Unicorn Retail: Management Accounting Report Analysis

This report provides a comprehensive analysis of management accounting practices relevant to Unicorn, a small UK-based retail store. It begins with an overview of management accounting, detailing its significance in decision-making, cost control, and resource optimization. The report explores various management accounting tools such as cost accounting, inventory management (EOQ, JIT), and price optimization, highlighting their application within Unicorn's operations. It further examines different types of managerial reports, including operating budget reports, inventory reports, accounts receivable aging, and profitability reports, emphasizing their role in performance evaluation and strategic planning. The report also evaluates the benefits and drawbacks of management accounting systems like cost accounting and inventory management. Furthermore, it includes the preparation of income statements using both absorption and marginal costing systems, comparing their methodologies and impacts on profit assessment. The report concludes by emphasizing the integration of accounting systems and reporting and provides a financial reporting document for Unicorn Retail.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1 and 2..................................................................................................................................1
P1 Explaining management accounting and its different types...................................................1
P2 Assessing different methods which are used for management accounting reporting............3
M1 Evaluating the benefits of management accounting system.................................................4
D1 Explaining Accounting systems and management accounting reporting can be integrated..5
P3 Preparation of income statement by using both absorption and marginal costing system.....6
M2 Producing financial reporting documents by using the system of MA.................................9
D2 Producing financial report by interpreting data set................................................................9
TASK 3..........................................................................................................................................10
P4 Assessing benefits and drawbacks of different types of planning tools that are used for
budgetary control.......................................................................................................................10
P5 Identifying the manner in which management accounting system helps in responding
financial problems.....................................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
In the recent times, management accounting system has gained high level of importance
which in turn helps in making optimum use of financial resources. Moreover, system of
management accounting is highly associated with cost control and gives input for decision
making. Reports of management accounting provide manager with suitable information for
decision making by placing emphasis on each and every aspect such as stock etc. The present
repot is based on Unicorn which is small-sized retail store of UK. It offers grocery products or
services to the customers at affordable prices. In this, report will shed light on the manner
through which Unicorn can undertake management accounting techniques for getting the desired
level of outcome or success. Besides this, report will also provide deeper insight about the
reports that manager prepares with the motive to give information to the team of higher
management. Further, it depicts the tools and techniques that business unit can employ for the
development of competent plan.
TASK 1 and 2
P1 Explaining management accounting and its different types
To
Management team, Unicorn
Date: 1st November 2017
Subject: Management accounting (MA) system
Introduction: The concerned report will describe management accounting and state its different types. In
this, the concerned report will furnish information about the manner in which business unit can undertake
different types of MA system.
Main body
Management accounting involves decision making, devising appropriate plan and thereby helps in
managing performance more effectually. MA tools and techniques are highly significant which in turn
provides assistance manager in getting timely information and thereby aid in short-term decision making.
Types of management accounting: Tools that can be undertaken by Unicorn for effectual management
are as follows:
 Cost accounting: This technique of MA assists company in determining the cost of

products or services offers by it. Moreover, such technique of MA focuses on recording,
classifying, analyzing, summarizing, allocating as well as evaluation of alternative course
of action. Hence, by undertaking such system business unit can control cost and would
become able to enhance efficiency and capability.
 Inventory management: It includes EOQ, just in time etc techniques which can be used
for managing stock more effectually. Moreover, storage and ordering cost imposes high
level of burden in front of firm in financial terms. Thus, by using suitable tools as well as
techniques company can manage optimal inventory level and would become able to
ensure smooth functioning of activities.
 Price optimization: This system of MA helps company in understanding the manner in
which customers will respond if fluctuations will take place in pricing aspect. Thus, by
using such tool manager of Unicorn can determine suitable prices and would become able
to attract large number of customers. In this way, by using such tool firm can attain its
aims and objectives to a great extent.
Application of MA within the business unit
 In the context of Unicorn, by undertaking EOQ system manager can determine the level
of stock needs to be maintained within the firm for ensuring better services to the

customers. This in turn helps company in saving cost and attaining higher margin by
enhancing the level of customer satisfaction.
 Along with this, by using the cost accounting system manager can determine CPU by
dividing total expenditure with number of offerings. Hence, by considering such cost firm
would become able to ascertain profit margin.
Conclusion: By summing up this report, it can be presented that all the above mentioned MA tools are
highly effectual. Hence, by undertaking all the above depicted systems Unicorn can develop appropriate
framework and get competitive edge over others.
Sincerely
Management accountant
P2 Assessing different methods which are used for management accounting reporting
To
Management team, Unicorn
Date: 1st November 2017
Subject: Management accounting system
Introduction: This report will provide information regarding the various types of managerial reports and
its significance. It clearly presents the extent to which managerial reports give input to the managers for
decision making.
Main body
Meaning and importance of managerial reports
Managerial reports are highly significant which in turn provides assistance owner or manager of
business unit in making evaluation of business performance. Thus, by making focus on the aspects of
managerial reports manager of Unicorn can monitor performance and thereby would become able to take
action for improvement.
Types of managerial reports: There are several reports that Unicorn can prepares for getting quick
indication about the company’s performance are as follows:
 Operating budget report: By preparing such report management team can assess business
performance and would become able to undertake control measures. This report exhibits
information about the extent to which financial outcomes are favorable or not. In other

words, it can be said that such report contains detail about the deviations occurred in
revenue and expenses with causes (Types of Managerial Accounting Reports, 2017). In
this way, budget report gives input to the managers and assists in developing strategic
policy as well as financial framework.
 Inventory and manufacturing report: By undertaking such report, business unit can
make the business or manufacturing process more efficient. It renders information about
inventory wastage and per unit overhead cost. Hence, with the help of such report
manager can make comparison of different assembly line for assessing the need for
improvement. Along with this, by using such report manager can decide which
departments are performing well and become able to take decision in relation to offering
bonus to the personnel.
 Accounts receivable aging: Business unit can manage its cash flow more efficiently by
undertaking and preparing accounts receivable aging report. This report assists company
in identifying the issues that are associated with the collection process followed by it.
Thus, with the help of such report management team of Unicorn can decide whether there
is a requirement to tighten the credit policies or not. In this way, by taking suitable
decision firm can improve its working capital to the significant level.
 Profitability report: Manager of the business unit can evaluate profitability aspect
pertaining to specific time period by using such report. Moreover, profitability report
furnishes information about actual margin generated by the firm during specified time
frame as compared to the standard one. Hence, by using such report manager can assess
loopholes and thereby would become able to determine the need of cost control,
promotional aspects etc.
Conclusion: It can be concluded from the overall evaluation that Unicorn can develop appropriate
framework by using managerial reports. This in turn helps company in getting the desired level of
outcome or success in the competitive environment.
Sincerely
Management accountant

M1 Evaluating the benefits of management accounting system
Management accounting system has several benefits and drawbacks which Unicorn need
to keep in mind while making selection of tools are:
Cost accounting
Advantages
 This system of MA will help Unicorn
in eliminating waste, losses and
redundancies.
 It facilitates cost reduction and
enhances profit margin of firm.
 Helps in identifying the reasons behind
the occurrence of profit or loss
(Fullerton, Kennedy and Widener,
2014).
 Enables firm to take suitable decision
in relation to make or buy and helps in
setting suitable price that positively
contributes in the profit margin.
Disadvantages
 Requires highly skilled accountant
 Rigidity and complexity
Inventory management
Advantages
 This system helps in improving the
liquidity position of company
 Ensures smooth functioning of the
business operations and functions
 Inventory management system
facilitates project scheduling, avoid
material shortage and duplication (The
Advantages of Inventory Control,
Disadvantages
 Unicorn can reduce business risk but
cannot eliminate through the means of
efficient inventory control.
 It is a complex process which in turn
places direct impact on business
performance in monetary terms.

2017)
D1 Explaining Accounting systems and management accounting reporting can be integrated
From assessment, it has been identified that accounting system and reporting are highly
integrated with each other. For instance: Inventory management includes several techniques
which in turn provides help to the firm in managing stock in the best possible way. Further,
inventory report gives information about the wastage and thereby helps in identifying the level of
waste. This aspect shows that inventory management system and concerned report is highly
associated with each other. In addition to this, cost accounting system provides assistance to the
manager in determining cost and enables for the preparation of suitable budget (Simons, 2013).
Hence, by undertaking the input of such MA system manager of Unicorn can compare actual
performance with the budgeted aspects and become able to prepare budget report. Thus, by
taking into account all the above mentioned aspects, it can be said that significant association
takes place between MA system and reporting.
P3 Preparation of income statement by using both absorption and marginal costing system
Net profit assessment by using absorption costing (Actual)
Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 600) 21000
Less: Cost of goods sold 9480
production (700 * 15.8) 11060
Closing stock (100 * 15.8) 1580
Gross profit 11520
Less: indirect expenses 1900
Variable sales overhead 600
Administration cost 700
Selling cost 600
Net profit 9620

Budgeted
Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 450) 15750
Less: Cost of goods sold 8800
production (600 * 16) 11200
Closing stock (150 * 16) 2400
Gross profit 6950
Less: indirect expenses 1650
Variable sales overhead 450
Administration cost 800
Selling cost 400
Net profit 5300
Income statement on the basis of marginal costing (Actual)
Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 600) 21000
Less: COGS 6500
production (700 * 13) 7800
Closing stock (100 * 13) 1300
Less: Variable sales
overhead
600
Contribution 13900
Less: fixed expenses 3300
Production overhead 2000
Administration cost 700
Selling cost 600
Net profit 10600
Budgeted

Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 450) 15750
Less: COGS 5850
production (600 * 13) 7800
Closing stock (150 * 13) 1950
Less: Variable sales
overhead
450
Contribution 9450
Less: fixed expenses 3000
Production overhead 1800
Administration cost 800
Selling cost 400
Net profit 6450
Difference between absorption and marginal costing system
Basis of difference Marginal costing Absorption costing
Meaning
Overhead classification MA classifies cost on the basis
of two aspects such as fixed
and variable.
This costing system presents
cost in the form of production,
administration as well as
selling & distribution.
Profitability In this, by computing PV ratio
profitability can be measured.
In AC, profitability is highly
influences due to the inclusion
of fixed cost.
Highlights This costing system highlights
contribution per unit.
It helps in assessing net profit
per unit.
Cost per unit (CPU) In this, variances which take
place in the opening and
closing stock do not have high
level of influence on CPU of
Under absorption costing
system, CPU is highly
influences from deviations
take place in opening and

output. closing inventory.
Cost recognition Under MA, variable costs are
considered as product cost. On
the other side, in this, fixed
cost is recognized as period
cost.
It assumes and considers fixed
and variable expenses as
product cost (Difference
Between Marginal Costing and
Absorption Costing, 2017).
M2 Producing financial reporting documents by using the system of MA
On the basis of given case scenario, financial reporting documents that can be prepared
by Unicorn are as follows:
 Cost and profit report: By preparing such report, financial analyst can provide
information to the manager about the cost and profit figure determined on the basis of
different techniques. Such report offers valuable input to the manager and thereby helps
in making effectual decisions.
 Budget report: In accordance with the cited case situation, by preparing budget reports
Unicorn can assess the deviations which take place in different elements such as sales,
production etc (Zimmerman and Yahya-Zadeh, 2011). Hence, by undertaking such
document Unicorn would become able to assess deviations and thereby would become
able to take corrective action within the suitable time frame.
D2 Producing financial report by interpreting data set
To
Management team, Unicorn
Date: 1st November 2017
Subject: Profit analysis using absorption and marginal costing
On the basis of assessment, it is reported that business unit should use absorption costing technique.
Moreover, it presents suitable view of cost as well as profit and thereby helps company in doing effectual
planning. Outcome of absorption analysis shows that net profit accounts for £9620 respectively when 600
units are sold and 700 are produced by the firm. On the other side, in the case of marginal analysis, actual
net profit accounted for £10600 respectively. By considering all such aspects, it can be presented that net
profit is lower in the case of absorption costing because it considers both fixed and variable cost. In

addition to this, management needs to make focus on producing units in line with the budgeted aspects.
Hence, unfavorable variance of 100 has been assessed in production. Besides this, it has been assessed
that actual sales of the firm accounts for 600 units which is greater than budgeted figures. On the basis of
all such aspects, it can be said that company is performing well and able to sell higher units. Thus, it is
recommended to the business unit to lay high level of emphasis on making appropriate estimation
regarding sales and production. Hence, by developing appropriate financial plan firm would become able
to get the desired level of outcome or success.
Sincerely
Analyst
TASK 3
P4 Assessing benefits and drawbacks of different types of planning tools that are used for
budgetary control
In the recent times, there are several factors which have high level of influence on
customer decision making regarding purchase includes quality, price and innovation or
uniqueness. Thus, for meeting all such customer requirements and attaining competitive edge
business unit needs to make focus on the development of financial plan. Hence, Unicorn can
develop prominent and competent financial plan by undertaking following tools and techniques
such as:
Modern budgeting techniques
Zero base budgeting: In this, manager prepares financial framework by assessing the
expenses which needs to be incurred for upcoming time period. It completely ignores
incremental budget and start with zero bases for the preparation of new framework. Hence, under
zero base budgeting manager primarily assesses activities and thereafter make evaluation of
alternative pertaining to funding sources. Thus, after making in-depth assessment of activities
and relative cost manager prepares final budget. There are several benefits and drawbacks which
are associated with such technique are as follows:
Advantages