Management Accounting Report: Pizza Restaurant Case Study Analysis

This report provides a comprehensive analysis of management accounting principles applied to a new pizza restaurant venture. It begins with an introduction to the business, its mission, and vision, followed by the creation of a cost card to determine per-unit costs. The report then prepares various budgets, including sales, production, direct materials, direct labor, variable overhead, fixed overhead, and share capital budgets. A key component involves calculating and analyzing variances across these budgets, explaining their importance in assessing performance and identifying areas for improvement. The report also analyzes the statement, 'Management accounting is forward-looking while Financial Accounting is more historical,' comparing and contrasting the two accounting disciplines. Finally, the report concludes with a summary of findings and references.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Introduce a business and its product. Also prepare a cost card to calculate per unit cost of
stated product..........................................................................................................................1
TASK 2............................................................................................................................................3
Prepare different types of budgets..........................................................................................3
TASK 3............................................................................................................................................5
Calculate variance of different budgets and explain importance of calculating variances....5
TASK 4............................................................................................................................................8
"Management accounting is forward looking while Financial Accounting is more historical".
Analyse the statement.............................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Organisation is required to make its budget so that it may keep on track of its activities by
making budget forecast and analysing actual results and finding out variances if any (Fullerton,
Kennedy and Widener, 2014). The enclosed report is based on new company which is starting its
venture in food sector. As such, management accounting should be sound enough for effective
results.
TASK 1
Introduce a business and its product. Also prepare a cost card to calculate per unit cost of stated
product
Report
To:
From: Angel Syndicate
Subject: Introducing a restaurant
 Mission-
The company is introducing the business of pizza restaurant. Foe demand fulfilment of
customers, it is launching its new business. Pizza has been preferred by almost of all age
groups. It will be help for company to establish and provides pizzas to public for their
satisfaction. It is required that company should be efficient enough to provide services to
customers. The mission of company is to establish brand image in front of the public so that it
may enhance them and satisfy them. It is required that organisation should deliver quality of
product to customers as when quality is not achieved, products fail. As a result, brand image is
lost. For ensuring proper quality, standards should be set by it so that customers are delighted
by food experience. For starting restaurant, efficient staff is required which can deliver food to
customers instantly and with full dedication. For this purpose, staff is hired by manager on
behalf of organisation. Key factor in firm is try to synchronise and coordinates team effort for
achievement of objectives of organisation.
 Vision-
The vision of company is to increased its market share and to broaden customer base. For
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increasing market share, it is required that it deliver product as per quality standards. Quality
management should be efficient so that customers are delighted with by the experience. Market
share can also be increased by implementing competitive strategies in ahead of competitors so
that organisation may lead ahead of them. By framing competitive strategies, it may flourish in
the market which ultimately maximises its market share. Next vision is to maximise customer
base which may be achieved by attracting customers by various schemes and discounts on food
products. This strategy can make speedy sales and eventually leads to increase in customer
base. Customer are delighted and satisfied by providing quality pizzas at lowest pricers and
which makes effective sales of restaurant.
Cost card
Cost card
Particulars Amount
Direct materials 5
Direct labour 8
Prime cost 3
Variable Overhead 2
Share of fixed cost per unit 2
Total cost per unit 20
Analysis of fixed cost-
It is a cost that does not vary in short term. Whether, sales are increased or decreased, fixed cost
does not fluctuate. This cost remain fixed irrelevant top whether firm is earning well or not. It
has to incur these expenses. Fixed expenses include rent payment for premises, depreciation and
taxes. It is used as financial analysis to find break-even point. It also helps in assessing product
pricing (Renz, 2016). When fixed costs are low, variable cost per unit of product is high.
Fixed costs are allocated under absorption costing. These costs are relevant top organisation to
quote the price of product by analysing its fixed costs.
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Analysis of variable cost-
It is a cost which varies in short run. It keeps on changing in business. It does not remain fixed.
As sales increases or decreases, it also varies accordingly. It can be computed as sum of
marginal costs over all units produced by firm. Example, operating expenses, wages and raw
materials in production process.
TASK 2
Prepare different types of budgets
Assumptions of monthly sales unit
Months January February March April May June
Monthly sales units 450 480 540 510 570 630
Selling price per unit:
Price of each Pizza: (Cost + Profit)
= 20 + 20*15%
= 23 GBP
1. Sales Budget-
Months January February March April May June
Monthly sales units 450 480 540 510 570 630
SELLING PRICE PER
UNIT
23 23 23 23 23 23
2. Production Budget-
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Months January February March April May June
MONTHLY SALES UNITS 450 480 540 510 570 630
Less: Opening stock 50 35 45 40 37 55
Number of units to produce 400 445 495 470 533 575
3. Direct Material Budget-
Months January February March April May June
Production 400 445 495 470 533 575
Materials per unit 5 5 5 5 5 5
Production needs 2000 2225 2475 2350 2665 2875
Less: Opening stock 50 35 45 40 37 55
Materials to be purchased 1950 2190 2430 2310 2628 2820
4. Direct Labour Budget-
Months January February March April May June
Production Budget 400 445 495 470 533 575
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Direct labour hours per unit 1 1 1 1 1 1
Total direct labour needed 400 445 495 470 533 575
Direct labour cost per hour 8 8 8 8 8 8
Cost of labour 3200 3560 3960 3760 4264 4600
5. Variable Overhead Budget-
Months January February March April May June
Budgeted Production 450 480 540 510 570 630
Variable Overhead 2 2 2 2 2 2
Budgeted Variable Overhead 900 960 1080 1020 1140 1260
6. Fixed Overhead Budget-
Months January February March April May June
Budgeted Production 450 480 540 510 570 630
Fixed Overhead 2 2 2 2 2 2
Budgeted Fixed Overhead 900 960 1080 1020 1140 1260
7. Share Capital Budget-
Months January February March April May June
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Owner's funds 1000 2000 1500 1050 1700 1900
Borrowings 500 1000 700 900 600 700
Total 1500 3000 2200 1950 2300 2600
TASK 3
Calculate variance of different budgets and explain importance of calculating variances
Assumptions on actual costs-
Actual costs are the expenses incurred on purchasing an asset. It includes supplier invoice
expense, and also includes costs to deliver and set up and test the asset in company. This expense
is recorded as fixed asset in financial statements (Actual cost, 2014). The actual cost is different
from the use of derivative cost which may occur in near future. The above said costs are mixed
together so that budgeted costs are derived in advance are then matched with actual costs to
arrive and create variance. It is needed to control the variations which is observed in performance
of organisation. It also helps to improving upon accuracy of forecasts. Actual cost include direct
labour, direct materials and overheads.
Assumptions
Months January February March April May June
Actual
material
1900 2000 2220 2000 2400 2525
Actual
labour rate
5 4 5 6 7 5
Actual sales 23.5 24 22 21 24.5 22.5
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price
1. Material Variance-
Months January February March April May June
Budgeted material 1950 2190 2430 2310 2628 2820
Actual material 1900 2000 2220 2000 2400 2525
Variance 50 190 210 310 228 295
2. Labour Rate Variance-
Months January February March April May June
Budgeted labour rate 8 8 8 8 8 8
Actual labour rate 5 4 5 6 7 5
Variance 3 4 3 2 1 3
3. Sales Price Variance-
Months January February March April May June
Budgeted sales price 23 23 23 23 23 23
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Actual sales price 23.5 24 25 23.5 24.5 22.5
Variance 0.5 1 3 0.5 1.5 -0.5
Discussion of variance-
Variance analysis are important in organisation as it determines and assess the deviations
between actual and budget results. Variance analysis is vital as firm is able to make improvement
in its activities so that it may get corrective action in timely manner. The sales price variance
which is highlighted in above table represents that company may able to have effective growth as
it making good sales then it had made budgeted sales (Grabner and Moers, 2013). It is
performing good in delighting customers. Next variance is labour rate variance which states that
labour efficiency is not up to mark as they are taking more time to accomplish the tasks which
requires lot of time to complete the work. Also, another variance is material variance which
highlight material of company which is used in production. It also showing variances in
budgeted and actual materials as it was not provided timely from suppliers. Variance helps
organisation to improve their activities so that it may impart good performance. This is required
so that production is done in timely manner and it may fulfil demands and needs of consumers
by taking corrective action.
Importance of variance-
Variance is important part of organisation. It measures the differences between actual and
budgeted results. It is very vital as evaluates the performance of organisation so that it can
analyse the difference why the deviations has arises (Baldvinsdottir, Mitchell and Nørreklit,
2010). By assessing the difference, organisation can improve upon the errors or defects which
has aroused in actual results. It helps firm to improve upon its functioning in that way so it may
accomplish its set targets in effective manner. Also, sometimes budgets are not prepared properly
as a result, it may show variances. So, budgets should be prepared adequately so that firm may
forecast its activities in effectual way.
In simple words, variance analysis is a way to identify causes of deviation that has been
observed in actual and budgeted targets. It makes firm effective as it works upon such deviations
to improve its working. Also, variance means that income and expenses of current year are
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deviated from the budgeted values. It analyses to understand that why fluctuations are arrived
and what can be do to reduce it.
TASK 4
"Management accounting is forward looking while Financial Accounting is more historical".
Analyse the statement.
Defining of management accounting
Management accounting is the essence for managers as it provides internal information to
them which is used by them to make decisions for the betterment and effectiveness of company
(Cadez and Guilding, 2012). It is very valuable information to managers to decide upon the
performance of employees.
Differentiate management and financial accounting
Basis Management Accounting Financial Accounting
Users Management accounting
information is used by managers
only to take decisions in internal
factors of organisation. It is not
available to external users.
Financial accounting information is
used by external patties to make
decisions regarding the financial
strength of company in effective
manner. It includes government,
customers, suppliers, creditors and
investors.
Data Cost accounting data, job
costing data are included in it.
Financial statements such as income
statement, balance sheets and cash
flow statement are included in it.
Accounting
Principles
It does not follow any
accounting principles (Ismail
and King, 2014.). Managers
usually follow their own
assumptions in evaluating and
Financial accounting follows certain
rules and accounting principles to
arrive at conclusion regarding the
financial position of organisation.
Also, certain standard are followed by
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assessing the information. it. Accounting principles include going
concern, money measurement and
many more/ It guides accountant to
arrive at conclusion and accomplish
accounting.
Purpose Purpose of management
accounting is to impart internal
information to managers so that
if any discrepancies are
observed, they may rectify it.
Also, internal decisions are
made by them using this
information (Cooper, Ezzamel
and Qu, 2017).
It is used for purpose of providing
information to the external users to
take decisions towards company.
Auditing It does not require auditing. Financial accounting requires auditing.
Organisation appoints an auditor to
assess the fairness of financial
statements of organisation.
CONCLUSION
Hereby it can be concluded that organisation has to make certain strategies to flourish in
the market. Also, it takes certain information from management accounting to accomplish its set
targets. The variance also play essential role in improving effectiveness of organisation. Sales
variances, material variances and labour rate variances are important to organisation so that it
may deliver its best to customers by improving its deviations. As such, for new business to
flourish, financial stability is very vital.
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REFERENCES
Books and Journals
Baldvinsdottir, G., Mitchell, F. and Nørreklit, H., 2010. Issues in the relationship between theory
and practice in management accounting. Management Accounting Research. 21(2).
pp.79-82.
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