Management Accounting: An Analysis of Jaguar Land Rover

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Management Accounting

Table of Contents
Activity 1...........................................................................................................................2
Introduction...................................................................................................................... 2
Part A............................................................................................................................... 3
Part B............................................................................................................................... 5
Conclusion..................................................................................................................... 17
Activity 2.........................................................................................................................18
Introduction.................................................................................................................... 18
Part A............................................................................................................................. 18
Part B............................................................................................................................. 20
Conclusion..................................................................................................................... 21
Bibliography................................................................................................................... 22
1

Activity 1
Introduction
The concept of management accounting has come in the business context for
evaluating the business operational costs and preparing financial reports and budgets
for an organisation. It can also be called as managerial accounting. It is simply a
process in which an organisation can identify its financial positions and further make
progress in the finance. There are several administrative accounting systems that helps
the administration to take control over financial performance, make planning for further
improvement and enhance the profitability (Schaltegger and Burritt, 2017). The
management has the duty to keep track on the organisational events and activities and
prepare financial data. They have a duty to estimate the costs for future activities as
well. Various effective tools and techniques are utilised for successfully managing the
system of management accounting.
The study focuses on the application of management accounting system in the
perspective of Jaguar and Land Rover Automotive Plc. The organisation is operating in
the automotive industry and producing luxury and sport utility vehicles into the market. It
was formed in 2008 and it’s headquartered in Coventry, UK. More than 43000 people
are working under the organisation and their tireless activities have been making the
company a profitable one in the market of the country. In the financial year of 2017-18,
the company has generated the revenue amount of 25.8 billion GBP and net income of
1.1 billion GBP (Jaguarlandrover.com. 2019).
2

Part A
Explain management accounting and give the essential requirements of different
types of management accounting systems
The era of late 19th century has experienced a revolution in the world business. The
management realised that to make a successful business management, it is necessary
to control the financial aspect of the company. For that purpose, management
accounting system got the room to be flourished in the organisational business
concepts. It is a method in which the organisations can prepare financial report based
on the previous information of the business operation (Cooper et al., 2017). Various
management accounting system fulfil various requirements of the business.
Inventory management system
This system is used in the organisations to manage all types of inventory. The
requirement of reducing wastage of inventory within the operation can be fulfilled by
taking this method. There are various systems of inventory stock management and
these are LIFO, Just-in-time and FIFO (Muller, 2019). FIFO focuses on the first
manufacturing product to be sold first whereas LIFO focuses on the last or latest
manufacturing product. Concerned organisation follows FIFO method or style in the
stock inventory management.
Cost accounting system
Cost accounting system is applied for giving the focus on the overall process of
production. It is utilised for identifying the production cost. It helps the management to
find the best way to reduce the cost as well (Christ and Burritt, 2015). In this process,
previous operational costs can be analysed and at the same time future costs can also
be estimated. It is beneficial for the businesses as profitability can be enhanced by
using this method. Keeping track on raw materials is one of the main processes of cost
accounting system.
Job-order costing
This method signifies different costs of various jobs in the process of production of an
organisation. It clears the nature of all different jobs. Total cost of manufacturing can be
calculated according to the costs of different jobs (Brewer et al., 2015). It provides in
removing the excess of costing and the methods of costing can be done in more
efficient manner.
Explain different methods used for management accounting reporting
Budget report
Budget report consists of the report of various performances in the business operation.
It helps to calculate the imparity between actual performance and standard performance
(Brown et al., 2016). In this report, data of previous operational activities are effectively
analysed. All the income and expenditure sources are enlisted in the report as well.
Organisational goals can be successfully achieved by preparing proper budget report. It
also helps to control the proceedings of the management.
Cost managerial accounting report
It is always helpful to identify the detailed cost for making further business development.
All the detailed costs of entire organisational processes are enlisted in the report of cost
managerial accounting (DRURY, 2015). The management generally use this report for
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updating the latest information regarding the costs and they can also be able to forecast
the future financial development of the company.
Performance report
Performance report is prepared for increasing the efficiency in the activities which may
lead to the growth of a business organisation. It is necessary for the management to
quantify the business performances and this report is useful for making performance
appraisal. This internal process is used for eliminating the barren resources from the
production activities (Kokubu and Kitada, 2015). The report can be considered as the
motivation within the workplace as well.
Evaluate the benefits of management accounting systems and their application
within an organisational context
Management accounting systems are utilised within the operations for meeting the
business objectives. The system is helpful to track financial and non-financial activities
in the organisations. Several benefits can be found by executing the system
successfully.
Planning: In order to achieve sustainable business development, proper planning
should be made by the management of the organisations. It helps to identify the right
path of making effective operations. It is also necessary to set business goals.
Preparation and proper execution of the planning provides the opportunity to make
effective business processes and enhance the efficiency (Cazier et al., 2015). Risk
factors can be mitigated and profitability can be increased as well. Jaguar and Land
Rover Automotive Plc. has built an organised way to achieve its business objectives in
which the allocation of thee resources has been effective.
Organising: Without organising the activities, planning cannot be successfully
executed. Management accounting system helps to organise various processes which
improves the administrative growth among different departments of a company (Jamil et
al., 2015). Communication level can also be improved that largely helps to improve
overall performance of the company.
Controlling: It is important for the management to take control over all the business
activities within the workplace. This system allows the management to identify the
effects of the performance and it also helps to abolish the unproductive performance
from the business (Maas et al., 2016).
Critically evaluate how management accounting systems and management
accounting reporting is integrated within organisational processes
Management accounting systems are essential to analyse the internal performance of
an organisation. All the financial activities are integrated for improving the process of
budget and costing of the company. The information of management accounting based
on the application of the system. It enables the management to increase the level of
efficiency within various organisational performances, which would take them forward to
the high profitability zone (Rieckhof et al., 2015).
However, few limitations can also be found in using this system. It makes the
organisation more dependent on the prediction of various organisational factors.
Sudden chaos or uncertainty in the organisational performance cannot be managed
properly through this system.
4

Part B
Calculate costs using appropriate techniques of cost analysis to prepare an
income statement using marginal and absorption costs
Question 2
Cost analysis under 1st quarter
Amount Amount
Direct material £
18.00
Direct labour £
15.00
Fixed cost per unit £
15.00
£
75,000.00
Variable cost per
unit
£
9.00
Units of
production
5,000
Sold unit 4,500
Selling price of all
units
£
95.00
Opening stock Nil
Closing stock 500
Fixed Distribution
Cost
£
180,000.00
Variable
Distribution cost
10% of revenue
Table 1: Cost calculation in 1st quarter
(Source: Created by the learner)
Income statement in 1st quarter under absorption costing
Particulars Amount Amount
5

(Absorption)
Revenue £
427,500.00
Less:
Manufacturing
cost
Variable cost
Direct material
cost
£
18.00
Direct labour cost £
15.00
Variable
manufacturing
overhead
£
9.00
Fixed Factory £
15.00
Cost of goods
manufactured
£
57.00
£
285,000.00
Add: Opening Stock £
-
Cost of Goods
available for sale
£
285,000.00
Less: Closing stock 500 £
28,500.00
Cost of goods
sold
£
256,500.00
Add: Under absorption
of factory overheads
or
Less: Over absorption
of factory overhead
Cost of goods
sold at actual
6

Gross profit on
sale
Less: Fixed selling and
administrative expense
£
180,000.00
Variable selling and
administrative expense
£
42,750.00
Total Non
manufacturing
cost
£
222,750.00
NET OPERATING
INCOME
£
33,750.00
Table 2: Income statement under absorption costing
(Source: Created by the learner)
Income statement in 1st quarter under marginal costing
Particulars (Marginal) Amount Amount
Sales £
427,500.00
Less: Variable cost
Direct material £
18.00
Direct labour £
15.00
Variable overhead £
9.00
Cost of goods sold £
42.00
£
210,000.00
Contribution £
217,500.00
Less: Fixed
manufacturing overhead
£
15.00
£
75,000.00
Other fixed expenses £
7

15,000.00
Net profit £
127,500.00
Table 3: Income statement under marginal costing
(Source: Created by the learner)
Cost analysis under 2nd quarter
Amount Amount
Direct material £
18.00
Direct labour £
15.00
Fixed cost per unit £
12.71
£
75,000.00
Variable cost per
unit
£
9.00
Units of production 5,900
Sold unit 3,000
Selling price of all
units
£
95.00
Opening stock 500
Closing stock 2900
Fixed Distribution
Cost
£
180,000.00
Variable
Distribution cost
10% of revenue
Table 4: Cost analysis under 2nd quarter
(Source: Created by the learner)
Income statement under absorption costing
Particulars
(Absorption)
Amount Amount
8

Revenue £
285,000.00
Less:
Manufacturing
cost
Variable cost
Direct material
cost
£
18.00
Direct labour cost £
15.00
Variable
manufacturing
overhead
£
9.00
Fixed Factory £
12.71
Cost of goods
manufactured
£
54.71
£
322,800.00
Add: Opening Stock £
500.00
Cost of Goods
available for sale
£
323,300.00
Less: Closing stock 2900 £
158,664.41
Cost of goods
sold
£
164,635.59
Add: Under absorption
of factory overheads
or
Less: Over absorption
of factory overhead
Cost of goods
sold at actual
9

Gross profit on
sale
Less: Fixed selling and
administrative expense
£
180,000.00
Variable selling and
administrative expense
£
28,500.00
Total Non
manufacturing
cost
£
208,500.00
NET OPERATING
INCOME
-£
43,864.41
Table 5: Income statement under absorption costing
(Source: Created by the learner)
Income statement under marginal costing
Particulars (Marginal) Amount Amount
Sales £
285,000.00
Less: Variable cost
Direct material £
18.00
Direct labour £
15.00
Variable overhead £
9.00
Cost of goods sold £
42.00
£
247,800.00
Contribution £
37,200.00
Less: Fixed
manufacturing overhead
£
12.71
£
75,000.00
10

Other fixed expenses £
15,000.00
Net profit -£
52,800.00
Table 6: Income statement of 2nd quarter under marginal costing
(Source: Created by the learner)
Accurately apply a range of management accounting techniques and produce
appropriate financial reporting documents
Question No. 8
state whether, and why, absorption or marginal costing would show a higher
company profit for the period, and calculate the difference in profit depending
upon which method is used.
Costing of two products under absorption costing
Absorption Costing Product A Product B
Direct material £
1.20
2.3
Direct labor £
1.40
1.5
Fixed cost per unit £
1.10
£
1.10
Variable cost per unit £
0.70
0.8
Total Cost £
4.40
£
5.70
Units of production 250 100
Opening stock 0 25
Sold unit 225 110
Selling price of all
units
£
5.70
6.9
Closing stock 25 15
Table 7: Costing of two products under absorption costing
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