Management Accounting Practices in Mark and Spencer

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Management accounting
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Table of Contents
Introduction......................................................................................................................................3
LO 1.............................................................................................................................................4
P1..............................................................................................................................................4
P 2.............................................................................................................................................5
M1............................................................................................................................................6
D 1............................................................................................................................................7
LO 2.............................................................................................................................................8
P 3.............................................................................................................................................8
M 2.........................................................................................................................................10
D 2..........................................................................................................................................11
LO 3...........................................................................................................................................12
P4............................................................................................................................................12
M3..........................................................................................................................................15
LO 4...........................................................................................................................................16
P 5...........................................................................................................................................16
M 4.........................................................................................................................................18
D 3..........................................................................................................................................19
Conclusion.....................................................................................................................................20
References......................................................................................................................................21
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Introduction
This report demonstrates the understanding of the system which is to be used in the operations of
the mark and spencer company. The report explained the different type of accounting system
which is used by company and also shows how the management accounting reporting is used by
the organization. The report also evaluated the different benefits of this system after the
application. This report helps in preparation of the income statement using the help of absorption
as well as the marginal costs and also by computing the per-unit cost of the marginal and the
absorption cost separately.
This report also reflected the use of management planning tools in the mark and spencer and how
these tools help in preparation and the forecasting of the budgets. Report also involves the
comparison of the ways through which management accounting respond to financial problems.
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LO 1
P1
It is the accounting that is used in the business organization to manage all the activity of the
business. It is also much beneficial to financial management so that all the financial statement
can be made and recorded properly as per the demand. Financial statements are the part of the
management accounting and they are prepared for the outsider so that it will help them to make
the decision regarding the investment in the company.
Various types of management accounting system that is followed by the company: -
1. Cost Accounting System: - It also shows the management of the cost of the product so
that the customer can able to accept the product at a reasonable price. It is also able to
find out all the factors that will affect the price of the product and also make the
initiatives to control (Monden, 2019).
2. Management of inventory: - under the management the main activity that is to be
performed is to manage the stock of the product so that it can able to complete the
demand in the market and the shortage cannot occur. Under the inventory management,
the team has to first study the market and also to calculate the requirement of the
particular product in the market so that inventory can get available in the market and also
at a reasonable price so that individual customer can able to buy (Muller, 2019).
3. Price-Optimization: - the accounting system that helps in making the perfect
combination of the price of the product so that normal customer can able to buy the
product. It also shows the effect in the sale or demand of the product based on the change
in the price of the product (Gallego, and Topaloglu, 2019).
4. Job costing: - the assigning of manufacturing costs to each product also keeping the track
of the expenses. Mark and spencer used this system as per the requirement and also the
product can be easily identified and so that the record can be made of all the expenses
that are incurred.
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P 2
Methods of Management Accounting Report
1. Cost Accounting Report: - it is one of the report that is used by the costing department
to analysis the cost of the product and also it is helpful in finding all the factors that are
affected the price of the related product such as raw material, labor, fixed cost that are
included in the product and all the variable costs that are get fluctuated as per the change
in the market and also based on the market demand (Monden, 2019).
2. Inventory Management: -The management of the stock of the product as well as the raw
material. The report shows all the tracking that is related to the fluctuation of the
inventory inside as well as outside the company. It also provides the information related
to the inventory that is to be required by the market and also the quantity of the inventory
that has been made as stock into the warehouse so to meet the emergency situation in the
market (Muller, 2019).
3. Budget Report:- the main of this report is to form the budget so that the company can
able to follow the given budget. It wills also beneficial in achieving the goal from the
given resources as proper budgets are made by the company in order to achieve the goal.
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M1
Merits of the management accounting system
Job costing
Merits
One of the merit of the Job costing is that it allows the management of the company to compute
the profits which are earned on the individual jobs which further helps them to decide about the
particular job weather it would be desirable to pursue in the future. This method can be best for
the organizations which operate around the custom works.
Inventory management
Merits
 It assists in enhancing the efficiency and the operational functions of the company.
 It guides in the mechanization of the targets and also in the integrating of the whole
business.
 It also assists in minimizing the expenses and boosting the amount of profit and sales.
Cost accounting system
Merits
 This method assists in the planning of the business processes.
 It aids in the evaluation and identifies the reason for loss in the firm.
 It supports in the control and replenishing of the material.
Price optimization system
Merits
 It supports in finding the goods or the services which assists in earning profits and which
do not assists.
 It aids in finding the demand for the goods on basis of the responses from the customers
by variances in the price at different areas.
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D 1
Integration of management accounting and reporting system
Marks and spencer uses both of the accounting and reporting method in the company because it
includes the several functions such as making of the goods and services and selling in the
market, minimizing the expenses and fixation of the prices of the different products, maximizing
the earning or the income of the firm etc. All these functions are achieved by using methods of
the management accounting system and for more development and growth of the firm
management reporting system are used because it includes estimation about the future conditions
or the situations of the company & these reports further helps in finding the problems or the
errors related to the operations of the company and shows the ways of tackling such problems or
the issues.
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LO 2
P 3
Marginal costing
Under this costing involves the principle by the help of which variable costs are charged to the
unit costs and its fixed costs are related to the given period. Changes in the level of the volume
are based on the behavior of the costs. If accumulation of the cost per unit is based on the
variable cost then these variable costs are also known as the marginal cost.
There are differences between the marginal and the direct costs even if these are considered as
interchangeable terms, as the marginal cost includes the variable nature of expenses and the
direct cost involves the costs which are not fixed. The further marginal cost helps in identifying
the income by showing the dissimilarities between the variable and the fixed cost.
Absorption cost
As this method helps in the valuation of the stocks this is one of the most important parts of the
cost accounting system. Absorption cost includes the expenses on the manufacturing of the
products which includes both variable and the fixed costs such as the labor or overhead and the
material cost. By providing the more definite report about the cost incurred it helps in producing
the stocks.
Following shows the marginal and the absorption cost sheet of the Oshodi PLC which
determines the profit:
Production of units:
Particulars November
Decembe
r
Sales (Units) 10,000 12,000
Production (Units) 12,000 10,000
Opening Stock (Units) - 2,000
Closing Stock (Units) 2,000 -
Absorption rate:
Particulars
Amount
(£)
Budgeted overheads 99,000
The normal level of
Activity 11,000
Absorption rate 9
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Cost Sheet as per Absorption
Costing:
Particulars November December
Amount
(£)
cost per
unit Amount (£) cost per unit
Direct Material 216,000 18 180,000 18
Direct labour 48,000 4 40,000 4
Prime Cost 264,000 22 220,000 22
Variable Production Overheads 36,000 3 30,000 3
Fixed Production Overheads 108,000 9 90,000 9
Factory Cost 408,000 34 340,000 34
Fixed Admin Overheads 26,000 2.17 26,000 2.6
Cost of Production 434,000 36.17 366,000 36.6
Add: Opening Stock - 36.17 73,200 36.6
Less: Closing Stock 72,333 36.17 - 36.6
Cost of Goods Sold 361,667 36.17 439,200 36.6
Over/Under Absorption of
Overheads -9,000 -0.9 9,000 0.75
Fixed Selling Costs 14,000 1.4 14,000 1.17
Cost of Sales 366,667 36.67 462,200 38.52
Profit 133,333 13.33 137,800 11.48
Sales 500,000 50 600,000 50
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M 2
Cost Sheet as per Marginal
Costing:
Particulars November December
Amount
(£)
cost per
unit Amount (£) cost per unit
Sales 500,000 50 600,000 50
Less: Variable Cost
Direct Material 216,000 18 180,000 18
Direct labour 48,000 4 40,000 4
Production Overheads 36,000 3 30,000 3
Add: Opening Stock - - 50,000 -
Less: Closing Stock 50,000 - - -
Total Variable Costs 250,000 25 300,000 25
Contribution 250,000 25 300,000 25
Less: Fixed Costs
Fixed Admin Overheads 26,000 2.17 26,000 2.6
Production Overheads 99,000 8.25 99,000 9.9
Selling Overheads 14,000 1.4 14,000 1.17
Total Fixed Costs 139,000 11.82 139,000 13.67
Profit/Loss 111,000 13.18 161,000 11.33
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D 2
Analysis
By analyzing the above solutions under the absorption costing system which shows in November
the company earned a profit of 133,333 on the sale of 500,000 and in December the company
earned a profit of 137,800 on the sale of the 600,000. So the profit difference is only of 4,467. In
November there is an under absorption of 9000 and over absorption of the 9000.
By analyzing the above data under the marginal costing system in which shows in November
company earned the profit of 111,000 and 161,000 in December, there is a difference of 50,000
in the profit. The contribution of the November month is 250,000 and 300,000 in December.
This analysis shows that the company performed very well in December by both marginal and
absorption costing statement of the company
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LO 3
P4
Planning tools are the instruments that have been used in management accounting which help the
management in guiding the actions of the organization which will facilitate the implementation
of intervention, program, and initiative. Planning tools will help in initiating the organizational
timeline, the checklist of the action items, the checklist of things that have to do, and meeting
agendas sample (Matabele, & Van, 2017).
Some of the planning tools have been discussed below:
Variance analysis: This analysis can be said as an analysis of the planned and actual numbers in
the organization. By doing variance analysis in the organization, the manager will be able to
identify the overall performance of the organization by comparing actual standards. Variance
analysis has been concerned with comparing the actual performance with the budgeted. Before
any actions that have been started in the company, they set some standards of cost and revenue
that they are expected to incurred by the operations within the organization. while comparing the
performance when the actual performance is lower than the budgets then this situation is not
good for the company, and this difference in the performance is known as variance which has to
be solved in the organization by taking necessary steps (Conine, & Donald, 2017).
Capital Budget: This is a tool that has been used in management accounting. This tool will help
the management in finding their expenses which are very big and which have been connected
with the performance. The budget includes both the investment and expenditure which has been
concerned with long-term purpose. The capital budget has been composed of the receipts and
payments related to the capital.
Master Budget: This budget has been concerned with the lower-level budget for the
organization. This budget is based on the format of monthly or quarterly. It has covered the fiscal
year of the company. This is an expensive business strategy. It helps in documenting expected
future sales, purchases, level of production, future expenses that have been incurred, and capital
investments. This budget includes all the other types of financial budgets, budgeted balance
sheet, and income statement (Oladejo, 2013).
Operating Budget: It has been concerned with all the revenue and expenses of a particular
period. It has been prepared in advance. This budget helps the organization in their planning
about their operations. It helps in creating a goal or plan for which the organization attempts its
actions for accomplishing that goal.
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