Management Accounting Report: Hungry House Company Financial Analysis

This report provides a comprehensive analysis of management accounting practices within the Hungry House company. It begins with an introduction to management accounting and its significance, followed by an explanation of different systems such as cost accounting, inventory management, job costing, price optimization, and statistical tools. The report then delves into various management accounting reports, including accounts receivables, performance, and variance reports. Furthermore, it formulates income statements using marginal and absorption costing tools, highlighting the differences between these two methods. The report also covers planning tools of budgetary control, comparing different management accounting systems used by Hungry House to overcome financial shortfalls, and concludes with an overview of the company's financial strategies. This report is an excellent resource for students studying finance and accounting, offering practical insights into real-world business applications.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explain about the management accounting as well as its different systems and their
potential requirements in the Hungry house company...........................................................1
P2 Explaining different reports of the management accounting reporting.............................5
TASK 2............................................................................................................................................5
P3 Formulating income statement using marginal and absorption costing tool.....................5
Segregation between two tools of costing like as marginal and absorption...........................8
TASK 3............................................................................................................................................9
P4 Different planning tools of budgetary control along with its several benefits and demerits. 9
TASK 4..........................................................................................................................................11
P5 Comparing different kinds of management accounting systems which used by Hungry
house to overcome financial shortfalls.................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is very supportive for the each business organisation in order to
frame the business and financial plan for the current and future period of accounting. When an
entrepreneur will not implement and adopt the management accounting process and method at
the working environment then it will not capable to operate in the segment and improve its figure
of revenue. For analysing about various concepts which are associated with the management
accounting there are is a small business firm is selected which is such as Hungry House company
which operates in the UK. The chosen firm provides food products and services to the consumers
using online place. By reading the report reader can know about various systems and tools used
by the company for make the financial plan better and effectual. Further, he can analyse
regarding the reports which are supportive to the management accounting reporting. Beside this,
various tools of planning as well as costing are to be shown with the help of current report.
Moreover, the report which studied on the Hungry house is to looks or focuses upon several
methods and techniques for analysing as well as overcoming financial constraints comes into
consideration within workplace.
TASK 1
P1 Explain about the management accounting as well as its different systems and their potential
requirements in the Hungry house company
Business Report
To,
General Manager,
Hungry House company
Date: 21st September 2017
Subject: Management accounting systems and their essential requirements
Explaining management accounting and its benefits for the cited company:
The process of accounting in which various small reports are prepared, analysed,
interpreted and decisions are taken on the basis of it is known as management accounting. At
the particular accounting system the company able to make those kinds of decisions which are
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complex as well as typical. When complex situations are resolved then business of Hungry
house can easily overcome financial problems and become more financially sound.
The current company is operating in the industry of retail in the UK and provide its
products and services at the national level. The company allow and offer food products and
services to the local community of UK using the online portal and websites (Otley, 2016). The
Hungry house company operates at the small level and not having offline stores and shops in
any area. Due to the respective reason the company is highly able to sell more number of food
items because in the current market there are very fewer consumers who not want to go
physically at the stores. It is the best and profitable company in the sector of online food
ordering. In context to this, the Hungry house business entity use lesser amount of the capital
and then manufacture or cook the food items at the broad level and generate higher profit. As
per the respective analysis it can be clearly said and states that the Hungry house managing cost
level as well utilize the financial and other resources efficient way. Further, optimum utilisation
of the available and new several resources is also significant for the firm and a system or
approach of the management accounting.
In the accounting segment there are different methods are included and among them two
are mostly used by the companies which are like as financial and management. The current case
study is based on the management accounting at where the Hungry house easily divide and
segregate the overall business in small parts. The narrow parts of the entity in which
management accounting supports to divide are such as process, division, functions, structures,
departments, accountability etc. At the workplace to manage whole firm there are small
responsibility or accountability centres are to allocated such as profit, investment, expense,
costs etc (Boyns and Edwards, 2013). On the basis of expenses and cost the company derive
total and unit cost further price to sell the each and every food item is to be determined. In
addition to this, the costs are carried out by the profit centre and then calculated that at the year
end how much amount of margin is generated. Further, responsibility to take decision for
making investment is to given to the investment centre.
In the management accounting, there are wide range of systems as well as methods are
included by which the Hungry house able to manage the overall business and cooking process
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in adequate manner. Various systems are elaborated as below: Cost accounting system: The accounting method of costing in the management is highly
helped to the company of Hungry house for assessing cost of producing and
manufacturing food items and products. Apart from this those costs and expenses which
associated with business such as purchasing of raw materials and different food
ingredients are also included in the respective management accounting system. In the
company different expenses incur are such as inbound logistics, salary to the chefs, staff
of the kitchen, purchase and buy of the kitchen equipments, utility bills etc. Being an
online food services provider there are various costs comes into existence relating
information technology are also added in the total cost (Kumar, 2011). Such kind of
expenses are like as salary to the technical employee, purchasing the computer, expenses
of internet surfing, web designing etc. By summing up these all costs firm determine
total cost which is treated in the books of income or loss. Inventory management system: Other system of method of management accounting is
stock or inventory management approach which is the most supportive for food
processing company. When level of the stock in the Hungry house will increase then the
firm highly hamper and reduces total profit at the financial period ending. In accordance
to this, when the entity manage as well as optimum utilise the stock then it can improve
quality of food products and provide consumers better and more nutritional items.
Further, higher the hygienic and nutritional items attracts customers which is the most
profitable and generates more margin. Hence, the inventory management system
requires for the firm to manage and utilise stock and then improve health of the firm in
context to the financial aspect. Job costing system: An approach of the concept management accounting in which cost
and expenses incurred in the company on the basis of each job product is considered as
the job costing system. In the company when different number of product range are
produced and offered to the customers then by considering this method, costs of every
goods range is assessed. The Hungary house firm offering various food ranges due to
which it is highly required. Price optimisation system: The method under which the best and highly profitable price
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of product is assessed and determined in the company is known as price optimisation
system. The Hungary house firm charging different prices of one food item within
specific period of time. On the basis of the present system, it able to know that at which
pricing level majority of the customers are giving response. Therefore, it is one of the
essential system in order to take pricing decisions by the firm. Statistical tools: In the firm when there are any problems and constraints arises then
statements techniques help to Hungry house. Different tools of the respective system are
like as mean, median, mode, correlation etc (Pondeville, Swaen and De Rongé, 2013).
The mean require for the firm in order to know that business is capable to meet and grab
the average value of profit and sales or not. On the basis of the median value of the
statistical method the managers assess that from the middle outcome of entity provide
positive results or not. In context to this, if the firm finds that due to managing the stock
level and enhancing wastage food items then it can apply other techniques and methods. Lean accounting: At the workplace in the cooking process of food products and services
various wastage items and ingredients occurs which hamper the profitability condition
of the Hungry house. It is the method in which the company able to reduce and
overcome those products which are comes as a wastage in the cooking process. Apart
from this by eliminating wastage items quality of the food products will enhance up to
better extent. It is the method which used by the Hungry house in order to reduce level
of such kinds of problems and improve the financial performance.
 Revaluation accounting: The method of determine causes and reasons of fluctuating and
changing the pricing value of the products and items is called as revaluation accounting.
When there are selling price increase or decrease from the previous situation then the
firm can know that which are the accountable factors of incurring the situation (CPIM,
2014). In the revaluation accounting there are mainly two types of things are identified
that positive and negative aspects. In order to this, the firm can easily assess that due to
increasing sales price value of price and profit deviate or because of enhancing total cost
it deviates.
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P2 Explaining different reports of the management accounting reporting
For management accounting reporting in the Hungry house business organisation there
are different reports are prepared which are explained below: Accounts receivables report: The report in which those financial transactions are
recorded which are received from different sources. On the basis of the current report of
management accounting the Hungry house can know that total how much amount is to
received from the various sources (Wu and Boateng, 2010). The food items which are
sold on credit and the amount whatever comes is to be recorded in the respective type of
report. It is the most supportive for the business at that time when it going to prepare
financial statements. Performance report: The report at which the business put those data by which Hungry
house can know direction of business performance. If direction is positive and profitable
then it is better for company and if it is in the inverse direction then management can take
corrective actions by framing and implementing the effective production and business
plan. In context to this, there are several aspects by which Hungry house can analyse
performance which are such as cost, profit, employees, satisfaction level, market share
etc.
 Variance report: The report which is used by the managers of Hungry house in order to
know that company is up to which level sable to meet with the agreed data and objectives
(Ball, 2013). In this predetermined and facts as well as figures are to be analysed by using
comparison method.
TASK 2
P3 Formulating income statement using marginal and absorption costing tool
While formulating and preparing the statements of income or loss the Hungry house
business able to determine total cost of cooking food along with level of earnings in terms of net
income. In the current case management of Hungry house adopt two tools like as marginal and
absorption method. On the basis of these both the costing tools Hungry house prepares profit and
loss statements which are shown below:
Income statement using marginal tool of costing:
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Income statement using absorption tool of costing:
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Interpretation
The aforementioned table of income statement indicates that on the basis of marginal or
variable method of costing the Hungry house able to generate profit which is worth of 9300
GBP. In context to the respective method total level of costs which associate in the business is
comes into consideration which lower and appropriate. On the other side profitability ratio is
higher in the absorption while making comparison with the costing tool of marginal. It has been
found that profit and margin level of the Hungry house in the absorption method is worth of
9600 GBP. The business entity is highly capable to know actual condition as well as facts and
figures of the company and the can frame strategies and plan for further production (Seal, 2012).
When comparing with both kind of costing tools and approaches then they take different values
of the costs for interpreting profit of the firm. It has been ascertained from then respective
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statements of profit and loss that by using marginal method the Hungry house can know that in
the food processing industry what is actual performance of it.
Segregation between two tools of costing like as marginal and absorption
There are two methods and techniques of the costing are utilised and adopted by the
Hungry house company for analyse and assess cost as well as profit which are marginal or
variable and absorption. These both the method give one same thing to the management and
which is similarity between them which is net profit. It is used for take decisions and analyse
profitability if Hungry house. In context to this, variable and absorption tools of the costing are
different up to some extent but provide same output. Very key difference is regarding the costing
because of ascertaining and using different types of costing. The marginal tool takes variable
cost into the consideration which are changes as level of production fluctuates in operation and
cooking process (Ward, 2012). Further, it includes the direct cost as well which are associated
with the production process in direct way. On the other side, when talking about the absorption
costing then along with variable and direct cost there are those expenses are also ascertained
which are not varied and fluctuates according to the output level. Due to these conditions total
expenditures to convert raw materials and food ingredients into food dishes are differed. In
generally if the costing level differs then profit also ultimately changes by which performance of
the Hungry house deviate.
Moreover, outcome and output of the marginal method is considers as a contribution
margin and then helps to the company take decision of assessing selling price. It can be clearly
states that the respective value of margin is supportive for Hungry house to frame and make plan
for the business and then take adequate or effectual business decisions. In opposite to this, when
the Hungry house organisation implement the absorption techniques then can make plan to give
response to the rivalry firms which are operating in the online food processing segment of the
UK. The reason behind this is that the method of provide actual figures like as cost and profit.
On the basis of this internal as well as external both the plans are to be framed and then decisions
are taken. In context to the different marginal tool is executed at the workplace of Hungry house
for taking different number of internal decisions while by other external decisions are to be
taken. Final outcome of the marginal is considers as a contribution and then helps to analyse and
calculate the profit volume ratio while output of the absorption considers as net income of the
Hungry house business (Coad, Jack and Kholeif, 2015).
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TASK 3
P4 Different planning tools of budgetary control along with its several benefits and demerits
The plan and schedule always help to the company and manager to make the firm more
efficient and achieve the agreer goals or objectives in effectual way. On the basis of proper
schedule the firm can determine each and every business activities in appropriate manner and by
following the plan Hungry house able to become more productive in the industry of retail and
food processing of UK. When Hungry house going to make plan for control the budgetary and
costs there are several numbers of techniques and method are available. The planning methods
are tools are analysed and elaborated as below:
Capital budgeting tools
The method and tool in which various aspects of a particular project are keep in mind and
then investment decisions taken by the manager is called capital budgeting method. By using the
respective tools the firm able to assess that among two or more simultaneous projects there are
which one will be profitable and give more return in the future FY. Different number and types
of the capital budgeting investment appraisal tools are such as net present value (NPV),
profitability index, internal rate of return (IRR), payback period, average rate of return (ARR),
discounted payback period etc (Dekker, Ding and Groot, 2016). Furthermore, some benefits and
disadvantages of capital budgeting are such as follows:
Benefits & Disadvantages:
With the help of capital budgeting the management of Hungry house can allocate
resources of financials to the each and every function and department of it. When the company is
going to make an investment plan and implement in the firm then also the respective tool is
helpful as well as supportive for Hungry house. By implementing and executing proper and
appropriate investment plan the management of entity able to enhance return of the money which
is invested earlier in the project. In case the company has to two more investment projects for
expanding business then can compare that among all which one will give more return and profit
at the end. Hence, it can be said that capital budgeting tools are profitable as well as supportive
for the Hungry house organisation.
In contrary to this, when the management of Hungry house is going to calculate the plan
using capital budgeting then cost of capital is compulsory. In context to this, sometimes
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respective factor is given at the initially and in some cases the discounting factor is not provided.
When manager has to assume then because of wrong assumptions Hungry house cannot take
profitable decisions (Greene, Brush and Brown, 2015). Apart from this, there are is tools such as
payback period which not consider all the available cash flows of every year. Due to this,
adequate and appropriate period and time of recover the total amount of initial investment is not
identified effectually. Ultimately decision to make the investment and put money in project
hinder and level to return also not predetermined properly.
Statistical techniques and tools
The tool in which various kinds of mathematical aspects and calculations are to be
included and implemented within working environment for taking appropriate business decisions
is called statistical techniques. In the statistics context there are wide range of methods are to be
included which are such as measure of dispersion, measure of central tendency, hypothesis
testing etc. On the basis of such kinds of tools of the statistics Hungry house can assess condition
of the company in terms of both the aspects such as financial and non financials. For example: on
the basis of standard deviation the company of food processing can know and determine
relationship between two interrelated variables. If there are negative relations among two
variable like as cost and profit then it determines that as cost enhance profit reduces. On the basis
of such kind of analysis the management can make plan and then improve performance of it in
the industry (Bowling, 2014). Different merits and limitations of statistical tools are analysed as
below:
Advantages & Limitations:
The statistical tools support to the management of Hungry house in order to analyse that
the production level is better and supportive for entity or not. By using hypothesis testing the
management of the Hungry house able to assess that food products will be hygienic for the
consumers or not. Apart from this the manager can take corrective actions and produce
respective items according to the conditions. Furthermore, on the basis of value of mode which
relies from measure of central tendency helps to determine the value of cost, sales or profit
which is the most frequent at the workplace. Moreover, using the statistical tools quality of the
food items as well as services both will improve up to the greater level.
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