John Lewis Management Accounting: Financial Analysis and Risk Report

This report delves into the core principles of management accounting, emphasizing its significance in modern business operations. It explores various accounting systems, highlighting their role in organizing and analyzing financial transactions. The report provides a detailed examination of different accounting reports, including operational budgets, accounts receivable, and inventory management reports, and their impact on decision-making. Furthermore, it offers a comparative analysis of absorption and marginal costing techniques, illustrating their application in profit calculation. The report also addresses the importance of planning tools in budgetary control and discusses financial risks and their corresponding control measures. By providing a comprehensive overview of these key concepts, the report aims to equip readers with a solid understanding of management accounting and its practical applications. The report is a valuable resource for students seeking to enhance their knowledge of financial analysis and risk management.

MANAGEMENT
ACCOUNITNG

Table of Contents
INTRODUCTION...........................................................................................................................1
SECTION 1......................................................................................................................................1
P1: Importance of management accounting and their various types of system use in an
organisation............................................................................................................................1
P2: Various accounting system reports .................................................................................3
P3 Calculation of profit by using absorption and marginal costing techniques.....................4
SECTION 2......................................................................................................................................7
P4: Advantage and disadvantage of using planning tools in order to control budget ...........7
P5: Different financial risk and their crucial control measures..............................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is an essential aspect of every manufacturing business whether
small or large. They uses this in as primary tools for keeping their everyday business transactions
in well organise or systematic manner. The main motive of managers is to make effective plan so
that future aims and objectives can be attain in more easy and economical manner. Now a day’s
plenty of organisation are facing various issues associated with financial statements. They can be
resolve through using appropriate accounting and reporting systems (Abdelmoneim Mohamed
and Jones, 2014).
Understanding of different costing method which will be useful in evaluating net
profitability of an organisation. Further, this report is presenting various planning tools those are
being helpful in budgetary control. Apart from this, all those financial problems and its effective
measure to resolve them are discussed under this report. The overall project report, is providing
vital information about use of management accounting information those are assessing for the
betterment of an organisation.
SECTION 1
P1: Importance of management accounting and their various types of system use in an
organisation
In every manufacturing business, it is crucial to maintain their accounting detail in well
organise format so that proper detail information about actual gains and budgeted would be
analyse properly. The manager of John Lewis would hold responsible for making maximum
profit by using resources in effective ways. They need to take valuable decision regarding
increase their productivity as well as efficiency of the department (Management Accounting,
2017). Some other aspects for using accounting system regarding company’s partners such as
investors, shareholders, customer and so on. They are responsible for making crucial decision in
order to get positive results in coming time. By the help of using accounting system, it would
enable managers to focus on vital factors that should incur maximum gains to an organisation. It
is said to be an effective process of preparing management reports and accounts which will be
provide reliable and accurate financial and statistical information to concern managers of a
project (Akbar, 2010). There is various importance of using management accounting systems
those are discussed underneath:
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 It would help in forecasting the future: A most crucial aspects for every business to
make appropriate forecasting which will assists in effective decision making and
searching for some useful information about the company. Like whether they are able to
invest in respect to generate maximum gains in coming time.
 It will assists in making or buy decision: It happens to be one of the effective method
by which manufactures can make production of products as per the demand of customers.
Cost and productivity are the deciding aspects in this particular process of decision
making.
There are various types of management accounting system which would assists in the
betterment of an organisation. Those are being discussed underneath:
Cost accounting system: It is known as effective process of recoding, classifying and
summarising or evaluating alternative course of actions those are being used for the purpose of
controlling costs. Its primary motive is to advise owners on the most crucial action based on cost
efficiency and effectiveness (Belfo and Trigo, 2013).
Price optimisation system: Under this accounting system, a manager uses to make
numerical evaluation by a company to determine responses from customers about various prices
for its products and services. It is mostly used by the company to identify prices that John Lewis
Company has decided from their products.
Inventory management system: As per this system, manufacturing department can make
control over their opening and ending stock level during the year. This will help them to record
detail systematic detail of inventory position kept by the company. By this, managers can track
stock level, orders or any sales and deliveries. In production sector, this system is more effective
in creating a work order, bill of material and other important purpose. By the help of using
perfect stock management business can attain their target in more easy and fast manner.
Job costing system: This is valuable costing system which is useful in assigning production
costs to a single products or groups. Basically, the job order costing is mainly assessing only
when the products manufactured are relatively different from one another.
Benefits: It would deliver crucial benefits that set them from process costing. This system
delivers access the expenses those are incur on each job during production process.
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P2: Various accounting system reports
In order to generate more accurate outcomes company need to make use of reporting
systems. This will be prepared by collected various information from each department those are
associated with the company either directly or indirectly. Reporting system is an essential aspect
for every business because it consists of systematic detail of various accounting information
which is being helpful in evaluating present position of the company. Every organisation needs
to prepare report of their daily operations which is being done while producing a products and
services. By the help of reporting system, it would provide maximum advantages to organisation
which can be utilised during planning, organising and assigning vital roles to an individual
(Becker, Ulrich and Staffel, 2011).
This will be done at both the level as such internal or external level so the better decision
would be made to make improvement of performance and growth of the company. There are
various types of accounting system reporting which will be assessing an organisation to make
recoding of their financial and non-financial transaction on regular basis. Several reports are
having their own role and importance that is been beneficial for up-liftment of organisation
reputation. It would also assess in maintain proper communication and coordination between
various departments of “John Lewis” company. Some of the reports are used from the purpose of
making future budgets and standard to deliver perfect directions to employees in order to
perform their activities in more effective manner. By the help of this budget they can easily be
able to accomplish their aims as well as organisation objectives at the same point of time. Some
of them are discuss below:
Operational budget report: According to this particular budget, it has been seen that
every detail information total cost and expenses those are incur by the company while producing
products and services. By the help of this report, managers can easily evaluate their total cost
investment made in producing units during the time (Eierle and Schultze, 2013).
Account receivable report: As per this report, company would be identification of their
total lists of unpaid customers and credit memos. The primary motive of using this report is to
determine total credit recovery time duration which is still outstanding or does not recover.
Through these data management can take crucial decision about any changes or modification in
their credit policies and to make stronger their collection procedures.
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Job costing report: Such kind of report consists of various data about total cost incur by
the company to produce an individual products or group of products at one time. This report is
made by accounting officers which is having effective skills and ability to make proper
evaluation of their accounting records.
Inventory management report: These are the reports which help to control the level of
inventory in stores. Mostly all the information remains associated with the inventory
management and analysing the compatibility of retaining the stock in stores. It assists managers
to keep the records of inventories in single format whether it is in process or as finished goods
products. Determine the order level, lag in period in work in progress and
Performance report: These are that type of reports which helps to analyse the
performance of an organisation and also assist managers to evaluate the strength of the
organisation. It is one of the prime aim and objective of managers and accountants to evaluate
the performance of organization and attain core competence. Performance reports are prepared
by the individual departments and the sections and produced to senior level authority to evaluate
the performance of an organisation (Quattrone, 2016).
Importance of using above accounting reports:
Improvement of decision making: By effective use of mentioned reports, managers of an
organization can gather crucial information from the functioning of various departments. This
would assists in increasing the moral of employees to work for the purpose of enhancing
productivity.
Enhance financial return: Formulation of performance reports assist in improving the
current performance by comparing it with past one. Inventory record helps in preventing
company to meet their essential requirement during any contingency situations.
P3 Calculation of profit by using absorption and marginal costing techniques
Cost evaluating techniques helps to evaluate the profitability and the cost of the product
which is incurred in production process (Harris and Mongiello, 2012). Cost accounting is one of
the essential branches of management accounting used to control the cost and evaluate the
profitability. There are two major cost calculating techniques are used in management
accounting such as:
Marginal costing: this costing technique helps to analyse the cost and profit by
considering all the variable cost and overheads which remain associated with the production
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process. Manager would easily estimate the profitability and the cost of the product individually.
Direct material, direct labour, direct expenses and variable overheads are the part of the cost
which helps to analyse the cost of the product as per variable aspects. Significant part of the
fixed cost is considered while calculating the profitability of organisation. Marginal costing also
considered as period costing.
Absorption costing: this costing technique also called as full costing. All the variable
and fixed aspects are considered while calculating the profitability and the cost of the product. It
is required to the product cost by considering all the essential aspect within the organisation.
Fixed overheads such as selling and distribution expenses, rent are considered in this technique
(Lapsley, 2012).
Absorption costing Marginal costing
All production costs are taken into
consideration such as Fixed and variable costs.
Only variable costs is taken into account
during manufacturing of products and services.
This is not suitable for making future decision
making.
Most of the investors use to consider this
costing for estimating future decision.
Marginal costing
Quarter 1
Particulars Amount (in ￡)
Sales 66000
Less: Cost of sales
Opening inventory 0
production cost (78000*0.65) 50700
Less: Closing stock
(12000*0.65) 7800
42900 42900
Contribution 23100
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
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21200
Net profit 1900
Quarter- 2
Particulars Amount (in ￡)
Sales 74000
Less: Cost of sales
Opening inventory
(12000*0.65) 7800
production cost (66000*0.65) 42900
Less: Closing stock
(4000*0.65) 2600
48100
Contribution 25900
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit 4700
Working note Q1 Q2
Variable costing profit 1900 4700
Opening inventory 0 7800
Closing stock 7800 2600
Absorption costing profit 4300 3100
Opening inventory 0 10200
Closing stock 10200 3400
Absorption costing for
Quarter 1:
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Particulars Amount (in ￡)
Sales 66000
Less: Cost of sales
production cost (78000*0.65) 50700 0
Semi-variable (78000*0.20) 15600
Total Variable cost 66300
Less: Closing stock 10200
56100
Gross profit 9900
Less: -400
9500
Selling and distribution as fixed 5200
Net Profit 4300
Absorption costing for
Quarter 2:
Particulars
Sales 74000
Less: Cost of sales
Opening stock 10200
COGS (66000*0.20) 13200
production cost (66000*0.65) 42900
Total Variable cost 66300
Less: Closing stock 3400
62900
Gross profit 11100
Less: selling expenses -2800
8300
Fixed expenses 5200
Net profit 3100
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Working note
Fixed costs 16000
Budgeted cost of production
80000
per units
Budgeted fixed cost 0.2
Variable cost per units 0.65
SECTION 2
P4: Advantage and disadvantage of using planning tools in order to control budget
In manufacturing business, it is vital to have effective system that can control and manager
their operations in more effective manner. There are various tools and techniques which will be
helpful for the attainment of organisation objectives. The main motive of using such tools will
assists in maximising overall growth for Nero Ltd. The efficiency and growth is mostly
depending only upon types of planning tools they are using in controlling their budgets. Few of
their other crucial aspects that required to be taken into account which is associated with short
and long term goals of an organisation. In accordance to make better future for the company they
need to move according to the present tend which is would help in generating more effective
outcomes in near future. In order to make budget more positive and accurate manager need to
make use of planning tools that can assists them in getting more reliable results in more quick
time (Wouters and Kirchberger, 2015).
Planning tools: In every manufacturing business, planning is utmost important part which
needs to be taken into consideration. It would define company aims and objectives as well as
their overall direction of work performance. To attain objectives, managers can needs to develop
effective plans in such as manner as a business can grow in more suitable manner. Some of them
are discussed underneath:
Forecasting tools: Future prediction is an essential aspect of making bright future for the
company. It is mostly based on past and present year data. Because of which exact solution to an
issue can be determine by the company. These are mainly related with formal statistical
techniques employing as per the time series, cross sectional and other alternatives.
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Advantages: Most of the organisation mainly uses these tools in production and operations
management to implement effective production strategies. They use a wide range of forecasting
techniques to assess best possible results for the company. This method is mostly helpful for the
individual organisation because they are mostly depending on their data availability.
Disadvantage: It is very hard to predict future in more accurate manner. Because of their
qualitative nature of data forecasting (Leitner, 2013).
Scenario tools: This happens to be more effective planning tools which is held responsible
for facing complex issues those are being arise in an organisation like Nero Ltd. This planning
stands out of their ability to collect a wide range of best alternatives in positive manner. It
usually uses to determine best suitable trends and uncertainties a manager can use to face during
a critical situation. This specific tool is mostly design to allow Nero Ltd to determine the efficacy
of planning, tactic and plans those are useful for future environment growth and dependencies.
Advantage: It is said to be more crucial aspects for future studies in order to determine long
term plans those are being prepared by the local government. The primary ideas behind all these
are to establish thinking regarding best possible future by minimising extra costs and expenses.
Disadvantage: The primary limitation of these planning tools is that in some situations it is
very hard to find out hurdles in getting more strong and accurate results. In few times, these are
arises in uniform and make overall impacts on the growth and performance of an organisation.
Contingency tools: It refers to be the most effective planning which will be devising for a
well organise outcomes that often helpful in getting more crucial advantages to an organisation.
This tool is mostly use for the purpose of controlling any unethical risk which is affecting the
productivity of the department. It can be arise in any for the form such as financial or non-
financial terms. This is mostly get affected to local government and wide business organisation
those are operating their functions on larges scales (Schermann, Wiesche and Krcmar, 2012).
Advantages: Some of the biggest benefits of using such kind of planning tools is to make
analyse company’s overall obligation because of which they are not able to attain their set
objectives. Managers of an organisation are always ready to deal with any contingency situation
arises without any alarm.
Disadvantage: Some situation, it is harder to face because of problems are uninvited in the
company. To deal with them a well organise back up plan would always be ready by the
management. Few external risk uncertain those are very hard to be face off.
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P5: Different financial risk and their crucial control measures
It has been seen in most business organisation, that they are not able to get maximum
advantage over other company’s because of some financial issues. They are either directly or
indirectly make huge impacts over their productivity level. The role of finance manager is to
make sure that they would ready to over those problems in more quick time so that chances of
mistakes can be reduce in more easily. Some of them are discussed underneath:
 Profit level: There are some issues which is associated with profitability level of the
company. If a company is not having sufficient amount of cash after selling their
products it will be difficult to survive for longer period of time. They are not able to
incur effective return and it would directly make impacts on their overall growth.
 Productivity level issues: As it has been clearly seen that profit can only be
generated through selling maximum outputs. This would directly increase their
productivity level of the company if they facing financial issues such kind of results
are hard to be attained.
In order to deal with the above mentioned financial problems company need to make use of
certain tools. Some of them are discussed underneath:
KPI (Key performance indicators): This is one of the crucial techniques which are always
helpful for Nero Ltd to control and monitor their every day performance. By the help of this
manager can analyse their past and present year performance more easily (Weygandt, Kimmel
and Kieso, 2015).
Financial governance: It is an effective system which is organise with various rules and
regulation. It consists of policies that are being followed by every business organisation for their
smooth conduct of their business. This will reduce extra burden of getting financial losses in near
future time.
Comparison
Nero Ltd John Lewis
According to this company they are
positively managing their operational
performance by effective use of financial
techniques.
In case of this company, they most does their
financial transaction on continuous basis and
because of which chances of mistake can be
arises more. To remove those they are using
financial governance tools.
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For the purpose of control their
performance on regular basis; Key
performance indicator is one of the most
effective financial techniques to deal with
those problems.
There are some other financial resolving
techniques such as benchmarking and by
following SMART objectives they can easily
resolve them.
It is vital for the business to make make right decision to be made in more appropriately
funded and correctly related with the organisation. It would assists in managing performance,
provide valuable support and drive better decision making. The managers needs to determine
both the business and their financial aspects in more effective manner. There are various aspects
those are mentioned underneath:
 Business would need to protect them from any unethical financial issues. Such as
scenario planning and pricing method.
 Quality of information needs to be collected by the departments so that better outcomes
can be generated in near future.
 There are some other aspects such as cost leadership and make appropriate planning to
increase productivity of an organisation. In accordance with this, they required to make
use of investment appraisal techniques so that total time duration or capital recovery can
easily be identified.
External reporting is another important term which would be helpful in creating interest
of an outside shareholders. It is the insurance of financial data to parties those are operating from
outside an organisation. Some usually investors, creditors and lenders are required to collect
information in order toe value financial situation of the company.
Management accounting is an effective techniques to make proper communication about
complex situations and problems. There is a valuable transparency among two variables those
are affecting the productivity of an organisation.
CONCLUSION
From the above project report, it has been concluded that management accounting an
important part of any business enterprise. This will make easy for the manager to record their
everyday transaction into various accounting statements. For this process, they are using various
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accounting and reporting systems which is being already discussed in the above report. Further,
this project deliver superior outcomes by using costing methods those are helpful in evaluating
net profitability of an organisation. Examination of using planning tools to control budgets of the
company during the period of time. Although, some specific tools is being used that are being
helpful in resolving financial issue in an organisation. This will assists in generating better
outcomes in coming future.
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REFERENCES
Books and Journals:
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Akbar, S., 2010. Management accounting change: a comparative study of Indian and UK
organisations. Journal for Global Business Advancement. 3(1). pp.1-27.
Belfo, F. and Trigo, A., 2013. Accounting information systems: Tradition and future directions.
Procedia Technology. 9. pp.536-546.
Becker, W., Ulrich, P. and Staffel, M., 2011. Management accounting and controlling in German
SMEs–do company size and family influence matter?. International Journal of
Entrepreneurial Venturing. 3(3). pp.281-300.
Eierle, B. and Schultze, W., 2013. The role of management as a user of accounting information:
implications for standard setting.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Harris, P. and Mongiello, M., 2012. Accounting and Financial Management. Routledge.
Lapsley, I., 2012. Financial Accountability & Management. Qualitative Research in Accounting
& Management. 9(3).
Wouters, M. and Kirchberger, M. A., 2015. Customer value propositions as interorganizational
management accounting to support customer collaboration. Industrial Marketing
Management. 46. pp.54-67.
Leitner, S., 2013. Information Quality and Management Accounting: A Simulation Analysis of
Biases in Costing Systems (Vol. 664). Springer Science & Business Media.
Schermann, M., Wiesche, M. and Krcmar, H., 2012. The role of information systems in
supporting exploitative and exploratory management control activities. Journal of
Management Accounting Research. 24(1). pp.31-59.
Weygandt, J. J., Kimmel, P. D. and Kieso, D. E., 2015. Managerial accounting. Wiley.
Online
Management Accounting. 2017.[Online]. Available through:
<https://www.tu-chemnitz.de/wirtschaft/bwl3/English/MA_maacc.php>.
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