Management Accounting Report: Oak Cash and Carry Case Study Analysis

This report provides a comprehensive overview of management accounting, focusing on its application within the retail sector, specifically using Oak Cash and Carry as a case study. It delves into the definition and importance of management accounting, contrasting it with financial accounting and highlighting various management accounting systems like cost accounting and price optimization. The report then explores different types of management accounting reports, such as performance and inventory management reports, and their significance in decision-making. A key section analyzes cost determination techniques, including marginal and absorption costing, with calculations and comparisons. Furthermore, the report examines various planning tools used for budgetary control, discussing their advantages and disadvantages. Finally, it includes a comparison of how different companies adapt their management accounting systems to address financial problems, offering valuable insights for students and professionals alike. The report concludes with a summary of the findings and references.

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................4
TASK 1...........................................................................................................................................4
P1 Management accounting and requirement of its systems......................................................4
P2:Different types of management accounting reports...............................................................6
TASK 2............................................................................................................................................7
P3: Techniques used to analyse cost with marginal and absorption costs..................................7
TASK 3 .........................................................................................................................................11
P4. The advantages and disadvantages for different types of planning tools used for budgetary
control:......................................................................................................................................11
P5. Comparison on how companies are adapting management accounting systems to respond
to financial problems:................................................................................................................13
CONCLUSION .............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting could be described as the process of identifying, analysing,
interpreting and communication of financial information and data that aids management to plan,
evaluate and handle a firm (Management accounting, 2018). It includes preparation of various
reports and accounts that assist managers in making short and long term financial decisions and
to present it to people inside as well as outside firm. The report is based on the case study of Oak
cash and carry that belongs to retail industry and provide offers wide variety of products to
retailers, local business, caterers, offices and other customers. The project will discuss the
concept of management accounting, its various systems and different reports that could be
prepared by firm. Further it includes cost determination by using various cost analysis
techniques. Moreover, various planning tools with their merits and demerits are to be discussed
to over come the financial problems that a firm faces. Lastly a comparison between two leading
companies will be provided.
TASK 1
P1 Management accounting and requirement of its systems
Definition of Management Accounting : According to National Association of
Accountants management accounting could be described as “analytical framework for
identifying,measuring, collecting, examining and presentation of financial information so as to
take appropriate decisions for ensuring optimum use of and accountability for its resources.”
Management accounting involves making use of various methods, techniques, planning tools and
systems that assist managers in formulating policies, plan and handling its varies operations
effectively (Carlsson-Wall, Kraus and Lind, 2015). By providing means to track down its
internal costs incurred on various processes it further acts a tool for taking authentic and relevant
decisions in regard to manufacturing, operations and business investments. Management
accounting in general mixed with financial accounting although both differs with each other in
mentioned below ways:
Difference between management accounting and financial accounting:
Basis of
comparison
Management accounting Financial accounting

Meaning Management accounting provides
information and data that is been
utilized by the people within the
company such as managers for
decision making purpose. It is as this
accounting includes information
related to specific products, cost
centres etc.
Financial accounting majorly give
information that is primary used by
those from outside organization such as
stakeholders. It includes data and
statistics related to entire company and
its various operations.
Mandatory Management accounting is optional
to be implemented by any firm.
Financial management is obligatory by
law for every enterprise to applied in its
company as per set standards.
Thus for a small scale firm like Oak cash and carry it becomes critically important to
implement an effective management accounting that will aid company to monitor its transactions
related to various departments. Further implementation and integration of management
accounting with company will also assist managers to determine efficiency of costs of its various
business activities, budgets, financial performance and then accordingly allocate its limitedly
available resources in various segments comprising production, sales and investments.
Various Management Accounting Systems
Management accounting involves certain internal systems that enables an enterprise to
determine, measure and analyse effectiveness as well as efficacy of its various functions.
Mentioned below are various management accounting systems that are been consider by Oak
cash and carry :
Cost accounting System: It is also called as product costing system that involves
framework for ascertaining cost of goods for determining its profitability, product valuation and
administrating expenses (Granlund, 2011). It counts in one of the most prominent management
accounting system that when applied by Oak cash and carry will aid in track down those
products that are generating high profits for the company and ones that are not much in demand.
Besides, this it will enables managers of Oak cash and carry to compute value of its raw
materials, work in progress and finished goods. This, it make it easy for managers to prepare
authentic financial statements that helps top management in formulating realistic and effective
financial strategies. Thus, as company is related to retail sector this system will help managers to

monitor its fund flow that is been invested in its various departments and also to prepare budgets.
It includes two types of costs:
Direct Cost : It is associated with production and manufacturing of a specific good and
includes costs related to direct labour, direct raw materials, commissions, fright out expenses etc.
Standard Cost: It involves substituting an expected expense for the actual one in
accounts and then determining, recording the deviation between the two. It includes making cost
assumptions for a specific business operations within a firm.
Price optimisation System: This management accounting system is associated with
evaluating and calculation of product prices that are having high probability of generating best
outcome and to add on to profitability of company. This system not only focus on fixing prices
but also to attain those revenue and margin targets through high sales volumes. For Oak cash and
carry adoption of this system will help in implementing best pricing strategy for its products that
besides maximizing its profits will have no negative impact in the demand of its products by
customers.
Job Costing System : It is generally used as technique for a particular good or group of
products. For Oak cash and carry that manufactures various products that are different from one
other this forms to be one of the most effective system to be implemented (Johnson, 2013). This
system creates record of job cost for all products that are been manufactures and take into
consideration three types of costs i.e. direct labour, direct material and overhead expenses.
Therefore adoption and application of these system by Oak cash and carry into its
business management will reap various benefits for the firm including preparing reliable and
realistic forecasts related to its cash flows, sales etc. Further it will also help in gaining proper
understanding about its performance variances, to determine rate of return of a particular product
or project and to improve its decision making process regarding quality, quantity, product ,price
and so on.
P2:Different types of management accounting reports
Management accounting includes representation of accounting information that are
processed within a company and are presented in certain standardize or non standardize manner
in the form of reports. preparation of these financial reports forms critical part that provided the
actual picture of business performance during a specific time period. These reports in context to
Oak cash and carry could assist managers in taking short term decisions and those related to

routine business operations. Further these reports could also assist in tracking down, calculating
and recording all expenses that are been incurred by firm in its process of production and in
ascertaining profits that are been generated out of sales. Mentioned below are some most
prominent reports that could aid managers of Oak cash and carry to determine its current
financial position for a particular time period.
Performance Report: This report includes a in depth analysis of performance of
employees against set benchmarks and a comparative study about the actual and expected level
of their performance (JOSHI and et. al., 2011). This is one of most elaborative financial
statement that measure and determines the actual output of a particular activity in reference to its
allotted budget within a specific time frame. For instance for Oak cash and carry theses reports
could be formulated in regard to employee annual performance, success report of a particular
product, project etc. Further manager could utilize its staff annual performance report to
ascertain their overall performance that can aid them in taking decisions regarding promotion,
training, transfers etc.
Inventory Management Report : This report includes information related with the
opening and closing stock of an organization. In context to Oak cash and carry these reports
could assist managers to review current status of their inventory, to ascertain reorder quantity
and time period etc. Further various techniques that Oak cash and carry could implement are just
in time, EOQ, turnover ratio etc. that could assist management to ascertain its actual profitability,
demand of its products, total turnovers etc.
Thus Oak cash and carry applies management accounting system that reveals out
important information regarding the financial position of firm, current status of its
investors,stakeholders, demand and sales records etc.
TASK 2
P3: Techniques used to analyse cost with marginal and absorption costs.
Cost : it could be described as the amount that is been paid by a firm to procurer its raw
materials, resources, utilities for production and final delivery of its finished products and
services (Klychova, Faskhutdinova and Sadrieva., 2014). Management accounting involves
computation of two types of cost that is generally incurred by a firm i.e. fixed cost and variable
cost. Fixed cost is the set amount that firm is liable to incurred even at zero production as it

includes expenses related to rent, electricity, salary of employees etc. Variable cost varies as per
the level of production. Marginal Cost: It is a variable cost that involves expenses related to material and
labour. It is cost incurred by Oak cash and carry in producing one extra unit of a product.
At initial level this cost seems to be quiet high for a Oak cash and carry as it involves
expense related to raw material, promotion, selling, administration etc.
 Absorption Cost : Manufacturing costs which are engrossed by the production of quantity
are included in this cost. Absorption cost us covers the overall cost of finished goods.
Fixed cost and variable cost along with labour cost and direct material are included in
these costs. Oak Cash & Carry uses absorption cost when they recognise the company's
financial account for all its expenditures (Mistry, Sharma and Low, 2014). This
managerial accounting method is used to determine complete cost of production of
manufacturing goods. Relation of absorption cost and net income is negative. Whenever
absorption cost of Oak Cash & Carry would decrease, it would result in rising of its net
income and vice versa.
Calculation of net profit by using marginal costing method:
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
Through Marginal costing method the net profit for the Airdri is $17500 for current if
goods are sold at $55 selling price.
Computation of net income by using absorption costing method:
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 + 3300

selling and administrative cost = 1 * 600 + 2700)
Net profit/ operating income 15675
Management uses absorption costing method to calculate net profit and result is $15675
that is $1875 less than marginal costing method. So Manger of Airdri must adopt the marginal
costing to calculate their net profit.
Break even analysis: The important point at which every cost and expenses needed to
provide equal outcomes for It is known as effective point in which company neither get profit or
nor goes into any kind of loss. In addition all expenses are equal to all income at this point.
 Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
Company make sales of 800 product at $40 for its and a break even in sales revenue at
$20000 for the current year.
b. Calculation of breakeven point in accordance to sales revenue
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. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: It is known as one of the certain prospect that is affiliated with better
management of various integral amount of stock at market value. It is termed as more certain
ways to provide impressive ways as an end sales volume which would be depend as appropriate
business range to overall break even analysis.

d. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
TASK 3
P4. The advantages and disadvantages for different types of planning tools used for budgetary
control:
Budget : Budget can be termed as the estimation of revenues and expenses for a definite
period of time. It can be re-evaluated and compelled on a recurrent bases (Budget, 2017). It is
used to strategically conduct financial business activities by allocating a planned set of financial
resources to achieve the objectives.
Budgetary Control
Budgetary control is the process of setting up financial goals with given budgets and
comparison of the actual outcome with the estimated one. It sets up a framework to fulfil
financial objectives and the continuous comparisons help executives to eliminate resources that
unnecessarily add to the cost of the activity.
There are certain instruments, known as planning tools, that are used for budgetary
control. These tools guides the managers in developing a blue-print of the task upon which the
actual execution of financial activities takes place (Moser, 2012). As planning is the most crucial
step towards the achievement of objectives, it is necessary for financial managers to implement
these tools in order to maintain the cost effectiveness.
Oak Cash & Carry is a retail outlet situated in the United Kingdom which provides a
wide range of products to different businesses like department and chain stores, offices, caterers,
newsagents and so forth. The following assessment will be based upon the advantages and
disadvantages of the planning tools used by this company. These are:
 Forecast Planning Tool:
This planning tool is applied by companies for strategically planning the activities
according to the predictable outcomes in the future. Companies like Oak Cash & Carry use this
method to foresee the impacts of their actions in the future and formulate their strategy
accordingly (Schaltegger and Csutora 2012). But this methods has its advantages and
disadvantages which are as follows:

Advantages:
Usually, companies depend on the data and the information they receive through their
analysis. Forecasting planning tool would help them predict the market conditions of the future,
how to gain competitive advantage from rising competition, how to innovate their resources to
better satisfy customer demands and how to expand their business activities.
Disadvantages:
This tool is qualitative in nature. Seeing this, this can be said that it is just not possible to
predict the future accurately. As business environment is dynamic, Oak Cash & Carry can face
any situation in future that they are unprepared for. Scenario Planning:
In this tool, the financial manager takes limited future outcomes into account and
accordingly work its strategy towards each outcome. This method is helpful where alternate
strategies are needed to developed to execute a single task. There are certain advantages as well
as disadvantages associated with it. These are
Advantages:
Since there are not many factors in this tool that are taken into account, managers of Oak
Carry & Cash can accurately predict the future outcomes and develop apt strategies for each
outcome (Ward, 2012). This tool serves best where a long range planning is needed if any
uncertain situation arise.
Disadvantages:
Using this tool can be time-consuming as a deep knowledge of various factors are
required to assess those and managers will not be able to use this where spontaneous decision-
making is required. Contingency Planning Tool:
Managers at Oak Cash & Carry use this tool to derive outcomes of situations not-likely to
arise during the usual planning, i.e., during contingency.
Advantages:
This tool is beneficial as it reassures the employees that the company considers their
safety as its priority.
Disadvantages:
However, this tool need modifications as the nature of contingencies changes overtime.

TASK 4
P5. Comparison on how companies are adapting management accounting systems to respond to
financial problems:
The financial aspect of any business is subject to various problems. Companies find it
difficult to deal with these issues as they hinder the financial goals and optimisation of financial
resources of the companies (Wickramasinghe and Alawattage, 2012). Oak Carry & Cash also
faced many financial problems in the recent past seeing the local country's scenario. But, there
are different management accounting systems that help a firm in responding to such financial
issues and in achieving its financial targets. These tools are: Financial Governance:
This system relates with how a company manages its financial information. It includes
how a company collects financial data, manages the performance and controls all the information
related to finance. These are important for a company like Oak Cash & Carry as it would help
the firm in developing to be financially strong internally. It would help reduce the material errors
and penalties of the firm, building its trust with the stakeholders. A good control on the financial
resources of a company assures the optimisation of company's financial resources. Oak Cash &
Carry can take steps towards ensuring a good financial governance in their firm, such as
 It can develop or purchase software to record and manage all their financial data.
 It can ensure a detailed summarisation of company's information which includes the data
from every part of the firm, historic as well as real-time
 A system that gives detailed information on all the data processes required to finish
financial tasks.
Taking these steps, our firm can facilitate easy data processing which will make the task
time efficient.
 Benchmarking:
This management accounting system is used to identify areas which are underperforming
by comparing their tasks with those of other departments (Windolph and Moelle, 2012). It may
or may not include the whole organisation at once and rather few departments. Benchmarking
can be done in two different ways, either it can be result-oriented, where comparisons are made
on the basis of end result achieved or, performance-oriented, where comparisons are made on the

basis of the process by which the outcome was achieved. Oak Carry & Cash can use this system
to compare the performance of its various departments which in end, would help them focus on
areas that need attention. Also, benchmarking would help the companies maintain a close look at
the internal as well as external environment, that would help the company to ensure effective
performance.
 Key Performance Indicator:
This system compares organisation's or it's employee's performance in a particular
objective. These are quantifiable aspects that companies use to determine their financial health
by applying various metrics. Oak Cash & Carry can introduce this system as it would give the
company a quantified outcome by which the company can compare its success rate. The
managers of the firm can set operational goals that can be measured in quantifiable terms, which
can link to the performance goals of the employee(Zainun, Tuanmat and Smith, 2011). Then the
managers can provide a process to achieve these operational goals. And once the employees
achieve the outcome, these results can be evaluated. This would help increase the productivity of
its employees as well as company can try innovative and cost effective ways to accomplish their
internal tasks.
 Comparison between Oak Cash & Carry & A David & Co
OAK CASH & CARRY A DAVID & CO
1) The firm uses financial governance which is
considered as one of the best technique
which helps firm to increase its stakeholders
confidence along with reduction in
regulatory penalties and better decision-
making (Kuula, Putkiranta and Toivanen,
2012)
This company uses benchmarking tool which
is has a vast concept and is meant for
companies larger in size. This results in under
utilisation of this technique and poor
measurement of performance.
2) This company uses Key Performance
Indicators to compare performance of its
This company uses the tool to evaluate its
financial health and is yet to use it effectively