Detailed Management Accounting Report for Unicorn Grocery

This report provides a detailed overview of management accounting, focusing on its application within Unicorn Grocery, a cooperative grocery store. It covers essential aspects such as the role of management accounting in decision-making, its different types, and the importance of various reporting methods, including accounts receivable and payable reporting, budget reporting, performance reporting, and inventory and job cost reporting. The report delves into costing techniques, specifically marginal and absorption costing, illustrating their application through income statement formation. Furthermore, it explores planning tools used in budgetary control and how management accounting can be leveraged to address financial challenges. The report emphasizes the significance of adapting accounting systems to support organizational goals and strategies, particularly in a dynamic business environment.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
P1 Management accounting and essential requirements of its different types ......................1
P2 Different methods used for management accounting reporting ......................................3
TASK 2............................................................................................................................................5
P2 Formation of income statement by using marginal and absorption costing......................5
TASK 3............................................................................................................................................8
P4 Different types of planning tools used in budgetary control.............................................8
TASK 4 .........................................................................................................................................10
P5 Organisation response towards financial problems by using management accounting. .10
CONCLUSION .............................................................................................................................12
REFERENCES .............................................................................................................................14

Report
From: Management Accounting Officer
To: General Manager
Subject: To write a report to GM covering management accounting and management accounting
system together with different costing techniques and reporting to enable the organization
implement them.

INTRODUCTION
Management accounting is one of the system of accounting. It is the process of
preparation of reports and accounts that help management to take important decisions in business
organisation. It supports overall administration of administration of management. Management
accounting provide organisation data that help them to make important day to day decisions
related to operations. The financial information provided by such accounting is of utmost
importance for an enterprise. Financial accounting usually gives annual reports while
management accounting helps in producing weekly or monthly reports. It helps in various
decisions needs to be taken by a manager time to time. Unicorn grocery is an organisation having
headquarter in England. It is one of the cooperative grocery store. The management accounting
system needs to be revamped with the changes done in an organisation. Unicorn grocery is
controlled by its owners or members of firm. They generally run business with flat structure of
management and with equal pay rate. Management accounting uses financial data to generate
information for administration. It is the process of delivering information for organisational goals
and objectives.
TASK 1
P1 Management accounting and essential requirements of its different types
An accounting system that delivers administration useful information for effective
operational management is termed as management accounting. A manager has to take different
decision as per situation. Management of financial resources is not an easy task. It is defined as
accounting done for the purpose of fulfilling various requirement of management.
Administration of business organisation like Unicorn Grocery is difficult. They need to frame
strategies and plans on the daily basis. This can be fulfilled with accounting done for
management. It produces various reports that are required by internal stakeholder in the
opposition of external stakeholders. The manager will have advantage of getting reports of time
periods through accounting done for management. Administration can be served with
information related to availability of cash, generation of output from sales of products or
services, the status of debtors and creditors can also be done with such system of accounting. It
usually produces information and reports for a week or month. Budget preparation is also helpful
through management accounting. There are various techniques followed in such accounting
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system that are cash flow, fund flow, cost volume profit analysis, marginal costing, budget and
budgetary control etc. Re framing whole system in such a way that strategies and plans are
formulated in effective way can be a goal of such accounting. The scope of management
accounting is wide one. Thus, management accounting system is of utmost importance for
manager of Unicorn grocery.
Need of management accounting- Management system of accounting also helps in
demonstrating financial status of business organisation. Dealing in grocery industry is not easy.
To deal with the rivals presented in external and dynamic environment, decisions and strategy
will always plays a crucial role. The performance can be evaluated and based on that strategies
are Planned and implemented in an effective manner. The future is always uncertain. To tackle
with the contingencies appeared in various form, such system of accounting helps in a huge way.
A manager in order to run business smoothly needs to perform various managerial functions such
as planning, organising, staffing, directing and controlling (Van der Stede, 2011). Management
accounting gives advantage to mangers to perform their functions to level best and make an
impression in the minds of top management. The management of various operations of business
is require and the same can not be possible without such system of accounting. Management
accounting is known as accounting done for administration, no matter top one, middle one or
lower level. The various system of management accounting and advantages of the same can be
described as follows-
Cost accounting system- This system of accounting is advantageous for analysing cost
incurred on the production of goods orc services served by an organisation. The cost of job can
be assessed by the same. The overall cost estimation can be done by cost accountants and
provide managers with the needy information. Identification of cost, inventory management and
valuation, control techniques can be done by the same. It also provide help in analysis of
profitability. Unicorn grocery should know how much profit is earned by company by selling
their per unit of product and the cost incurred in its production. The management of input and
output cost is needed to know effectiveness of working. The major advantage associated with
cost accounting system is the overall analysis of profitability in specific time frame.
Job costing- Every organisation wants to know how much cost is incurred in a particular
task assigned to job holder. It is one of the important system of management accounting. It is
allocation of cost to particular project of job. Unicorn grocery would also like to know costing of
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various jobs and seek which task will need more time and cost. It also identifies materials, labour
and direct expenses cost and then provide calculation of total cost of production. The cost of
direct and indirect expenses can be determined from the same (Soin and Collier, 2013).
Inventory management system- Proper planning is required to keep levels of stocks that
re required in future. It is related with planning and analysis of stocks of Unicorn grocery.
Management of inventory is a difficult task to be performed. Any possible errors in system of
management accounting will affect smooth functioning of business organisation. Since products
are in or out from ware house and effective management of same will help to know the
remaining stocks. Thus, therefore provide advantage ion knowing profitability of firm.
Price optimisation- It basically refers to feedback that customers of products or services
gives after use of the same. It also helpful in determining policies related to pricing such as
penetration pricing, skimming pricing etc. Unicorn company spend a lot of time in deciding
policy adopted in pricing of their products or services. A customer will never like to spend
money on a high rated product. An organisation has to create their value if they want to sell their
high pricing products. Elasticity model of various types of consumers, cost history analysis can
be way for price optimisation.
P2 Different methods used for management accounting reporting
A manager required several kinds of daily and weekly based reports and information to
plan their strategies and decisions in an organisation. Especially grocery firm like Unicorn have
lot of headache related to reporting. Management accounting provide analysis of profitability
firm and addresses organisation's performance. If performance is not as per standards, effective
strategies are made for making Improvements. An organisation with with variety of projects, to
deal with them an administration may anytime ask for reports related to them. It can be prepared
with different time frame as and when required. Reports are prepared on a daily, weekly,
monthly or quarterly basis. The reporting part of management accounting is crucial and can only
be done by professionals such as financial experts, professionals. The different method used for
management accounting reporting can be discussed as under-
Accounts receivable reporting- any business organisation also need to deliver its
products or services at credit basis. To know how much money is required to be collected and at
what time frame is an essence. The credit policies of an organisation is also recognised. For the
inflow of company's revenue, it is needed to management receiving from debtors. It is an
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important method for recovering of money from debtors of a firm. Any problem if arises needed
to be sort out. Money collection from customers are always crucial. Nobody like to lose their
money. Credit are usually given to regular and known customer. Th period is also around 30 to
90 days. The history of those customers needs to seek out to plan strategies related to it.
Accounts payable reporting- To make healthy relationship with suppliers, accounts
payable reporting needs to be done . A company has its own image in market. They usually buy
in bulk from regular suppliers, to pay them on time is essential. A manager needs to know how
much money needs to pay out and when. Thus, this overall helps in making plans for the
creditors of firm.
Budget reporting- Budgets are essential requirement of business organisation. For the
effective management of financial resources, budget are prepared. Unicorn grocery also have to
evaluate whether their business is going as per standards or not. Actual performance should be
compared with planned performance. If an organisation finds any variance or deviation, they
needs to sort out quickly. It helps in cost allocation, decision making and controlling activities.
Daily expenditure in grocery is more, in order to deal with requirement of cash preparation of
budget is necessary. Sometimes employees additional incentives are also attached with the
fulfilment of activities as per budget standards. Doing so will help in making competitiveness in
organisation.
Performance reporting- Reporting done for the assessment of performance can be
performance based reporting. Every organisation sets targets for its employees to be achieved in
given frame of time. Performance reporting provide information to various stakeholders of the
firm to know more about actual profitability. There always being a fixed period of such
reporting.
Inventory Costing reporting- Inventory costing reports are prepared to know stock
remained in stores. The cost of per unit of product or service can be known. These generally
involves raw materials cost, labour expenses and direct expenses. Unicorn grocery can able to
identify stock analysis i.e. how much stock came and goes out from stores. Based on them,
decisions and strategies are formulated. Thus, one of the important reporting done in
management accounting.
Job cost reporting- It is helpful in analysing cost of a particular job assigned in a
project. This also evaluate income generation and whether the particular job is advantageous or
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not. This provide management a view point about high revenue generation fields so that an
organisation employs its best employees on particular areas.
TASK 2
P2 Formation of income statement by using marginal and absorption costing
Costing is considered as one of the most important part of the finance. An organisation
can reduce cost of their business by finding various factor which can minimise the unnecessary
expenditure of the company (Serricchio, Tsakatika and Quaglia, 2013). Below is the explanation
of marginal and absorption costing:
Marginal costing – When a company manufacture any additional unit of a product, they
have to spend some extra amount compare to normal expenditure, this additional expenditure is
known by the name of marginal costing. This technique is bit modern compared to absorption
and it did not only focus on production activity (Van Rooij, Lusardi and Alessie, 2012). In order
to ascertain marginal cost, an organisation has to determine their direct labour, direct material,
direct expenses along with variable overheads. Fixed cost is completely written off against
contribution in the this methods.
Absorption costing – It is an old approach and in this method fixed cost is allocated on
each and every unit. The technique is do not provide any assistance to division like market, they
basically focus on production activities. In prior approach (marginal), change in fixed cost can
influence profit of the company but various in fixed cost does not affect business of the firm
(Schaber, Steinke and Hamacher, 2012).
There are some difference amongst marginal costing and absorption costing which is mentioned
as beneath:
Basis Marginal Costing Absorption Costing
Meaning It is considered as a decision
making tool which aids to
ascertain overall cost related to
production.
As per this, dividation of total
cost is required; so that, actual
cost of production can be
found out.
Cost recognition To identify value of product,
variable cost need to be
considered, but fixed cost is
In this, to determine price of
product, both variable as well
as fixed cost is taken into
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reasoned as cost of period
(Gaizauskas and
Martinavicius, 2013).
under consideration.
Classification of overheads It can be divide into two parts.
One is fixed and another is
variable.
This can be classified into
three parts, such as
administration, production and
distribution and selling.
Profitability This can be measured through
profit volume ratio.
As fixed cost is include into
this; therefore, this can provide
impact to revenues of an
organisation.
Calculation as per Absorption costing.
Working notes:
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £2
Fixed cost £3
Total £16
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*19 = £13300 100*16 = £1600
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £2100
Fixed overhead: £2000
Total £100(over absorbed)
Administration Cost: In this budgeted cost is £800 and Actual cost is £700
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Selling cost: In this budgeted cost is £400 and Actual cost is £600
Net profit using absorption costing £ £
Sales
(-) Cost of Sales:
Opening stock
Manufacturing
Closing stock
(Under)/ Over absorbed fixed prod.
O/h
Gross Profit
Less Expenses
Variable sales expenditure
Fixed administration expenses
Fixed selling expenditure
Over absorption
Net Profit
0
11200
(1600)
600
700
600
(100)
21000
(9600)
11400
(1800)
9600
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production O/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*14 = 9800 100*14 = 1400
Net profit using marginal costing £ £
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Sales value
Less: Variable costs
Opening stock
Manufacturing
Closing stock
Contribution
Less Fixed costs
Variable Production expenses
Administration cost expenditure
Selling cost
Net Profit
0
9100
(1300)
2000
1300
600
21000
(7800)
13200
3900
9300
From the above income statements, it can be analysed that revenue earned by using
marginal costing technique will be low compared to absorption. The prior approach will produce
a net profit of 9300 to cited firm and the later one will give them 9600 net profit. This variation
in the profit is happening because different way of treating fixed cost. In absorption costing, the
burden of fixed cost is distributed on every unit that is produced in the factory but in marginal
costing it is subtracted from the contribution (Lambert and Sponem, 2012). Another cause of
difference is closing stock. This amount is different in both accounting techniques. In marginal
costing, all the expenses relating to unsold goods are treated in same year but this process in not
followed in other one. The amount of various expenses which is incurred on production of
unsold goods is transfer to next year. If is not treat in present year. This is the prime reason
behind the difference amount i.e. 300. Unicorn grocery should adopt absorption costing because
it will help them in registering more net profit. This is correct approach for their business
because it provide appropriate and realistic information.
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TASK 3
P4 Different types of planning tools used in budgetary control
Budgets always plays a crucial role in an organisation. A budget is one which help in
deciding allocation of cost, and cost controlling. A budgetary is a technique associated with
preparation of various kinds of budgets based on history of the elements involved. Budget helps
in assessment of performance whether it is going as per requirement or not. Actual budget of
income and expenses are compared with planned one, if any variances are there it needs to be
reduced quickly. Most of the decisions are taken based on the budget that is planned. Effective
management of operations can be done with the use of those budgets (Types of Budgets for
Businesses. 2017). Any department functioning in Unicorn grocery have to made budgets and
include major elements in the same. It fixes goals and objectives that needs to be accomplished
in a specific time frame. Every functional department may work upon to prepare budgets and
plan their targets. Unicorn grocer uses number of budgets that are classified as follows-
Cash flow budget- Cash availability is of utmost concern for an organisation. A firm
needs to monitor inflow and outflow of cash during a particular period. Cash flow budget gives
an idea to management regarding how much flow of cash will be generated during a period and
how much expenses are there in it (Scapens and Bromwich, 2010). For the smooth functioning
of Unicorn grocery, cash management is needed. If money is being wasted on less needy
expenditure, it needs to be eliminated.
Operational budget- Management in operation is one of the requirement of business
organisation. Every business organisation has number of operational activities to be performed.
Effectiveness in the same will help organisation to achieve its target and thus accomplish its
goals. Operational budget involves revenues and operational expenditure. It is generally prepared
on a daily, weekly and monthly basis (Quinn, 2014). Different kinds of overheads are considered
in operational budget. A manager wants his departments to meet up operational budgets to
increase possibilities of profit. Thus, an important kind of planning tool used in budgetary
control.
Master budget- This budget involves cash flow, budgeted statements and budgeted
balance sheet. It generally includes various elements of business. Unicorn grocer is a
cooperative grocery store. They do have different elements in business organisation. It gives
view point of all the components of business activities. Budgeted statements analyse estimated
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