Management Accounting: Systems, Reporting, and Applications in Amazon

Desklib provides solved assignments and past papers to help students succeed.

Management Accounting
1

Table of Contents
Task 1...............................................................................................................................................3
Task 2...............................................................................................................................................8
Reference List................................................................................................................................15
Appendix........................................................................................................................................17
2

Task 1
Introduction
Different systems of managerial accounting will be conferred in report. Management accounting
is being used in the administrations from 19th century and the benefits of these systems serve
different purposes in the administrations. In this report, the benefits of these system will be
discussed and the requirements of these systems in the administration will be discussed. It will
help the administration to become more profitable. Amazon uses management accounting
systems for the services it provides (UK About Amazon., 2019). The services of this
administration are improved with the usage of different systems. Recording is essential in the
administration as it provides thorough facts regarding the financial condition. It will outline
systems of management accounting and the benefits of the different systems.
Part 1
1. Explain management accounting and give the essential requirements of different types of
management accounting systems.
It is a procedure of tracking all financial information and designing the cost of the
administration. It has been originated from Japan from of globalisation and business rebellion
(Kaplan and Atkinson, 2015). All the internal information of the administration can be tracked
with the help of this system in the administration.
Difference between management accounting and financial accounting will be given below:
Management Accounting Financial Accounting
1. This procedure is used for estimating cost
and the expenditure of the administration.
1. It is applied in the administration for
measuring the profitability and the after sales
processes of the administration.
2. It is used to keep the track of internal
information (Otley, 2016).
2. It is used for the external and internal both
the information.
3. The calculation and the costing are done
without any predetermined structure.
3. The calculation and the costing are done by
a proper predetermined structure.
4. Management accounting is not compulsory
for the administration.
4. Financial accounting is compulsory for all
the administration.
5. The reports under this method is done at any
time of the requirement.
5. The reports under this method is prepared
only at the end of one period.
Table 1: Difference between management accounting and financial accounting
Different management accounting systems are required in the administration and it serves
different areas of the administration. The essential requirements of the management accounting
will be explained below:
Cost accounting system
This classification is helpful for managing the budget of administration and the overall
expenditure of the administration can be managed by this system (Drury, 2017). Cost is
3

ascertained in the process of production and it allocates the resources effectively in the system of
administration. Effectiveness of planning is augmented and expenditure is reduced in this way. It
amplifies communication within different systems and profitability can be amplified under this.
Inventory management system
This system is indispensable for the administrations for high profitability and to prevent fraud in
the operational department of the administration. Different types of inventory can be managed
with this system. This system can be incorporated with a range of software and the technology
has made managing inventory easier than always (Loughran and McDonald, 2016). Different
types of inventory management systems are applied in various administrations as per the type of
operations such as FIFO, LIFO, just-in-time and others. Amazon uses just-in-time inventory
management in which the supply is directly delivered to the customers from the suppliers.
Inventory management augments profitability of the administration and the effectiveness of the
operation can be augmented with the help of it. Internal fraud can be prevented and the
efficiency of the delivery can be augmented.
Job-costing system
This is one of the effective system of the allocating production cost in the process as per the
completion of each business. It reduces the overall cost of the production process and the double
counting of the cost in the production process can be reduced by this pro cess of costing. It is
helpful to augment the profitability of the production process. Each job of the production process
is allocated cost after completion and different types of jobs are ascertained cost in this system of
costing.
Price optimisation system
This classification is used to discover out the most applicable price of the customers. The
willingness of the customers to pay for a certain product can be determined with the help of this
system. It is helpful for setting the accurate price of the product (Maskell et al., 2016). Setting
correct price is helpful for increasing sales of the administration and it can augment the
profitability of the administration. It includes the research and development and the market
research on the product. The willingness of the customers can be resolute by the market research
and costing of the production can be determined in this stage of the pricing.
2. Explain different methods used for management accounting reporting.
Reporting is used for recording all the transactions of the administrations. Different reporting
systems can serve various departments of the administration and helps to improve tracking the
performance of the administration.
Sales report
The revenue of business can be outlined in this report. The sales of all the departments are
enlisted in this report and it is helpful to comprehend the performance of the administration.
Performance of different departments can be understood from the sales report and the strength of
different departments can be done (Kenno et al., 2018). It is recycled in the decision-making of
the future production. It can be used in controlling the performances of the departments and the
4

profitability can be increased by tracking this report properly. It is helpful for resource allocation
in the administration and the performance of all the departments can be augmented by this report.
Budget report
The future estimation of income and expenditure is determined by this report. It is used to
quantity the enactment of the resources and controlling of the performance can be done with this
report. It can calculate the variance between the actual performance and the standard
performance of the resources and the departments of the administration. The profitability can be
amplified by reducing the expenditure and the planning of reducing the expenditure can be done
in the budget report. It is useful to improve the communication within different departments of
the administration.
Performance report
The performance of all the departments are consolidated in this report. It is used for the
controlling purpose. The unfertile resources can be eliminated from the processes and
reallocation of the resources can be done with this report. It is used for preparing the
performance appraisal and the internal performance of the administration can be improved with
this report. Effectiveness of the performances can be augmented with the performance report of
the business and it is a consolidated report from all the departments.
Item cost report
An administration is based on the production of different products and the cost of various
products are combined in the item cost report. It is useful for the administration to understand the
costs differently. It helps to reduce the costs of each products differently and the overall cost of
the production can be reduced in this way.
3. Evaluate the benefits of management accounting systems and their application within an
organisational context.
Management accounting is used in administration for various benefits of this system. The
benefits of management accounting will be explained below:
Planning
Planning is important for the administration as it helps in setting the goals and the resource
allocation can be done accordingly (Lanen, 2016). Future requirement of the organisation can be
understood from planning the goals and the direction of achieving the goal scan be set by proper
planning. The estimated uncertainty for the administration can be handled by planning the future
of the administration and risk can be reduced in the administration. Overlapping and the
unnecessary activities can be eliminated from the internal processes of the administration.
Organising
The synchronisation among different departments can be augmented by organising the plans
properly (Libby, 2017). Communication within the departments can be augmented by proper
organisation of the planning. It is helpful for increasing the profitability of the administration.
5

The administration of all the departments can be augmented by organising the plans and the total
income of the administration can be augmented by the proper organisation of planning.
Controlling
It is used for managing the performances of the resources. Unproductive elements can be
eliminated by controlling the performance of resources. Performance can be augmented and the
productivity of the administration can be improved by controlling process. Accurate performance
can be set and the standard of performance can be amplified with proper controlling.
Decision-making
Management accounting is helpful for tracking the information and the collected information
helps in decision-making. Effective decision-making reflects on the future profitability and the
prosperity of the administration.
4. Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes.
According to Chenhall (2015), management accounting system is used in the administration with
the combination of the reporting. It is used for serving different departments of the
administration. Planning and the decision0making can be improved with the help of integrating
management accounting system and management accounting reporting. Efficiency of the
resources can be amplified by the application of reporting system and the effectiveness of the
performance can be augmented by these systems.
On the other hand Crawford (2017) stated that management accounting is not mandatory for the
administrations only the financial accounting is enough as it can be handled by the internal and
external both the parties. He also stated that different management accounting systems that are
becoming popular that are actually obtained from the financial accounting information.
Though the financial accounting covers a wide area but the integration of management
accounting systems and reporting mainly support the internal system of the administrations.
Part 2
Activity based costing
This method of costing is important for the administration as the cost is ascertained as per the
completion of each activity. It is helpful for the administration to reduce the all over cost. Double
counting of the cost can be eliminated with the help of this system.
Merits
This method of costing helps to recognise each activity of the production. The cost is ascertained
as per the activity of the production and the overall cost can be reduced by this method of costing
(May et al., 2015). The quality can be improved easily as the nature of each activity is clear in
this system of costing. Proper pricing can be set with the help of this system.
Demerits
6

The method is expensive and time consuming (Narsingh et al., 2016). It needs more expertise
people to implement the system in the administration and the small administrations cannot use
this costing system. The method of calculation creates confusion in the system.
Discounted cash flow methods
This method estimates worth of investment and total cash flow can be considered under this
system. The future value of money can be considered under this system.
Merits
The entire cash flow is considered under this method and the time value of money is considered
in the DCF analysis method. It is helpful for the administration to augment the profitability of the
administration. Worth of all the investments can be recognised from this method (Pavlatos and
Kostakis, 2015). It can prevent wastage of funds in the administration.
Demerits
Calculation of discounted cash flow is difficult than other methods and this method is mostly
dependent on the assumption. If the assumption is wrong once, the entire calculation can go
wrong.
Breakeven analysis
Break-even analysis is done for understanding the amount of sales the administration should
achieve for avoiding loss (Propa et al., 2015). The cost and volume of production both are
considered under this analysis.
Merits
The profit and loss of the administration can be measured by this type of analysis. Effect of
changes in the sales can be assumed by the break-even analysis. Fixed cost and the variable cost
can be calculated in detail by this method.
Demerits
This method assumes that the cost is same for all the levels of outputs and this method can be
applied only on the single product (Schaltegger and Burritt, 2017). Preparation of the break-even
chart is time-consuming and an expensive process.
Conclusion
It can be stated that the inventory management is the most important factor for Amazon and
following proper system to manage the inventory will reflect in the profitability of the
administration. Reporting system is interrelated with the different types of management
accounting systems and it boosts the internal efficiency of the administration. The profitability of
the administration is totally dependent on the management accounting systems and reporting and
different analysis and the evaluation of the systems have been explained in the above portion.
7

Task 2
Part 1
Fixed cost
Type of cost, which does not change with the production volume of the administration, is called
fixed cost. Fixed cost is also changed but in long-term (Yu et al., 2016). Plant, building,
machineries are considered as fixed costs of administration.
Variable cost
This cost is changed with the production volume and some of the examples of this cost are direct
material and direct labour etc.
Absorption costing
This costing is method is more applicable in the administrations in which the inventory is
changing on constant basis (Fisher and Krumwiede, 2015). It considers all the costs as the unit
production cost and amount of under and over absorption can be understood from this process.
Marginal costing
Variable costing is considered as the unit cost of production and it is more helpful for the static
inventory in the administration (Labro, 2019).
Profit and loss statement under Absorption costing
As on 31st May
Particulars (Absorption) Amount Amount
Revenue £
4,200,000.00
Less: Manufacturing
cost
Variable cost
Direct material cost £
1.38
Direct labour cost £
1.88
8

Variable
manufacturing
overhead
£
-
Fixed Factory £
1.50
Cost of goods
manufactured
£
4.75
£
1,900,000.00
Add: Opening Stock £
-
Cost of Goods
available for sale
£
1,900,000.00
Less: Closing stock 0 £
-
Cost of goods sold £
1,900,000.00
Add: Under absorption of
factory overheads
or
Less: Over absorption of
factory overhead
Cost of goods sold at
actual
Gross profit on sale
Less: Fixed selling and
administrative expense
£
-
Variable selling and
administrative expense
£
630,000.00
Total Non
manufacturing cost
£
630,000.00
NET OPERATING
INCOME
£
1,270,000.00
Table 2: Income statement of Eymen Limited under absorption costing
(Source: Created by the learner)
Profit and loss statement under Marginal costing
As on 31st May
Particulars (Marginal) Amount Amount
Sales £
4,200,000.00
Less: Variable cost
Direct material £
1.38
9

Direct labour £
1.88
Variable overhead £
-
Cost of goods sold £
3.25
£
1,300,000.00
Contribution £
2,900,000.00
Less: Fixed manufacturing
overhead
£
1.50
£
600,000.00
Other fixed expenses £
15,000.00
Net profit £
2,285,000.00
Table 3: Income statement of Eymen Limited under marginal costing
(Source: Created by the learner)
Profit and loss statement under Absorption costing
As on 31st June
Particulars
(Absorption)
Amount Amount
Revenue £
3,780,000.00
Less:
Manufacturing cost
Variable cost
Direct material cost £
1.38
Direct labour cost £
1.88
Variable
manufacturing
overhead
£
-
Fixed Factory £
1.50
Cost of goods
manufactured
£
4.75
£
1,900,000.00
Add: Opening Stock £
-
Cost of Goods
available for sale
£
1,900,000.00
Less: Closing stock 40000 £
10

190,000.00
Cost of goods sold £
1,710,000.00
Add: Under absorption of
factory overheads
or
Less: Over absorption of
factory overhead
Cost of goods sold at
actual
Gross profit on sale
Less: Fixed selling and
administrative expense
£
-
Variable selling and
administrative expense
£
567,000.00
Total Non
manufacturing cost
£
567,000.00
NET OPERATING
INCOME
£
1,143,000.00
Table 4: Profit and loss statement of Eymen Limited under absorption
(Source: Created by the learner)
Profit and loss statement under Marginal costing
As on 31st June
Particulars (Marginal) Amount Amount
Sales £
3,780,000.00
Less: Variable cost
Direct material £
1.38
Direct labour £
1.88
Variable overhead £
-
Cost of goods sold £
3.25
£
1,300,000.00
Contribution £
2,480,000.00
Less: Fixed manufacturing
overhead
£
1.50
£
600,000.00
Other fixed expenses £
11

15,000.00
Net profit £
1,865,000.00
Table 5: Profit and loss statement of Eymen Limited under marginal costing
(Source: Created by the learner)
From the calculation it can be stated that the marginal costing is more beneficial for the
administration and it depicts that the inventory level of the business is not changed much and it is
profitable for the administration.
Part 2
To: The Managing Director of Amazon Inc.
From: Financial Advisor
Date: 12.06/2019
Subject: Fundamental Analysis of Amazon UK
Table 6: Ratio analysis of Amazon UK
12