Management Accounting Report: Business Analysis of OAK Cash and Carry

This report provides a comprehensive analysis of management accounting practices within OAK Cash and Carry, a UK-based retail company. It begins with an introduction to management accounting, detailing its role in decision-making and financial reporting, and then explores various accounting systems, including cost accounting, inventory management, job costing, and price optimization systems, highlighting their advantages and applications within the company. The report then examines different management accounting reporting methods, such as budgeting, cost, and performance reports, and evaluates their integration within OAK Cash and Carry's organizational processes. Furthermore, it delves into cost analysis techniques, specifically marginal and absorption costing, to prepare income statements. The report also discusses the advantages and disadvantages of planning tools used for budgetary control and concludes with a comparison of how organizations adapt management accounting systems to address financial challenges.

MANAGEMENT
ACCOUNTANTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and requirements of different kinds of accounting systems..........1
P2 Methods used for management accounting reporting............................................................3
TASK 2............................................................................................................................................5
P3 Techniques of cost analysis to prepare an income statement using marginal and absorption
costs.............................................................................................................................................5
TASK 3............................................................................................................................................8
P4 Advantages and disadvantages of different planning tools used for budgetary control........8
TASK 4 .........................................................................................................................................11
P5 Comparison on how organisations are adapting management accounting systems............11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is a process that assist firms in developing and keeping
managerial records as it will further assist company in taking appropriate decision for its
business operations. Books under which all data and records are kept are further used by
companies in gaining trust of stakeholders, investors, creditors etc. OAK Cash and Carry is one
of the leading company in United Kingdom which has less than 50 number of employee. Present
report includes demonstration and understanding of management accounting system. Other than
this, calculation of cost with the help of appropriate techniques related to cost analysis is
included in this in order to prepare an income statement with the help of marginal and absorption
costs (DRURY, 2013). Different type of tools and management accounting system for
responding financial problems is also discussed in further part which help in analysing position
of business at marketplace.

TASK 1
P1 Management accounting and requirements of different kinds of accounting systems
Management accounting can be defined as a process of preparing accounts and reports
which give financial and statistical information in an accurate manner. It includes information
about day-to-day transactions and short term decisions. Along with this, it can also stated as
representation of accounting information by which managers of a company can formulate
policies and strategies for conducting activities as well as take decisions on regular manner.
Moreover, it is based on financial and cost accounting with main objectives are measuring
performance, assessing risks, allocating resources and more.
OAK Cash and Carry deals in retail market and deliver groceries as well as home utility
products to customers of UK on affordable price rates (Springer.Arroyo, 2012) on affordable
price rates (Springer.Arroyo, 2012). This organisation use management accounting systems in
order to take important decision related to utilise financial resources for day-to-day operations.
Types of accounting systems and their needs:
System of management and accounting helps a firm in organising and controlling overall
activities of business by determining different costs of the same. It also varies as per application
and assist in making proper decisions (Tools of management and accounting, 2018). There are
various managing accounting systems are available like inventory management, price
optimisation, job costing system and more. Some of them are stated as below:
 Cost accounting system: It is considered as framework which applied by management
of a company for inventory valuation by approximating costs of products. In this
system, allocation of cost is generally based either on activity or traditional costing.
Managers of OAK Cash and Carry use this system to capture production cost by
weighing input and fixed costs such as capital equipment depreciation. Along with this,
costs accounting system helps in discovering all costs related with distributing,
marketing, production, selling and more through which employers can assume future
profitability ratio. As OAK Cash and Carry is engaged with many functions like
manufacturing and delivering best quality of products which includes much expenses.
Therefore, with the help of cost accounting system, its managers can control all
expenses. Along with this, it also includes two types of cost accounting that are Job
Costing and Process Costing. In job costings, managers can track actual cost of product

by summing up materials and overhead expensed of manufacturing process. Since,
OAK Cash and Carry produces different type of products or services so, process
costing helps in specifying costs to each.
 Inventory management system: This system belongs to method of controlling as well
as overseeing the usage and storage of components that management of a company
applies in production of goods which are ready for sale. It combines various
applications such as desktop software, mobile devices, barcode scanner and printers.
All these applications helps in streamlining the inventory management like goods,
stocks, consumables and suppliers. Managers of OAK Cash and Carry use this system
for minimising overstock situations and track record of inventories across different
level. It gives various benefits like improving bottom line of business, increasing
accuracy of inventory as well as developing workflow of company. In inventory
management, LIFO and FIFO are some accounting methods which helps in handling
operations of business. In this regard, FIFO i.e. First In First Out states a firm in
getting rid for old inventories first. While LIFO- Last In First Out assist in leaving last
inventories first.
 Job costing system: It is generally used for allocating costs of manufacturing products
if process of goods are different from each other. Moreover, this system includes
various practices of compiling data on the costs belongs to particular services or job
(Bodie, 2013). Company which deals in customised goods like OAK Cash and Carry
use this system to provide information to customers for submit cost data as per contract
under which costs are refunded as well. Thus, it will help in assuming cost which can
be utilised in decisions-making process related to material procurement and need of
labours. It includes three main components that are- Direct Materials, Direct Labour
and Overhead. Under this, job costing helps in tracking cost of materials and other
resources used in manufacturing. It also assists managers of this company in
determining what employees charge for doing a specific job. While overhead costs
include depreciation on equipment of production and building rent etc. as cost pools.
 Price optimisation system: It belongs to application of different mathematical analysis
to business corporation for determining the response of customers with different price
rates of products. Thus, price optimising refers to a process of determining rates by

which a firm can fulfil its targeted goals. It include all costs related to distribution,
selling and production as well. As main objective of OAK Cash and Carry is to
maximise operational profit so, price optimisation helps in costs planning by
maintaining a balance within different costs of production.
Benefits of Management Accounting System in context with OAK Cash and Carry:-
System Advantages
Job Costing System It helps this company in estimating all types of
costs related to manufacturing process as well
as in evaluating quality of work done also.
Cost Accounting System Through this system, managers of OAK Cash
and Carry can measure efficiency in processes
which helps in making further improvement.
Price Optimisation System The main benefit of this system is assisting in
customer segmentation through which attitude
of consumers can be determined.
Inventory Management System It helps in improving accuracy of inventory
orders.
P2 Methods used for management accounting reporting
Managerial accounting reporting helps a firm in analysing how it is performing at
marketplace (Lukka and Vinnari, 2014). For reporting the management accounting, many
methods are available which used by managers of a company. It includes budget costs reports,
performance and product reports etc. It helps them in managing business activities by analysing
overall trends related to long-term or short-term goals. In context with OAK Cash and Carry, its
employers used following methods:
Budgeting Reports: It sets out an action plan for analysing performance of a company
while conducting evaluation related to costs control. In order to prepare budget, occurrence of
actual expenditure are utilised related to past experience. Mostly budget report helps in providing
incentives to workers and motivate them to give higher contribution in achievement of desired

objectives. Thus, forecasting future budget as per reports helps managers of OAK Cash and
Carry in integrating efforts of all departments towards objectives of business.
Cost Reports: It is mainly concerned with identifying expenses, profitability as well as
costs of each particular product. Accounting staff prepares cost report through which managers
can take essential decision related to product price and minimse extra expenses. This type of
report also helps in generating idea for reducing wastasge and overall exenses by which
profitability of business can be increased. In context with OAK Cash and Carry, cost report
allows accounting managers in reviewing cost value of products by comparing with selling
process.
Performance Reports: This report shows the information related to difference calculated
by comparing budgeted performance with actual results (Mat, Smith and Djajadikerta, 2010). It
is usually associated with controlling, monitoring and executing processes. Generally, it has been
prepared on yearly basis but OAK Cash and Carry conducts the same in quarterly too for
planning future demands in production. This kind of report includes essential informations
related to cash and budget, general performance, quality control and other reporting aspects
which further distribute to stakeholders as per management plan.
Critical evaluation on how management accounting reports are integrated within OAK
Cash and Carry:-
Type of reporting Integration with organisational process
Budgeting Reports Integration between budgeting reports and
organisational processes of OAK Cash and
Carry provides a specific direction through
which targeted objectives can be achieved in
desired manner.
Cost Reports Activities of OAK Cash and Carry should be
directed towards accomplishment of business
objectives. Cost reports helps in making
decisions related to reduce overall cost of
production by formulating different price
strategies.

Performance Reports Integration among performance reports and
process of OAK Cash and Carry help managers
in planning for future production.
TASK 2
P3 Techniques of cost analysis to prepare an income statement using marginal and absorption
costs
Costs is generally referred to value of money and used for producing and representing
monitory evaluation of resources, materials, efforts, risk incurred and more (Harris and Durden,
2012). The costs which remains constant for a certain level of output as well as does not get
fluctuated with variation is termed as fixed costs. But, per unit fixed cost of goods will get
decrease when there is an increase in production. It includes depreciation, rents and more. While
costs that varies with variation is considered as variable costs which has direct relationship with
production. As when there is increase in production then variable costs also enhance and vice
versa like labour, raw materials and more. For preparing an income statement, managers of OAK
Cash and Carry use absorption and marginal cost whose concept can be explained in following
manner:
Marginal costing- It can be described as the accounting system under which variable
costs are allocated to different costs units. While fixed costs is written off for a specific period to
the aggregate contribution (Managerial Accounting. 2017). Therefore, it is considered as relevant
source for purpose of decisions-making. As it is simple technique for cost information analysis
where managers give their efforts in identifying changes in production level which effect ratio of
profitability.
Absorption costing – This concept of accounting system treat overall cost of production
as product costs by taking under consideration all expenses and resources related to the same. It
includes labour, material as well as both variable and fixed overhead cost (Tsafe and Rahman,
2014). This identification of costs helps managers of OAK Cash and Carry in utilising
information for decision-making process.
As per present case study, the cost card of OAK Cash and Carry is given as below:-
£

Direct Labour 6
Direct Material 7
Variable Production Overhead 2
Fixed Production Overhead 1
Fixed Production Overhead incurred
actually
£6000
Variable selling & distribution expenses 30% of sales value
Selling Price 55
Sales 20000
Working Notes:
Formula of marginal costing:
sales revenue – marginal cost of goods sold = contribution – fixed cost = net income
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Formula of absorption costing:

Net Profit = (Sales revenue) – (Cost of goods sold) = (Gross profit – Selling and
Administrative expenses)
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break-Even: This factor shows certain condition of business where it neither acquire
gain nor loss at specific point. Therefore, it is necessary for managers to measure quantity of
items needs to be sold in a period for recovering investment of production. Break-even analysis
generally based on fixed, variables costs as well as revenues per unit of sales.
a. The number of commodities which are required to be sold for break even
Sales per unit 40
Variable costs VC = DM +
DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. In context with sales revenue, break even point can be measured as
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12

Fixed costs 6000
Profit volume ratio PVR = Contribution /
sales * 100 30.00%
BEP in sales 20000
c. For generating profitability of near about 10,000 it is required to sell x no. of products and can
be calculated as
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
d. By selling 800 products, margin of safety can be calculated as
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
Margin of safety- It represents the difference among break even and actual sales of a an
organisation. Therefore, it is essential for calculating marginal of safety because it describes
sales performance in an accounting period as well as generate profitability for business also
(McLean and Pontiff, 2016).
Interpretation of Data:
It has been interpreted that revenue of OAK Cash and Carry has increased from last year
that reflects that business is rapidly growing in retailing sector of UK. Along with this, it has
paid dividend on higher rates as compared to previous year. Moreover, it has observed that
management accounting techniques used various costing methods for mathematical calculations
of products per unit cost. As shown in marginal costing, fixed cost has written against
contribution while absorption utilises all costs in its part of calculation. In this regard, net

operating costs as per marginal as well as absorption has obtained as £17500 and £15675,
respectively.
TASK 3
P4 Advantages and disadvantages of different planning tools used for budgetary control
It is considered as the system which is used my manager of organisation in order to
control the irrelevant expenses at work place. In this, manager compares actual expenses and
income with the planned one. It emphasize on evaluating all the procedures and activities in
organisation for checking whether they are accomplishing in the given time frame. If
organisational activities are not meeting with the planned one then it is required by manager to
change it for maximising profitability (Hall, 2012). Budget of firm involves cost, sales,
production etc. Cash budget of organisation states financial position of the business in terms of
future prediction. Apart from this, sales budget is used by the every organisation to find out how
much sales is required to achieve the targeted profit.
Therefore, it is required by the top management of small business to formulate
appropriate budget which helps the business manager in decision making process related to
marketing and production activities. In addition to this, budgetary control techniques are
advantageous for organisation as it guides them to minimise extra expenses at work place. This
will reducing expenses and enhance profitability of business. Manager of OAK Cash and Carry
can compare its activities at workplace with their formulated budget. This will help enterprise in
taking required steps for reducing its expenses. addition to this, it has been evaluated that there
are numerous of which can be used by small business like OAK Cash and Carry in order to
control their activities. These tools are evaluated as below:
SCORO- It helps a firm in managing entire activities of company by combining different
features of budgeting with various tools and techniques (Cleary and Quinn, 2016). This type of
planning tool gives an integrated plan through which managers can manage overall expenses and
available resources of business while maintaining budgets.
 Advantages: The main feature of this tool is planning and forecasting budgets which
provides an automated revenue stream. Along with this, by financial report, managers of
OAK Cash and Carry can evaluate budget targets as well.

 Disadvantages: This tool is generally integrated plan for an organisation as a whole. In
addition to this, for budgetary control, it also provides as a single solution. Therefore, it
shows ineffectiveness of this planning tool as it doesn't fit with other situations of
business.
Forecasting- A tool which helps in predicting situations that can be faced by OAK Cash
and Carry in future which may impact over the company. Past experiences of administration of
this company and knowledge that has been gained can be helpful in formulating an action plan
and may aid in executing it in a befitting manner. Advantages: This type of planning tool may give ample number of benefits to employers
which may aid OAK Cash and Carry in reaching to specific goals and objectives.
Through this tool, number of risks can be reduced to zero and may aid employers in
making effective decisions through which plans can get executed in much effective and
efficient manner. On the other hand, future programs can also be easily made with taking
help of effective approach that is related to maximising profitability and productivity of
this company.
 Disadvantages: Formulating innovative strategies is being considered as one of the aim
of this planning tool. On the other hand, some of limitations like future prediction may
vary because of changing nature of both technology and business policies across
international market (Joseph, 2014).
Contingency: It refers to backup plan which helps in protecting data and information of a
company in secure manner. In case of discrepancy like natural disaster and terrorists attacks
which may impact on entire activities of business, a firm like OAK Cash and Carry can protect
its data for longer period of time. Along with this, under this plan it is necessary for employers to
provide training to employees so that they can protect themselves from such dangerous
conditions. Advantages: Whenever a small business experience disruption or losses via natural
disaster, a contingency plan supports to reduce the loss of production. It may refers with
rerouteing data and escape routes for employees and supervisory duties for contingency
team members. A contingency plan also improves credit or insurance availability of the
companies thus to attain better coverage and minimise premiums.

 Disadvantages: Contingency plans are time consuming and expensive, not even just the
planning process but also there is requirement to train employees and improve their
practical knowledge (Fields, 2016). Identification of situation in which management
action is based upon wide range of variables with multifarious dimensions are quite
difficult.
Scenario: This tool is used in formulating different kind of strategies and policies as per
current trends of marketplace. This kind of plan helps in identifying recent trends through which
a company can create modifications in business. Advantages: Through this plan, OAK Cash and Carry can make improvement in
operational activities by reducing entire risks of business. It also helps in making proper
decisions related to utilisation of resources which aid in increasing efficiencies of
business as well. Disadvantages: In order to run business with latest trends, a company requires to keep
update business with high technologies. So, it increases expenses of business which put a
large impact on budget planning of company also. Therefore, to implement this planning
tool of budgetary tool seems to be difficult for SMEs like OAK Cash and Carry.
Application of planning tools used for budgetary control:
In order to prepare budgetary report, managers of OAK Cash and Carry has used various
planning tools like SCORO, Forecasting, contingency and scenario. In this regard, SCORO helps
in combining online management with budgeting process which aids in accessing entire financial
database at one place within system. Along with this, forecasting and other tools helps in keeping
update with latest trends of marketplace as well as in achieving efficiency of operational
activities.
TASK 4
P5 Comparison on how organisations are adapting management accounting systems
Most of the companies use management accounting so as to make management reports
and also to handle various situations which can occur while operating business effectively (Park
and Jang, 2014). Thus, some of the issues are explaining below due to which a company can face
loss in profitability:-

 Low quality products: In order to increase brand image, it is crucial that products that
are provided by companies are of excellent quality so that it can fulfil customer's
satisfaction. In relation with OAK Cash and Carry they have implemented inventory
management system which is assisting firm in delivering superior quality goods and
services to its customers. As a result it is increasing company's sales and profitability
in a speculated time frame.
 Financial management: Small business organisations generally face financial
problems in business like insufficient or unavailability of cash. Thus, in this process,
due to unmanaged financial situation, managers of OAK Cash and Carry used price
optimisation as well as cost management system for managing and maintaining the
accounts in a desired manner.
 Legal issues: Each country has their own legal norms, rules and regulations that are to
be followed by companies if they want to establish and run its business effectively. For
example: customised number of employees who will work in an organisation whether
small, medium or large.
 Uncertain future: It is determined as one of the uncertain part of business operations
because estimating future by an individual is not possible. Further by analysing data
and records company can have an overview about the growth of company in a
speculated time frame (Gitman, Juchau and Flanagan, 2015). Managers of OAK Cash
and Carry are taking this factor for making budgetary control. As a result it will assist
firm in minimising future crisis related to funds to some context.
 Inventory turnover: Management accounting assist companies in reducing issues
related to turnover as they keep an record of expenses that had happened in speculated
time frame. As OAK Cash and Carry is a retail store thus they need ample number of
products in their stores so this department help company in doing so.
 Unbalanced pricing system: This process is related to allocating price tags in a
particular commodities according to the material that was being used in manufacturing
process. It majorly assist firm like OAK Cash and Carry in applying price to its goods
in comparison with other rival companies who are working in the same field.
Applications for the tools used for financial issues:

 KPI: In order to know the efficiencies of the company this method is taken into
consideration because it assist firm in attaining set targets and goals in a limited period of
time. In addition to this, it also help managers in resolving issues that are related to
financial problems. By identifying issues and problems, financial managers can evaluate
sustainability of business whether company will progress or it will fail. Therefore, with
the help of KPI company will be able to address all the problems before it gets worse or
any kind of loss is faced by company. In this regard, there are two kinds of KPI are
available which helps in overcoming from financial issues via leading and lagging
indicators. In context with leading indicators, it helps in predicting modifications in
economy by analysing outcomes of an activity. Similarly, lagging indicators helps in
determining success or failure of a project. Benchmarking: This is an important tool if company wants to get successful in business
operations which generally helps in evaluating revenue by comparing with other
organisations of same field (Hillier and et. al., 2013). Benchmarking helps company in
setting up targets and objectives that are to be achieved in a given period of time of they
want to get better in terms of other rival firms. Moreover it is assist company in reducing
financial issues as it assist enterprise in measuring quality, cost etc., therefore,
benchmarking helps in accessing overall effectiveness in an organisation.
OAK Cash and Carry Zylla
 OAK Cash and Carry is a leading
company that provides variety of
services and facilities to its customers
like home appliances, clothing,
jewellery etc.,
 Products that are provided by OAK
Cash and Carry are tailor based so for
manufacturing goods they use job order
costing. This is helpful in applying cost
label according to various cost and
profit margins.
 Zylla also deals in same sector and they
are providing products that are of
different segments for example:
manufacturing, pricing etc., therefore,
for pricing they are using activity based
costing.

 Other than this, OAK Cash and Carry
is using price optimisation system of
management accounting because
company is dealing in wide range of
commodities. Therefore, products that
are used in this required to be labelled
with different pricing tags. As a result it
assist company in maintaining a level
in allocating prices for a particular
commodities.
 In relation with Zylla, they have
incorporated inventory management
system as company is required to store
a large number of inventories in their
warehouses. Further, managers
maintain a book in which all data and
stocks are included.
CONCLUSION
From the above report it has been concluded that management accounting is determined
as one of the necessary element in an organisation. As it assist managers in maintaining a record
of activities related to budget, cash flow statement, etc., further more it help company in taking
proper decisions for operating business in a better manner. In analysing operating revenue of
business, marginal and absorption costing methods are used. Other than this, budgetary control
planning tools are applied for forecasting profitability of business. This report also evaluated that
in dealing with financial resources, managers also use effective financial tools like KPI and
Bechmarking. Therefore, cost accounting system, inventory management system, price
optimisation system are assisting company in meeting all their set targets and goals in a
speculated time frame.

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