Management Accounting Systems and Financial Reporting: Nisa Retail

This report provides a comprehensive analysis of management accounting practices within Nisa Retail, a UK-based retail store. It begins by defining management accounting and outlining its essential requirements, exploring different types of management accounting systems such as ABC cos...Read More

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of different types of management
accounting systems.................................................................................................................1
P2 Different methods used for management accounting reporting........................................2
TASK 2............................................................................................................................................4
P3. Calculating costs using techniques of cost analysis to prepare an income statement using
marginal and absorption costs................................................................................................4
TASK 3............................................................................................................................................7
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control.....................................................................................................................................7
TASK 4............................................................................................................................................9
P5. Comparing ways through which Nisa retail store is adapting management accounting
systems to respond to financial...............................................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
APPENDIX 1.................................................................................................................................14

INTRODUCTION
Management accounting can be determined as a process that involves partnering of
devising planning, performance management system and decision making. For all the different
set of activities that are being set by the firm needs money so that the plan can be enacted in an
effective manner (Bennett, Schaltegger and Zvezdov, 2013). In this context, it is important for
the organization to have management of accounting. There are different type of process that are
helpful enough to manage resources related to finance. Present report is on Nisa retail store that
is headquartered in UK and they make sure to deliver their customers with high quality services.
This report covers different type of management accounting that are being used within the
organization. Further, it covers advantages and disadvantages of different tools that is used for
budgetary control. Lastly, it also includes different ways with the help of which firms adopt
management accounting system in order to report the financial.
TASK 1
P1 Management accounting and essential requirements of different types of management
accounting systems
Management accounting can be defined as the process with the help of which
organizations get to record financial transaction, accounts and different financial statement
(Macintosh and Quattrone, 2010). For example, it includes cash flow statement, balance sheet,
income statement, etc. selected company gets benefited as they are able to provide clear data
regarding finance and accounts. When management of the firm have proper information related
with their financial position, then it helpful enough to make decision for the future. Further, there
are different set of decision that are taken by the firm which can be long term or short term. For
all these aspects it requires effective financial support. Moreover, purchase decision are taken up
by financial support. When the rate of financial support is high, then it becomes favourable for
the firm to manage and control resources related to finance in effective manner. There are
various type of approaches and system that can be used by Nisa in order to manage their business
operations. In this context, below given are few of the different management accounting:
ABC costing: This is a type of method that is helpful to determine expenses and cost for
every day to day operations. In order to perform daily business efficiently, it requires
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management to identify the expense that they will need in order to perform the business activities
(van der Meer-Kooistra and Vosselman, 2012).
FIFO (first in first out): It is type of stock evaluation method as per this process the stock
and inventory that are used for the first time will be sent off. This method is generally used by
most of the companies in order to valuing the level of inventory. It helps to determine the level
of overall stock in accurate manner.
LIFO (last in first out): This is another type of stock evaluation method. In this process
management is able to sell their stock and manage the operations of business efficiently (Siegel
and et.al., 2010). As per this method, all the inventory that is bought by Nisa at last will be sold
at first place. This method is not much used by companies as it is less effective when compared
with FIFO.
Inventory accounting: This can be determined as a system or method that manages the
stock or inventory of the organization. This is managed in order to generate sales for the firm.
With the help of inventory accounting, Nisa is able to make use of terms that are helpful enough
to produce services and products (Chenhall and Moers, 2015). In case the level of inventory is
high, then it affects the profitability of the organization. With the help of accounting process, it
supports Nisa retail to make proper control over stock and inventory. There is a limit that has to
be maintained by the firm in relation with the stock that they are willing to use for production but
when the rate of stock is high, then there are negative impact over the firm.
Weighted average: As per this method, it enables to know the average value of LIFO and
FIFO. This way firm is able to determine the difference that they are getting when both FIFO and
LIFO is applied (Chiwamit, Modell and Yang, 2014). In addition to this, overall evaluation can
be identified from the available stock or inventory.
P2 Different methods used for management accounting reporting
There are different type of financial accounting that has to be prepared b y Nisa or any
other organization. In this context it includes balance sheet, cash flow statement, profit and loss
account, etc. (Cullen, Tsamenyi and Gorst, 2013). All the data that involves the expenses that are
incurred by the firm are recorded in these financial statement and they are helpful to get proper
information for where they stand. It is also helpful to determine the position of firm in context of
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financial position. Below give are the different type of reports that are used by cited firm that is
Nisa retail store with the help of which they are able to assess financial performance:
Payroll report: There are different type of departments that are involved in the
organization and for each of them roles and responsibilities are divided among workers. Further,
each of them is given with certain pay. Payroll report is helpful to make proper report of the pay
that is provided to each employee (Figge and Hahn, 2013). It consists of the expenditure that is
incurred by workers are included. More specifically, it includes salary, wages, incentives,
monitory motivation, compensation, etc. This way it supports the cited firm to know the total
amount of expenses that they have made on employees is evaluated.
Report of account receivables: As per this report, Nisa retail is able to identify the total
amount of money that is to be received. In this context, it can be stated that more the amount to
be received the more will be profit margin (Bennett Schaltegger and Zvezdov, 2013). On the
other hand, if the amount that is to be received is low, then the rate of profit will also differ.
Budget report: This reports shows information of fiscal year and financial data. This
report enables to make plan for the future as they get to know the total amount that will be
required by the firm. Each and every year, it requires proper use of money that has to be spend
for each and every operations (Macintosh and Quattrone, 2010). In this context, budget reports
enables to develop plan with the help of which plans for business can be made for the future.
With time, there are many changes that take place and it is important for the firm to understand
them and develop plan. For each of the plan made, it requires financial support and the
requirement is determined through the budget report prepared.
Job cost reports: In accordance with this report, it is important to identify and to make
proper record of financial transaction (van der Meer-Kooistra and Vosselman, 2012). As per this
report, managers get to understand how much the cost will be incurred for the activities planned.
There are long and short term goals that are set by the firm. In order to achieve them, it is
important to develop activities and tasks and for each of them it requires proper support of
materials, resources, etc. This way cost is incurred and this report enables to determine the total
cost that has to be spend by the firm.
Manufacturing report: It is a type of report that determine the total cost that is incurred
by the process of manufacturing for services and products that is delivered by the organization
(Siegel and et.al., 2010). Further, Nisa retail get benefited with this report as they get to
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understand the number of units that they have to produce so that demand can be met. There are
different type of manufacturing expenses that are involved. With this respect, it includes cost
related to technology, labour charges, raw materials, etc. (Chenhall and Moers, 2015). All the
cost incurred is added and the cost is then recorded in profit and loss account and they are
recorded in the name of cost of production.
TASK 2
P3. Calculating costs using techniques of cost analysis to prepare an income statement using
marginal and absorption costs
With the help of business process, net profit is calculated. Main aim of any firm is to gain
maximum profit. This is can be identified when the net profit of the firm is raising (Chiwamit,
Modell and Yang, 2014). There are different type of methods that can be applied by Nisa retail in
order to calculate their expenses. When net profit is calculated, then it becomes helpful to know
where the financial position of the firm lies. Both marginal and absorption cost are effective for
the firm in order to make analysis of cost. Below given are the calculation done with the help of
Absorption cost:
Absorption cost: It is a type of management accounting technique that make sure that all
the expenses are taken up by fixed. When the product of the firm are sold, then it can be
determined to be full costing (Cullen, Tsamenyi and Gorst, 2013). Both variable and fixed are
deducted when absorption method is used. More specifically, both these are deducted from cost
of goods sold that the time when gross profit is calculated.
Income statement using absorption costing
£ £
Sales 700 x 35 21,000
Less: Cost of Production 16 x 700 11,200
Less: Closing stock 16 x 100 (1,600)
9,600
Less: Over- absorption of fixed production
overhead
(100)(W3)
Production cost of sale 9,500
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Gross Profit 11,500
Less: Variable sales overhead 1 x600 600
Less: Fixed Costs; Administration cost 700
Selling cost 600 1,900
Profit 9,600
Marginal cost: It is a type of costing techniques that enables to prepare income statement
for the organization during the time of financial year. With this respect, it includes both
increment and decrement of the data that creates opportunity for the firm (Figge and Hahn,
2013). More specifically, the opportunity arises when there is extra unit that is developed during
the time of production level. When marginal cost is calculated, then there are only certain
elements includes. In this context, it includes direct labour, direct material, variable production
overhead. Further, the fixed expenses are not included in it. In order words, when net profit is
calculated, then fixed and variable cost are deducted and they are not included in gross profit.
Income statement using marginal costing
£ £
Sales 700 x 35 21,000
Cost of Production 13 (W2)x 700 9,100
Less: Closing stock 13(W2) x 100 (1,300)
Variable cost of sale 7,800
Contribution 13,200
Less: Variable sales overhead 1 x600 600
Less: Fixed Costs; Production overhead 2,000
Administration cost 700
Selling cost 600 3,900
Profit 9,300
Interpretation:
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Aforementioned calculation show that in income statement final income of Nisa retail company
is different. Further, in variable method costing the net yield is higher while in the present
method it is only 9100 GBP. Hence, it shows that the variable approach is the system and it is
taken in consideration that only expenses which can be directly incurred in organization which
can be fluctuated by the level of output. Furthermore, second approach that is absorption costing
approach show less profit of Nisa retail company which lead to reduce the profitability. It
impacts the position of Nisa organization in market and also lead to impact the reputation in
retail industry. It is so because amount of net yield is find out that is 5800 GBP when absorption
method.
There are different type of organization who use absorption costing method instead of using
marginal approach of costing for measuring the financial performance. The main reason behind
choosing absorption system by Nisa retail company is that it support in determine the actual
profit which comes after deducting all expenditures of business activities.
Marginal cost Differences Absorption cost
The method of costing in
which only direct as well as
variable types of costs are to
be included to determine level
of net profit at the year ending
is known as marginal costing.
Due to considering only
variable expenses it called as a
variable method of costing
also
On the basis of meaning While Another costing
approach of derive net yield is
absorption in which direct and
indirect, fixed and variable etc.
all kinds of expenditures
included which comes into
consideration at the workplace
of Nisa store.
 Direct material
 Direct wages
On the basis of type of costs  Cost of direct raw
materials
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 Expenses of variable
overheads
 Direct labour or wages
 Variable overhead
expenditures
 Cost of fixed overheads
 Marketing costs
 Selling and distribution
expenses
Apart from such differences
total expenses are lower in the
marginal costing while
compare with the absorption
method of costing.
On the basis of total expenses While in case of absorption
approach total expenditures of
production and selling are high
because it uses fixed as well as
indirect expenses.
In marginal level of net yield
at the end of fiscal year is
higher because of considering
less kind of costs. While, when
the management of Nisa store
derive net profit then
profitability ratios lower
compare to marginal costing.
On the basis of net income Reason behind such situation
is that absorption considers all
the costs which incur in
production process
TASK 3
P4. Advantages and disadvantages of different types of planning tools used for budgetary control
Within the organization, it is important for develop proper plan so that the financial
position can be improved. In this context, there are different type of techniques and tools which
are helpful enough to develop effective financial plan and profitable budget. With this respect,
below given are as follows:
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Budgeting: This is a type of tool that is used highly as it enables to develop future requirements
of the business and the financial support that will be required by the firm (Fullerton, Kennedy
and Widener, 2014). There are different type of business aspects that has to be considered and
predicted effectively. With this respect, the various predictions that are made include level of
revenue, quantity of raw material, total number of employees who will be required, etc. further,
cited firm is able to take up corrective action for the issues or the problems they are stuck in.
When budget is decided, then the activities that has to be developed are planned in an effective
manner. For example, cash budget and marketing budget which are helpful for the business to
perform their business operations.
Advantages: It is helpful enough for the firm to predict the financial position in the future
when compared with other companies in retail. There are different type of obstacles that are
faced within the company and with the help of budget, it is helpful to overcome them (Lopez-
Valeiras, Gomez-Conde and Naranjo-Gil, 2015). Further, allocation of resources becomes easy
and employees are divided with their roles as per the type of requirement and needs.
Disadvantage: The budget is developed depending upon the financial data and it is not
important that firm will perform the same as last year. This is a type of issues as firm fail to
reach out the goals and plan in an effective manner (Morales and Lambert, 2013). All the plans
that are developed may go in wrong direction when the budget predicted is not correct. There are
conditions in which firm fail to achieve their desired goals when there are changes that take place
in economic condition. The business operation for all the department may get negatively affected
in case the prediction for the budget is not done correctly.
Analysis of financial ration: As per this technique, it makes sure that proper planning is done
for the finance and overflow of budget is controlled (Bennett, Schaltegger and Zvezdov, 2013).
When information from financial data is used, then it becomes helpful to determine the liquid
position and the profitability of Nisa retail store. This way managers of cited firm are able to
develop strategies and future plan with an aim to increase their performance level (P. Tucker and
Lowe, 2014). There are different type of financial ratio that are used and it includes solvency,
investor, profitability, efficiency, etc.
Advantages: It is helpful enough to access the performance of business and its financial
position. It also enables to make comparison among all the other firms that fall under same
industry (Macintosh and Quattrone, 2010). All type of financial statement that is developed with
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the help of managers who undertake accounts, they all make use of financial ratio. This way
better plans for the future is developed.
Disadvantage: One of the main disadvantage is that it make use of past performance and
historical data through which future financial planning is made (Rahman and Ramli, 2016).
However, the planning made for the future can go wrong as firm may have changes within the
performance. From this is can be stated that appropriate decision are not taken and changes needs
to be made in the decision that are taken. Another disadvantage is that, financial ration does not
make use of qualitative methodology. Duet to this, the decision take can not be relied fully.
Capital budgeting tools: This is a type of tool that enables to make decision for investing over
the project is called capital budgeting (van der Meer-Kooistra and Vosselman, 2012). This can be
understood with the help of example. When a firm make use of this technique, then they are able
to access validity for one project. This is possible only when there are mote then two exclusive
investment available. Further, it makes use of different methods that are used in order to select
the most effective project for the future. Moreover, there are various type of capital budgeting
method that are used by the firm. In this context, it includes discounted payback period,
profitable index, average accounting rate of return, etc. Among all these methods, IRR and NPV
are mostly used by the organizations.
Advantages: It is helpful enough to take up profitable decision with the help of which
firm gets to improve their performance level (Siegel and et.al., 2010). Further, it also enables to
determine the total investment that firm has to make so that the project can be completed.
Further, there are various aspects that are covered in this. It includes cash flow for each year,
time value of money, factors due to which discounting is done.
Disadvantage: One of the limitation is that, when there is not discounting factor given,
then firm will assume it. Further, the assumed taken is considered every year and it creates issues
as the economy may have changes, it made grow or it may fall (Chenhall and Moers, 2015).
When there are changes that take place in economic growth rate or inflation take place, then the
cost of capital gets changed.
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TASK 4
P5. Comparing ways through which Nisa retail store is adapting management accounting
systems to respond to financial
There are different type of problems that occur within the organization. In this context, it
includes finance, management, manufacturing, costing, etc. (Chiwamit, Modell and Yang, 2014).
So as to take up proper steps, managers make use of various tools and techniques. As per the
current scenario, there are issues in relation with financial constraints. There are different type of
issues that are faced by companies in relation with financial issues. With this respect, one of the
main problems is related with increase in finance and it causes issues with respect to
management of business operations. Management make use of different type of accounting
approaches that are used buy Nisa retail store. In this context, some them are as follows:
ABC costing: As per this approach, this is a type of technique that is used by small
business organizations in order to overcome the problems related with cost level. Managers take
up corrective actions with the help of which the problems that are faced within the firm can be
solved (Cullen, Tsamenyi and Gorst, 2013). From this, it can be stated that with the help of
activity based costing cited firm will be able to overcome the problem and to raise their
profitability. This is an effective way through which the expenses are reduced. Further, it is a
type of systematic process that enables to solve the problems that are helpful to overcome the
issues that are faced by the firm.
Accounting for stock: Management is not enough efficient to sell its product and
services then it means that level of stock or inventory is higher of an organization (van der Meer-
Kooistra and Vosselman, 2012). This reflect that cited organization is not using effective
strategies for grabbing the attention of customer in order to increase sale of its products.
Therefore, company need to adopt new strategy such as it can use stock accounting approach
which assist in reducing the level of stock and utilizing it in better way. For increasing the
revenue of Nisa management need to used in effective manner inventory.
Budgetary control: There are different expenses which NIS can control by the support
of management accounting system. Further it can make strategies in order to grab the attention
of customer for purchasing its company products. Therefore, budgetary control help organization
in respond to reduction in sale and increased in cos. Further it ensures that unnecessary expenses
can be controlled by an organization. This help in managing all finance of an organization in
10

effective manner and increase the sale of organization for generating high revenue (Macintosh
and Quattrone, 2010). Along with this, budgetary control is very beneficial for Nisa company to
manage the level of stock inventory .
Lean accounting :- Expenses of the company can be reduced of Nisa retail, store and it
will help for removing unproductive practices that are followed in the company (Figge and
Hahn, 2013). Burden has been increased on the firm and due to that impact has been observed on
overall financial performance of the company (Bennett, Schaltegger and Zvezdov, 2013). Burden
on the firm increases and it gives impact on functioning of operational practices and procedures
that are performed in the firm. In addition to that lean accounting techniques can also be used for
reducing the extra cost. Profitability of the company is enhanced and it aids for making positive
improvements in financial performance of the business. In addition to that quality of the goods
and services can be improved and it will aid for gaining loyalty and satisfaction level of buyers.
Better and effective services can be offered to business consumers and it will support for making
positive improvements in achieving economies of scale and enhancing the market share of the
firm (Fullerton, Kennedy and Widener, 2014). When better quality products will be offered to
buyers it will aid for enhancing the satisfaction level of consumers towards selling products and
more number of products to buyers.
From this, it can be stated that all the above given management accounting system is
effective enough to make sure that proper financial system can be analysed. Further, to make
proper analysis of the business performance so as to make effective decision making. This can be
determined as a way with the help of which proper steps are take through which the performance
level can be improved (Lopez-Valeiras, Gomez-Conde and Naranjo-Gil, 2015). There are many
different aspects that has to be considered so that one can analyse the financial condition. In this
context, it includes level of cost, profit, inventory, etc. in order to evaluate the every phrase of
business operations, it is possible with the help of costing management. There are cases in which
the issues that are faced by workers can be identified. In such condition there is huge amount of
wastage that is occurred. In order to reduce them, it is important to make sure that they are
provided with proper training so that they understand the part of roles that has to be played by
them. This way the performance can be raised and the use of finance is done in an effective
manner.
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CONCLUSION
From the report, it can be articulated that finance play vital role in understanding the
position of firm. There are different type of issues that are faced by organization. Among all
those, one of the main issues is the prediction when it is gone in wrong direction. It is important
for the accountants to consider different set of aspects so that they will be able to understand the
needs and areas in which improve is to be made. This proper plan can be made through which
the performance can be raised. Further, employees are the face of organisation as they have
direct interaction with customers. It is important to convey information to them so that they will
be able to adjust with the changes. There are activities planned and all the activities should be
planned in such a way that is can be completed with the financial support that is required. In case
the cost is low, then proper steps should be taken to make changes in the plan that is developed
for the future. In order words, the plan that they have developed is not working on correct
direction.
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REFERENCES
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Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2014. Lean manufacturing and firm
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organizational and sociological approach. John Wiley & Sons.
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study of management accounting practices. Accounting, Organizations and Society, 38(3),
pp.228-244.
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P. Tucker, B. and D. Lowe, A., 2014. Practitioners are from Mars; academics are from Venus?
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