Management Accounting: A Comprehensive Analysis of Burberry Group Plc

Desklib offers solved assignments and past papers to help students succeed.

MANAGEMENT ACCOUNTING

Table of Contents
Task 1...............................................................................................................................................3
Task 2...............................................................................................................................................9
References......................................................................................................................................17
Appendix........................................................................................................................................19
2

Task 1
Introduction
The internal information of a company needs to be maintained in a proper manner and the utility
of accounting management is that it allows the administrative department of a company to
manage the internal data. There are different methods used in management accounting that had
been applied in the administration in order to track the information as well as enhance the
profitability of the company (Kaplan and Atkinson, 2015). One of the significant importance of
management accounting is it regulates and utilise the available resources in an effective manner.
The profitability of the company is directly proportional to the availability and efficacy of
resources. The accounting reports are documented either on behalf of different department of the
organisation that leads to competent expenditure and curb the costing in all possible ways. This
report will specifically take into account Burberry Group Plc, in order to assess the significance
of the application of management accounting. The company is a British fashion luxury brand that
deals with various kinds of clothing and accessories. It was founded in 1863 by Thomas
Burberry. The headquarters is located in London, the UK and the current revenue generation of
this firm is £2732.8 million (Burberry Corporate Website., 2019). The outline will offer a
description of the application of management accounting in this context.
3

Part 1
A. Explain management accounting and give the essential requirements of different types
of management accounting systems.
Management accounting is referred to as a technique used for apprehending the in-house
financial data of a corporation. This involves a combination of different types of systems that
help in effective operation. Details of different systems will be provided below:
Cost Management
Cost management is a system that is incorporated within the business entity for the maintenance
of cost related aspects with the help of a number of systems. It can be found that the cost of all
the production process can be governed using this system and reduction of expenditure by
improving the profitability can be achieved (Henri et al., 2016).
Job Costing
The cost involved in different jobs involved in the production is considered in this system. The
usefulness of this system is it helps in gaining an understanding of the nature of job and types of
jobs that are considered in this context (Mu et al., 2017). In addition, it helps in minimising the
expenses incurred by the company.
Inventory management system
A number of systems are utilised for monitoring the inventory in a business that allows
management of the stocks thus, it can be stated that use of a proper system that manages the
inventory is important because it improves the efficiency level as well as effectively use the
resources by the stated system (Atieh et al., 2016). The two most preferred management systems
used in Burberry are Total Quality Management (TQM) and First in First out (FIFO).
Price Optimisation System
This system contributes to the understanding of the value of products or services in the market. It
also helps in assessing the attitudes as well as the willingness of customers to buy the commodity
(Škugor and Deur, 2015). Ultimately, it strengthens the economic position of the company by
reducing the cost factor.
B. Explain the different methods used for management accounting reporting
The different methods that are used in management accounting reporting are:
● Sales Report: In this type of report, the entire sales from various departments are
concentrated. The use of this report is to measure the performance level of various
products, resources and strategies of a firm (Ingram et al., 2015). Along with this, it helps
in the development of new strategies and improving the efficacy of the existing ones.
● Budget report: The budget report is considered important as it helps in comparison to the
performance of the company (Brusca and Montesinos, 2016). It is to limit the expenditure
levels and help in controlling the performance in various manners. The significant aspect
that needs to be taken into consideration is effective communication among the
departments that help in the development of this report.
● Performance report: In this report, articulation of performance of the different department
of a firm as well as performance appraisal of each employee is highlighted. The
usefulness of this aspect is for controlling various operations and activities. In addition to
this, the efficacy and motivation level of different resources are managed.
C. Evaluate the benefits of management accounting systems and their application within an
organisational context
4

Several advantages are being provided by management accounting to an organisation and thus,
both the capability and performance are developed using this way. The advantages of the
management accounting system are:
● Planning: It is essential for the purpose of planning the goals and objectives of the
company. This, in turn, helps in enhancing the transparency with the processes used
(Maas et al., 2016). Thus, a well-developed planning process helps in effective allocation
of all the resources in an effective manner as well as allow in the establishment of future
goals.
● Controlling: The utilisation and performance level of the resources can be measured and
controlled by this system, management accounting. It boosts the productivity of the
processes used within the company. Moreover, in case, it identifies unproductive
processes that are unnecessary in nature, those processes can be eliminated with the help
of controlling the performance.
● Organising: Organising various aspects of a company lead to the enhancement of the
productivity of different departments. Thus, alignment of the goals of all the departments
allow smooth functioning within the firm and helping it to effectively work to attain the
business objectives and goals (Peters et al., 2016).
● Decision-making: Tracking as well as monitoring of performance level is one of the
significant benefits in an organisation. This is because it allows an effective decision-
making process. Therefore, it supports taking various decisions in relation to the
reduction of expenses.
D. Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes
As per the statement of Oliver et al., (2016), both reporting and management accounting system
are linked to each other and thus, are found to have equal importance with the administration.
The aim of both the system is to boost productivity and increase the profitability of the company.
This is achieved by minimising the expenditure as well as effective allocation and utility of the
resources available within the company. This leads to profitability in all the processes adopted by
the firm with respect to the systems implied. The application of management accounting helps in
overseeing various internal processes and monitoring their operations. On the contrary to this,
Rieckhof et al., (2015) opined the applicability of cost management is in the aspects that help in
minimising the risk factors and implementation of various systems in the firm. However, the
challenges faced in this aspect are various costs and the complications applied in case of the
calculations. However, it can be seen that not all organisations can apply the system to leverage.
It can be stated that some of the systems are well-structured in nature and require more human
resources in integration and costing of the firm.
5

Part 2
There are a number of planning tools used in management accounting that help in demonstrating
the effectiveness of the company. In this regard, three major planning tools will be discussed that
will be supported by evidence. The three planning tools are:
Benchmarking
It is a method used where one of the performance criteria is considered as a standard and other
factors within the firm are set as per the standard. By application of this technique, help in setting
the standard in the performance level on the concern of the administration. The procedures that
are conducted in benchmarking are described in a sequential manner below:
● In the first step, the research in various areas where changes are required is assessed. In
order to set a goal, a specific area is targeted. In this step, the provision of planning and
allocation of resources are achieved.
● The resources, as well as financial data, required, are evaluated in the second step. The
evaluation is conducted based on the increase in growth and profitability and the
capability to bear the expenses required by the firm. This is an estimation phase where all
the requirements are determined (Bligaard et al., 2016).
● Various aspects and factors that are liable for affecting the profitability of the company
are analysed and unnecessary factors that may cause hindrance in achieving the goals are
eliminated in this process. The process of elimination is conducted by a method known as
internal data analysis that specifically identifies the low-quality products.
● This step involves the identification of opportunities. Different types of analysis such as
competitor analysis and external environment analysis have conducted that help in
understanding the scope within the market by utilisation of this method.
These steps are sequentially conducted in order to attain benchmarking in an organisation. This
supports the development of the performance as well as efficiency level. Moreover, it can be
stated that the technique is divided into a number of steps such as internal benchmarking,
functional benchmarking, competitive benchmarking and generic benchmarking that is applied
used on the need of the organisation.
Larkin et al., (2015) opined that most commonly used is internal benchmarking, where the
internal processes are similar to that of internal administrative aspect. This is applied in order to
assess the faults within the company followed by this, competitive benchmarking is applied. In
this phase, the competitor's analysis is conducted to understand and gain knowledge about the
competitors in the market. This help in identification of the opportunities presented in the current
market. The functional benchmarking is a similar process that allows enhancement of the
profitability in the organisational context.
Cash flow Budgeting
This method is used for management of two aspects, cash inflow and cash outflow. Th4e
budgeting process help in the determination of estimated cash flow within the company. The
technique is being conducted by the management by investigating the area of liquidity and
assuming the cash flow required by analysing and the previous year’s cash flow of the company.
The data from the previous year help in estimation of the upcoming cost required in the cash
flow of the firm. This is used for quantification of the entire cash inflow as well as outflow. It
helps in forecasting the uncertainties presented in the future. Thus, allowing enhancement of the
profitability in the market (Armstrong, 2015). The estimated budget prepared needs to be a real-
time expenditure which involves assessment at real-time scenarios. The three major activities
that need to be conducted while the preparation of the budget is:
6

● Operation
● Investment
● Financing
These activities help in the estimation of both cash inflow and outflow in an effective manner.
This supports in proper allocation of capital resources as well as human resources thus,
amplification of the liquidity and profitableness of this method.
Discounted cash flow analysis
The technique of discounted cash flow analysis involves a number of sub-methods. It is referred
to as a modern method in the accounting system and is considered as an investment appraisal
method. The four predominant methods included in this analysis are:
● Internal rate of return
● Net present value
● Profitability index
● Discounted Payback
The internal rate of return helps in evaluation of the enticement of projects undertaken by the
company. The comparison of the rate of return and cost of capital can be conducted by assessing
whether the return of the project is more than the investment. This help in understanding
profitability and appeal. This is a simple technique as compared to others (Li et al., 2017).
In the case of net present value, the return amount within the total lifecycle of the assets involved
in the analysis is taken into consideration. It is critical to consider the value of cash in the future
as it helps in the determination of the profitability rate and help in calculating the entire cash
flow. The method of profitability index helps in assessing whether to undertake or not any
particular project. Thus, it helps in choosing a project for the company by assessing the budget
allocation of the company. In this case, the rate of return cannot be estimated and it is unable to
estimate the sinking cost of the company.
The discounted payback is an updated method of previous payback method that helps in
assessing the time required to repay the credit and the return. This, it is useful in term of value
and time which assess to evaluated using this technique. This method considers the actual rate
involved. From the analysis of the above-mentioned planning tools, it can be stated that the
access and utilisation of these tools in accessing the position and profitability of the organisation.
The assessment before undertaking any projects is necessary for a company that allows it to
grow in the given market in an effective manner.
7

Conclusion
From this report, the importance of management accounting in a company in varied situations is
assessed. A detail description of costing methods have been described that allowed to
understanding the application of this system within a business operation. There are different
areas within a company that is being served by management accounting that involves different
systems and reporting process that have been highlighted. Moreover, the analysis described the
essentiality of this system and its proper application with the help of planning tools that enhance
the profit margin of the administration. The description helped in understanding the basic role
and functions of the management accounting system within the department using a range of
techniques.
8

Task 2
Part 1
Costing techniques
Cost is an integral part of any business operation without which, it is impossible to conduct its
business in an effective manner. Armitage et al., (2016) opined that costing is referred to as an
estimation or appropriation of the cost involved in the company. The aim of this process is to
limit the expenditure with the establishment to gain more profits. There are different kinds of
costs that are applied within the organisation and depend on the requirement and need of the
management. The major types of costing will be described:
Job order costing
In the method of the job order, the cost is found to be allotted after successful completion of the
individual job. There are a number of jobs connecting to each other and thus, the estimated cost
is different for each. The cost is variable in different types of organisations because there are
different types of jobs being conducted. All these jobs are combined in this particular costing
method. The advantage of this costing method is it helps in reducing the entire cost involved in
the production process.
Batch costing
The method of batch costing involves incorporation of cost as per the batches involved in the
manufacturing process. Ridderstråle (2017) opined that in a single batch, a number of jobs are
being combined together and thus, for each batch, the cost is being allocated individually. The
advantages of the method are it helps in improving the efficiency of the internal resources and
allow the combination of two processes, waste management of resources and money and quality
control system within the company. Thus, this is considered to have numerous costing based on
different batches and require less time as compared job order costing method.
Process Costing
The process costing is considered as a costing method where the cost is separately ascertained by
production purpose. It is used for tracing as well as gathering direct cost and allocates the
provision of indirect cost with the process. Thus, it is used for allocating the cost per unit of
production in different companies that are involved in producing huge quantities of similar
products. The benefits of this method are it helps in evaluating the scope and nature of all the
individual processes involved in the manufacturing processes and also supports in distinguishing
between different types of processes.
Methods of costing
As per the opinion of Christian (2018), costing is conformity that helps in calculating the cost
involved in a company. There are different types of costing methods commonly used. These
include marginal costing and absorption costing. These are critical methods that help in assessing
the end result that is profitability.
Marginal costing
The method used in marginal costing is useful for a business and thus, it involves variable costs
in a firm that is generally referred to as per unit cost involved in the manufacturing process. As
per the opinion of Labro (2019), in this calculation, the fixed cost is been written off. As referred
in simple cases, it is the charge applied within the entire cost for producing a single quantity of a
product and is incremented by one. Thus, it is the cost of producing another unit of the same
product. It helps in understanding the difference between the fixed and variable cost. It can be
stated that the variable cost is based on the sales and production policies used by the
administration.
9

Absorption costing
Absorption costing is a method that includes both fixed and variable costs as well as the total
cost as per the unit cost. It is considered to be more significant in nature for development in the
prospect of rising inventory. In this method, the overhead per unit is taken into account and is
calculated by dividing the entire fixed overhead by the units produced during the production. The
costs that are included in this case are direct cost such as the cost of material and indirect that
includes overhead costs involving the price of inventory.
The calculation below will help in the completion of the simple statement of profit and loss in
case of absorption and marginal costing principles for two months, May and June. The income
statement is given below:
Particulars
(Absorption)
Amount Amount
Revenue £
42,00,000.00
Less: Manufacturing
cost
Variable cost
Direct material cost £
1.38
Direct labour cost £
1.88
Variable
manufacturing
overhead
£
-
Fixed Factory £
1.50
Cost of goods
manufactured
£
4.75
£
19,00,000.00
Add: Opening Stock £
-
Cost of Goods
available for sale
£
19,00,000.00
Less: Closing stock 0 £
-
Cost of goods sold £
19,00,000.00
10

Add: Under absorption of
factory overheads
or
Less: Over absorption of
factory overhead
Cost of goods sold at
actual
Gross profit on sale
Less: Fixed selling and
administrative expense
£
-
Variable selling and
administrative expense
Total Non-
manufacturing cost
£
-
NET OPERATING
INCOME
£
23,00,000.00
Table 1: Income statement under absorption costing
(Source: Created by the learner)
Income statement under marginal costing as on 31st May
Particulars (Marginal) Amount Amount
Sales £
42,00,000.00
Less: Variable cost
Direct material £
1.38
Direct labour £
1.88
Variable overhead £
-
Cost of goods sold £
3.25
£
13,00,000.00
Contribution £
29,00,000.00
11

Less: Fixed manufacturing
overhead
£
1.50
£
6,00,000.00
Other fixed expenses £
15,000.00
Net profit £
22,85,000.00
Table 2: Income statement under marginal costing
(Source: Created by the learner)
Income statement under absorption costing as on 30th June
Particulars
(Absorption)
Amount Amount
Revenue £
37,80,000.00
Less: Manufacturing
cost
Variable cost
Direct material cost £
1.38
Direct labour cost £
1.88
Variable
manufacturing
overhead
£
-
Fixed Factory £
1.50
Cost of goods
manufactured
£
4.75
£
19,00,000.00
Add: Opening Stock £
-
Cost of Goods
available for sale
£
19,00,000.00
Less: Closing stock 40000 £
1,90,000.00
Cost of goods sold £
17,10,000.00
12