Detailed Report on Management Accounting Systems at Harrods Limited

This report provides a detailed analysis of management accounting systems implemented at Harrods Limited, a retail business in the United Kingdom. The report begins by explaining various systems such as cost accounting, inventory management, job costing, and price optimization. It then delves into different methods used for management accounting reporting, including cost reports, sales reports, payroll reports, and account receivables reports. Furthermore, the report includes the preparation of income statements using both marginal and absorption costing methods, demonstrating how these techniques impact the financial outcomes of the business. The assignment highlights the significance of management accounting in internal decision-making and financial statement preparation, offering insights into how Harrods Limited utilizes these systems to manage its operations and financial performance. The report emphasizes the importance of cost allocation, financial reporting, and the use of various accounting methods to assess the profitability and financial health of the business.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS

INTRODUCTION
A concept of knowledge in which financial plans are schedules, applied at the workplace,
analysed and evaluated is known as management accounting (MA). Businesses consider this
particular aspect within working environment for making those kinds of decisions which are
related to internal criteria (Hiebl, 2014). Any kind of external business judgements are needed to
make then MA not works at that condition. For creating broad understanding about MA, Harrods
Limited organisation is taken into consideration. It is one kind of small business enterprise and
operates in retail sector of United Kingdom. The present assignment shows various systems and
methods which are used to take several decisions and complete process of MA reporting.
Therefore, management easily able to prepare financial statements for the accounting period
ending. In additional to this, profit and loss accounts formulated in the project by using two MA
techniques i.e. marginal as well as absorption costing. Further, some planning tools which
applied by Harrods Limited in budgetary control systems are explained. At the end of current
study, systems which are used to resolve various financial problems in easy at the workplace are
described.
TASK 1
P1 Explaining several systems of ma which are used by Harrods limited
Business Report
From: Management accounting Officer
To: General Manager
Harrods Limited
Subject: Systems of management accounting
Date: 24th November 2017
Introduction : These reports will be considers as Harrods Limited has been used for system of
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management accounting such as how cost accounting should be used to more effectively and
efficiently as well as inventory management to help and control the flow of goods form
manufacture to warehoused and facilitate to point of sale, and require the job costing to maintain
the data which is more relevant often operation of the business and price optimisation relates to
B2B and B2C.
Systems Cost accounting: The process of the systematic recording and analysis of the cost of
material, to improve the utilisation of resources such as manpower, plant and machinery
and cash etc. Expenditure is committed or incurred the process of produces of its goods
relationship with cost centres and cost units. Every job order, service and contract
include the ascertainment of the cost will appreciate. The cost of production to deals
with distribution and selling the goods (DRURY, 2013). Cost accounting relating to the
various elements of cost to control and help classification, and ascertainment of cost. In
cost accounting the income and expenditure relates the production of goods and services
to be recorded. The process of costing consists of routine of ascertaining cost by
historical or conventional costing, marginal costing and standard costing. Further,
implementing a system of cost control for labour heads, materials to represent the source
of economy. Every different department the audit system was organised to make
effective and efficiently working. Inventory management: In inventory management to guide the flow of goods form
manufactured to go-downs and reflect the point of sale and its is a component of supply
chain management. Its refers to the process of storing, ordering and using a company
inventory such as raw materials, components, and finished product (Inventory
Management, 2013). This is such type of asset which will be disposed of in future in the
ordinary course of the Harrods Limited. Buyers must also determine whether each
product purchased will be a basic store item or specially buy. When stock level is
required to manage within workplace then company goes for determining value of total
inventory. For this particular aspect, basically three kinds of methods available with
Harrods Limited which are like LIFO, weighted average as well as FIFO. The concept of
inventory stock it has been manufacturing system to visualize the all work with the
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support of projects and business services at the time of process of production and it has
occurred prior to the completion of the project. Consider the services, the inventory
management the process of information has been partially and the period of work is
completed to the priority to sale in Harrods Limited. In the external environment the
requirements of inventory level has been competing the challenges and through the
going process as the business needs. Job costing:According to Job Costing, in manufacturing job the method of recording a
manager can keep tracking the cost of each job and maintaining the data which is more
relevant to operate the business or firms Harrods Limited. The techniques should be used
for customer specifications whether in situation every different department has
different job has to be performed. (Cooper, Ezzamel and Qu, 2017). A job is specific
order for work usually carried out within a factory or workshops and moves through
activities and operations and continuously indefinable unit. It is a cost unit which
consist of a single order or contract. Price optimisation: The product and service of the organisation to sell the market
through the medium of different channels and to verify the customer respond will affect
the different prices and to analysis the mathematical terms. To determine that the price
of company determine the best meet is objective such as maximizing operating profit.
Harrods Limited is widely used in the pricing field to describe application that set prices.
There are two prices business to business or business to consumer, in B2C by a large
demand volumes, each transaction, representing a very small proportion of total revenue.
In B2B relatively small transaction volume as per transaction require different analytic
process.
Conclusion: At the end, the cost accounting will be required to classifying and summarizing
various alternative course of action, so the production of goods will be record income and
revenue by time to time, so it will be impact on production, selling and distribution, and the
inventory management supervise the flow of goods and facilitate to point of sale. The
organisation has set the data and selected a more relevant which is used for the operating time
so the business run smoothly and price optimisation helps to Harrods Limited to determine the
price of products and maximize the profit.
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P2 Different methods used for reporting of management accounting.
From: Management accounting Officer
To: General Manager
Harrods Limited
Subject: Management accounting report.
Date: 24th November 2017
Allocation of cost is essential for every small business enterprise in order to analyse the
expenses which are made to develop the products and services. For tracking the cost, various
accounting systems have been analysed which are used to identify the cost which is associated
with goods and services provided by firm to its customers (Zimmerman and Yahya-Zadeh,
2011). It also involves application of some important systems to develop financial reports at
end of financial year. In present context, there are also some effective accounting methods have
been identified, which should be used by HARRODS LTD to develop appropriate management
accounting reports and determined the cost incurred on goods and services. There are some
products and services are also analysed which are considered as more profitable for firm. There
is a major importance of these accounting reports such as:
 Provides information about various levels of management.
 It also helps in selection appropriate information from alternatives.
 It is considered as helpful in accomplishment of profitable operations.
 Supports in achievement of objectives.
 Usually follows the principles of management by execution.
In addition to this, there are some important reports have been analysed which are described
below:
 Cost report: It is process in which is used to analyse the information related to cost
related information that helps in minimizing and controlling the cost in the future. It is
also considered as cost in which the management will provide information internal
report system and it also useful for analysing the cost that is incurred on products of
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single unit of products (Baldvinsdottir, Mitchell and Nørreklit, 2010). Futher the
organization will support to analyse the price of products and balance of enterprise as
making entry of cost of good sold on profit and loss account. Hence, this accounting
system will support HARRODS Ltd by providing transfer pricing, variance analysis,
standard costing and activity based costing.
 Sales report: It is also an important accounting report that indicates rise or decrease in
sales that support the management to know those areas where there is market
opportunity to rise the profitability and sales (Ward, 2012). It is also considered as
report that shows the company's actual sale which it has made over specific time
duration. It is required by management to know the buying behaviour of customers that
relates to products and services as they don't have an information about turnover of
organisation but also discount offers for customers.
 Payroll report: This report of management accounting is related to calculation of
compensation paid to employees in order to analyse the financial position of
organization. It clearly identifies the company 's reputation and it is useful for managers
to analyse the performance of individuals through increasing the amount bonus and
incentives. In HARRODS Ltd, these reports are usually generates from software which
are updated with important changes to reduce the cost long time duration of
organisation.
 Account receivables report: It is analysed as critical tool which is used to manage the
flow of cash for companies that provide credits to their potentials buyers. It usually
breaks down customers balances by time in which they have been owed and it also
includes separate columns for invoices which are received after 30 days, 60 and 90 days
late from time duration (Parker, 2012). These are considered as useful for manager
HARRODS Ltd to identify the problems with the process of collection of enterprise.
 Job costing report: As per the research, these report is usually considered as
accumulation of major expenses which are led by enterprise on raw material, overhead
and labour for development or purchase of some specific product and service in order to
increase the profitability.
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TASK 2
P3 Preparation of income statement of marginal and absorption costing.
Income statements is also refers as output report which is developed by company at the
end of financial year which shows the actual expenses and profits of enterprise (van der Steen,
2011). Harrods Ltd strategic and financial growth is analysed by providing a summary of ways in
which company has its incurred it revenues and expenses by using the both operating and non
operating activities (Otley and Emmanuel, 2013). This income statements has been prepared
which using two different methods like marginal and absorption method of costing. Below given
is a income statements of Harrods which has been prepared on the basis of these two methods
like:
Income statement of HARRODS under marginal costing:
Particular Details Amount
Sale 500*35 17500
Opening stock
VPC
Less: Closing stock
13*600 = 7800
(1300)
6500
VSO (1*500) 500
Total variable cost (7000)
calculated 10500
Less: FOH
POH
AO H
SOH
1800
800
400 (3000)
Net profit 7500
Income statements by using absorption costing method:
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From the table, it is clearly identified that the company is able to generate better net
profits. The value of net profit will also differ in these two income statement (Cinquini and
Tenucci, 2010). From the marginal cost accounting method, the profits which achieved by
Harrrods limited is considered to £9300 whereas in absorption costing the profitability of
enterprise is £9600. Major difference between these two methods is the way of calculation of
cost. Income statements of marginal costing, the total cost of enterprise is worth £3900 as it only
considered as the variable cost which is incurred on purchase of goods. Moreover, the absorption
costing considered total cost which is referred to Variable and fixed cost that is £1900 thus the
profitability is low.
Apart from this, majority of small business enterprises use absorption costing methods as
it lower the cost of production and covers all the expenditure which is incurred by organisation in
order to provide complete financial analysis and position (Zimmerman and Yahya-Zadeh, 2011).
Further, if the company depends on this method it will not able to define the actual which is
incurred and its profitability will decline. It provides a clear understanding and appropriate
financial growth of organisation by determining the profitability at the end of financial year.
Difference among both these methods of accounting
Absorption costing method Marginal costing method
Important method of management accounting Methods of costing that is being used by
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in which the organization will use both
variable and management accounting in order
to provide a actual financial position of
HARRODS through profitability.
organization to calculate the additional
expenses which are made by organization on
purchase of goods and services (Fullerton,
Kennedy and Widener, 2013). It is not
considered as effective as it only considers the
Variable cost and does not provide an actual
financial position of enterprise.
In marginal costing the amount of stock
remaining at the end of year is considered as
overall variable expenses which is analysed as
cost of production. Therefore, they are not
analysed in next year 's income statements.
In this, the amount of closing stock which is
calculated at the end of year should be carry
forward in next accounting year. It also
considered in total cost of production or
purchase in specific time duration.
In this company is also capable to gain
formulate better decision for business
operations which is done on the basis of
international standards of accounting.
This method is being used by managers to
formulate and implement better and effective
business decisions.
It is used by management for the reason on
external system of management accounting.
It is mainly used by organisation for the
purpose of internal reporting system.
TASK 3
P4 Merits and demerits some important tools and methods of planning.
In present scenario, some important planning tools are identified which is required
management accounting system to make the control over the disposals. By these tools, the firms
will get support to greater extent in budgetary control systems (Van der Stede, 2011). In present
scenario, HARRODS Ltd also use various planning tools to achieve high amount of gains at end
of financial year in retail industry. Apart from various tools and techniques, there are mainly
three methods which is budget methods as well as ratio analysis. Benefits and limitations of such
tools are describes as below:
Budgeting: Considered as effective significant techniques that is used within Harrods in
order to manage the cost, accounts and resources (Cuganesan, Dunford and Palmer, 2012). From
the perspective of Budget, the HARRODS enterprise is able to understand its future
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management accounting and expected financial position or performance in retail sector of
furniture. In this, the company allocate appropriate funds for each task which is needed to be
completed in specific time period. Other than this, there are various types of budgets have been
prepared by Harrods in order to manage its cost in market. Through application of this
methodology of development of effective budgets for each and every task and project,
management of Harrods will be able to decrease their cost of operations and also enable the
organisation to earn its desired profitability.
Cash Budget:
Production budget:
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Sales budget:
Apart from this, the advantages and disadvantages of budget:
 It enables Harrods to develop an effective financial plan on the basis of specific.
 It supports in reduction of additional cost and expenses of organization on unnecessary
business acclivities.
 It also helps the cited company to allocate the financial resources required to accomplish
all business activities and task to achieve the goals and objectives (Shah, Malik and
Malik, 20111).
 It also provides supports in increasing the sales and profitability of Harrods.
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 Supports in analysing the goods that provides more profits on less expenditure, therefore
the is able to make more investment on that products to generate continuous rise in
profitability.
 It is clearly identified that budget techniques of management accounting is beneficial to
make control over expenses and also analyse the requirement of resources in the future.
 Other than this, this assists the Harrods in order to make effective coordination among
various functions at workplace.
Management of Harrods will get benefited by develop of these budgets as their cost of
operations will get decreased due to decrease in cost ODF production of products and services. It
also helps the company in expansion of business operations in other countries by getting
resources from shareholders.
Limitations:
 It is also considered as important but it usually consumes more time and information.
 Calculation of different types of budget in organization is critical task as it requires more
efforts and experiences person (van der Steen, 2011).
 It provides an estimated figures for expenses but not meet the actual expenses.
 It only provides a structure to manage the resources but not provide calculation of cost.
 Difficult for manager to analyse and interpret the information from various budgets.
Ratio analysis: Most important and significant tool which is used by different small
business ventures in regulating their operations in various industries (Parker, 2012). In this,
various types of ratios have been calculated and in order to analyse the sales and probability
which is achieved by organisation. In this context, it is also applied by HARRODS Ltd to
generate various information. To identify and collection of data that is clearly used to described
in financial statements which are being developed at the end of year.
It mainly provides major support to manager in achievement of goals of increasing the sale and
profitability of enterprise.
Merits:
 This most significant method that supports the enterprise in analysing the cost and
profitability through interpretation of these calculations (Hiebl, 2014).
 It is considered as beneficial as it supports in development of appropriate budget and
reports.
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 Through these reports, Harrods will be able to analyse its liquidity which is sustained
within enterprise.
 It supports the management is calculation of annual profitability and analysis of sales
turnover (Jansen, 2011).
 Through this, managers of Harrods will enable to make decision related to investments.
 Mainly analysed to reduce and control the cost of manufacturing of goods and increasing
the gains of organization.
 Helps in making comparison between the financial position of Harrods and its
competitors.
Demerits
 This method of ratio analysis is not useful as it lacks actual financial data and
information.
 Effective tools and methods are not present or recognise in this report.
 Many business statements that are used by Harrods in this method to analyse the market
performance as not considered as very much effective.
Thus, there are two important tool and techniques which has been used by organisation in
management accounting system to analyse the cost and market performance of business.
TASK 4
P5 Use of management accounting system for the resolution of financial problems.
As per the given scenario, there are various type of problems have been arises in
organization which needs to be resolved by organization by using appropriate management
accounting systems (Cuganesan, Dunford and Palmer, 2012). There are various financial issues
like improper allocation of funds, resources, rise in cost, increase in payroll expenditure, decline
in profitability of organisation are identified and also faced by HARRODS in regulation of
business operations in European market. As per the analysis, it is clearly identified that these
small business enterprises have major contribution towards providing growth to economy of UK.
They provided an annual turnover of around 1.8 Trillion in present financial after and still rising
continuously. But usually these business enterprises didn't survive for more than five years. In
present scenario, HARRODS Ltd is considered as effective business enterprise that has achieved
continuous growth in business operations by using various methods to resolve the financial
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problems. There are various management accounting systems has been analysed which are
described below:
 Traditional cost accounting: It is the most important methods that is being used by
organization to analyse the overheads which are depended on the volume of cost mainly
include the direct labour hours which needed in production of goods and services. This
method is really used to resolve the financial problems that hampers the performance of
organization in market. Therefore, Most of the organization adopts various financial
problems that exists in organisation to resolve various expenses through the organization
is able to resolve the problems.
 Throughput accounting: It is also considered as significant methods of management
accounting which is considered as analysis of various cost and financial information to
develop effective statements and also development of strategies to reduce the cost. It
helps cost of HARRODS limited which is considered as effective for organization. It is
also considered as simplified accounting system that is usually depends upon of
constraints principles. TA makes growth driven management and decision-making
simpler and understandable even for organisation which are not familiar with the
traditional cost accounting method. It also considered as growth oriented accounting
system.
 Transfer pricing: In this method, there are various types of accounting system that exists
in management or Harrods to reduce thee cost of products and services by reducing the
tax. There are some rules and procedure that exists on transfer of goods and services from
one country to another country (Burritt and Schaltegger, 2010). There are various types
of problems have been faced by organisation in selling its products by increasing the
amount of tax which impacts the profitability of enterprise. Effective method that
concentrates on reduction expenses of organization which is considered important to
provide growth to Harrods in retail industry of UK. Other than this, there are various type
of function have been accomplished in this method and reducing the cost by importing
the goods in other country which has low tax rates.
 Inventory management: There various problems have been faced by organisation in
analysing the value of inventory which is remaining at the end of year (DRURY, C. M.,
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2013). This method is considered as effective as it acts a component of various types of
changes that has been managed in various types of financial statements. It supervises the
supply of products from production to storage and supports in findings the value of
closing stock. Its refers to the process of storing, ordering and using a company inventory
such as raw materials, components, and finished product. With proper inventory
management, company will be able to manage its business and also increase its financial
resources. Further, these accounting method is considered as beneficial in resolution of
various issues which are faced by organisation in management of cost, analysing the
value of inventory and rise in burden of tax etc.
CONCLUSION
In this report, it has been concluded that accounting is most important process that
supports that organization for managing its business and financial transaction in effective
manner. There various types of management accounting system have been analysed such as
traditional cost accounting, transfer pricing, inventory management as well as throughput
accounting method which is considered as beneficial for organisation in order to fulfil its
financial requirements. Further, various types of management accounting reports have been
taken in to considered which are needed to be develop by HARRODS Ltd for managing the cost
and increasing the profitability. There are basically two methods of management accounting
system which is considered as to develop income statements and analysing the cost of
organisation in production and purchase of products. There some important tools and techniques
like budgeting and ratio analysis which are considered as essential for organisation to achieve
objectives. Most important and significant tool which is used by different small business
ventures in regulating their operations in various industries. Moreover, there some costs and
benefits of this ratio analysis is also analysed to understand its suitability of application within
enterprise. Further it is concluded that there are various types of problems have been faced by
organisation in selling its products by increasing the amount of tax which impacts the
profitability of enterprise
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REFERENCES
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