be established.
 The management of BAT needs to adopt budgetary control techniques along with
standards costing so that proper control can be maintained over the activities of the
business. The management can also forecast and plan effectively for all activities of the
business using budgets.
 The management can also appropriately use benchmarking techniques for the purpose of
competing effectively with other businesses which are operating in the market. The
management can also appropriately manage the activities of the business and bring about
efficiency in the operations of the business.
3.0 Conclusion
The above discussion shows that the management of British American Tobacco needs to
implement management accounting tools for the purpose of improving the business structure.
The management needs to implement a better costing system so that the costing structure of the
business can be improved. The assessment also considers computations of marginal costing
techniques and absorption costings. The assessment suggests certain amendments which can be
brought about in the business in order to improve the business structure.

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4.0 Reference
Agasisti, T. and Johnes, G., 2015. Efficiency, costs, rankings and heterogeneity: the case of US
higher education. Studies in Higher Education, 40(1), pp.60-82.
Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years
on. Management Accounting Research, 31, pp.1-9.
Contrafatto, M. and Burns, J., 2013. Social and environmental accounting, organisational change
and management accounting: A processual view. Management Accounting Research, 24(4),
pp.349-365.
Drury, C., 2013. Costing: an introduction. Springer.
Griffith, A., Stephenson, P. and Watson, P., 2014. Management systems for construction.
Routledge.
Lewis, W.A., 2013. Overhead costs (Vol. 6). Routledge.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production, 136, pp.237-
248.
Santini, F., 2013. Strategic Management Accounting and financial performance in the small and
medium sized Italian manufacturing enterprises. Management Control.