Comprehensive Management Accounting Report for Unicorn Retail Stores

This report offers a comprehensive analysis of management accounting principles and their practical application within the context of Unicorn Retail, a UK-based organization. It begins with an introduction to management accounting, emphasizing its role in internal decision-making, efficiency improvements, and financial reporting. The report then delves into specific management accounting systems, including cost accounting, job costing, price optimization, and inventory management, evaluating their advantages and disadvantages. A significant portion of the report is dedicated to preparing income statements using both absorption and marginal costing methods, providing a comparative financial analysis. Additionally, it explores various planning tools for budgetary control and analyzes how Unicorn Retail can adapt management accounting systems to address financial challenges and achieve sustainable success. The report concludes by assessing the role of management accounting techniques in solving financial problems and driving organizational success. The report is a valuable resource for students studying management accounting and provides insights into real-world applications of these concepts.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A. The management accounting and requirement of management accounting system.........1
B. The importance of different management accounting reports...........................................2
C. The advantages of management accounting system and their application in organization.3
D. The integration of management accounting system and management accounting reports in
Unicorn retails store...............................................................................................................5
TASK 2............................................................................................................................................5
A. 1) Explain the absorption costing and marginal costing methods.....................................5
A. 2) Preparation of income statements of Unicorn retail stores as per absorption and marginal
costing method........................................................................................................................6
C. Apply the range of management accounting techniques and produce appropriate financial
reporting documents.............................................................................................................10
TASK 3..........................................................................................................................................11
A. Advantage and disadvantage of different planning tools for budgetary control.............11
B. The application of the planning tools for preparing, forecasting and analysing budgets.13
C. Explaining requirement of adapting different management accounting system in respond to
financial problems................................................................................................................13
D. Analysing the role of management accounting techniques in respond to financial problems
and lead the organisation sustainable success......................................................................14
E. Evaluating the role of planning tools to solve financial problems and lead the Unicorn retail
to achieve sustainable success..............................................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting plays a key role in organizations today and helps in taking
decisions for company's growth, provides ways to run the company more efficiently. Unicorn
retail stores is UK based organization which is facing management accounting issues. The
present report includes a crucial discussion of management accounting and its method. The
report will highlight the importance of management accounting system and their essentials for
sound business activities to be integrated with management accounting reporting. Further, the
report includes the preparation of income statement with absorption and marginal costing
techniques. The report will also include different type of planning tools for budgetary control. A
comparison is made to show how Unicorn retail stores can adapt management accounting system
to deal with the financial problems which can lead the organisation to achieve success.
TASK 1
A. The management accounting and requirement of management accounting system.
Management accounting is a system where, company's makes a report on financial
information for internal use by managers for making decisions of company’s growth and ways to
run it more efficiently. Unicorn retail stores can use management accounting(MA) to check
internal performance report which can use to compare the actual result with the budgets, report
of return on investment etc. (Brown and et.al., 2014). Along with financial data, MA can also use
non-financial information such as current sales reports, number of sales per day, delivery
datelines date etc. Both financial and non-financial data are important to identify the key
performance indicators for various parts of Unicorn stores.
There are different management accounting systems which can be used by Unicorn retail
stores: Cost Accounting: In this system various analysis is done on cost control, inventory
control and expected organization's profitability to estimate the expenditure incurred on
the product to be sold. The company has to know which product is critical for operational
profitability. Participation of executives by various department is important for cost
accounting system and helps in estimating accurate cost of product (Diouf and Boiral,
2017). Unicorn stores should have made the cost accounting system which is easy to
understand and easy to execute.
1

 Job Costing System: this system helps to assign manufacturing cost to each individual
product by tracking expenses. Unicorn retail stores can use job costing system as it is an
easy method to keep records of order expenses of all identical products (Frimpong,
Ameyaw and Osei-Bonsu, 2017). The process of job accounting is done with receiving
the order of a product from customer. At the time of estimating the cost of production, the
needs and preferences of customer should be kept in mind. Price optimising system: This system helps in determining the fluctuations in prices
based on demand. Unicorn retail stores can control the price of resources using this
system (DRURY, 2013). Price optimization system can be used in deciding prices of
various products at a same time. It helps in estimating the prices as per customer
preferences by stimulating their responses to different price levels.
 Inventory management system: Organisational process of Unicorn can be integrated with
this system to achieve the efficient and effective flow of inventory within the
organisation at a time of sales. This system is concerned with management of stock and
assets in company. There are two common method of inventory valuation last in first
out(LIFO) and first in first out(FIFO). In LIFO the goods purchased last will be taken out
to sold first. LIFO is not a good method of valuing inventory, as if the price of last
purchase goods has increased since the initial purchase than the cost of goods sold will be
higher which results in less profit. Whereas in FIFO the goods which was purchased first
will be taken out to sold first. Due to the risk of increasing cost of produced goods, this
method considered more profitable.
B. The importance of different management accounting reports.
Management accounting reports are made for the internal use of management for making
decisions regarding growth and development plan for business (Kind, 2018). This accounting
reports helps management in making forecast and taking critical business decisions. The
management team of Unicorn retail stores can prepare various accounting reports for the purpose
of decision making by keeping in mind their benefits or significance such as:
Budgeted reports: It is the most fundamental report which are very critical is measuring
company's performance while evaluating different department's performance helps in controlling
costs. At the time of preparing the budget of next year, evaluation of actual expenditure of past
2

year should be considered (Kregel, 2018). Budgeted report will help the Unicorn retail shops to
achieve its goals and mission while staying with in the budgeted amount. Job Cost Reports: This report helps in identifying the total cost incurred in a particular
project as compared to the expected revenue yielded by that project. It helps the
company's management to check the profitability of specific type of job and areas of the
waste that can be taken care to made the project more profitable and workable. Job cost
reports are important which in turn helps management of Unicorn to focus on a
particular job which is more profitable for the business.
 Performance reports: This reports are created to review the performance of a company
as whole. The different calculations are done to compare the actual performance of
company with the budgeted performances. This comparison is analysed on the basis of
different information are based on each department's performance presented in
performance reports (Leotta, Rizza and Ruggeri, 2017). Hence, by preparing this report
on monthly or quarterly basis is very important for Unicorn retails to estimate the
performance of company is going as per the target and to make key strategic decisions
about the future of company's performance.
C. The advantages of management accounting system and their application in organization.
Unicorn can apply following management accounting systems by considering their pros
and cons such as:
Cost accounting:
Advantages Disadvantages
1. It helps in eliminating wastes, losses by
fixing standard prices for products.
1. Past performance of company will be
evaluating to estimate the cost, when decision of
future performance is to be taken.
2. It assists the management in analysing the
profitability of a particular products.
2. Approach of cost accounting system requires
maintaining of past cost records which could be
expensive for company.
3. Cost accounting system helps in
providing necessary information which are
3. Any delaying in receiving costing information
does not result in taking quality decision by the
3

required for planning. management.
4. cost accounting system enables the
management in fixation of price of a
product.
4. It requires participation from each department
which can be time consuming.
Job Costing System:
Advantages Disadvantages
1. Revenue incurred from each job is recorded
separately, it helps in making strategic decisions
regarding the performance of each job (Mouseli, and
et.al., 2017).
1. Expensive in nature
2. Management can estimate the current cost of job
on the basis of past records in job costing.
2. close supervision is needed because no
specialization of job exists in such costing
3. After completion of a job, every element
associated with that job will be compared for the
purpose of cost control and reduction to maximize
The profitability.
3. The price cannot be managed easily as
the controlling steps are taken only after
incurring the expenses in job costing.
4. The spoilage and defectives arises in the job can
be easily find out and can easily controlled.
4. Since large number of small jobs is
executed at a time in job costing, the
accurate cost information cannot be
obtained.
Price optimising system:
Advantages Disadvantages
1. The customers preferences on different 1. Price optimization doesn't work at the time
4

prices can be known. of inflation.
2. It helps in maximization of operating profit
with accurate price.
2. Setting a price is depend on various factors
and not just on the preferences and needs of
customers.
3. Price optimization helps in stimulation of
customers responses.
3. It is an expensive and time consuming
process.
D. The integration of management accounting system and management accounting reports in
Unicorn retails store.
Management accounting reports and their integration with Unicorn retail stores are:
Budgeting reports: This reports help in measuring company's actual performance with the
planned or budgeted presentation. Budgeted reports helps Unicorn retail shop's activities to be
focused on the targeted results and activities. Budgeted reports also helps the management to
forecast the contingencies and make accurate strategic decision.
Job Cost Reports: Job cost reports helps in identifying the cost and profit generated from each
particular job in organisation. (Noreen,Brewer and Garrison, 2014.). Job cost report can be
integrated with Unicorn retail stores to evaluate the achievement of cost objectives and cost
reports which can make it easier to decide the pricing strategies for each particular job assigned
in the organisation and reducing overall cost.
Performance reports: These reports help in review the overall performance of each department
with the budgeted performance. The integration of performance report with the operational
activities of Unicorn retail stores, as it helps in making plans for future growth and cost reduction
which leads to high profitability.
TASK 2
A. 1) Explain the absorption costing and marginal costing methods.
Absorption Costing: It is recognised as a method of calculating cost of goods. In this
method all the manufacturing cost are incurred in the production of a unit. The cost of a finished
unit will include all the variable and fixed manufacturing overhead. Absorption costing is
required for external financial and income tax reporting (Parker, 2012). This costing method
5

gives an accurate view on the real expenses to produce the inventory. It helps the management in
utilizing cost information easily for decision making process. It is useful if when there is only
one product so that there will be no inventory and overhead recovery rate.
Marginal Costing: It is a principle where variable cost is changed to per units produced
and the fixed cost is written off for a period against the contribution of that period. It helps in
ascertainment of marginal cost and the effect on profit of change in volume or type of output
(Zhu, 2014). This method is used to determine the impact of variable cost on the volume of
production or output.
A. 2) Preparation of income statements of Unicorn retail stores as per absorption and marginal
costing method.
Income statement as per marginal costing:
Particulars Amount Amount
Income 33000 33000
material 5600
labour 4800
Production expenses (variable) 1600
Sales expenses (variable) 800 12800
Less: closing inventory
Direct material 1400
Direct labour 1200
Production expenses (variable) 400
Sales expenses (variable) 200 3200
Cost Of Production (per unit) 9600
6

23400
Less: Fixed cost
Overheads (Production) 3200
Fixed administrative expense 1200
Fixed selling expense 1500
5900
Net income 17500 Pounds
Income statements as per absorption costing:
Particulars Amount (In pounds) Amount (In pounds)
Total revenue 33000 33000
Direct material 5600
Direct labour 4800
Production expenses (variable) 1600
Sales expenses (variable) 800 12800
Less: Closing inventory
Direct material 1400
Direct labour 1200
Sales expenses (variable) 200
Less: Sales expenses (variable) 600 3400
7

Less: Absorption of Overheads
(Fixed)
Cost of production 9400
Per unit contribution 23600
Less: fixed cost
Overheads (production) 3200
Fixed administrative expense 1200
Fixed selling expense 1500 5900
Net Income 17700 Pounds
Interpretation:
It can be observed from the above calculation that net income of Unicorn retail shop as
per marginal costing method is 17500 as it doesn't consider the fixed cost. Where, the net income
as per absorption cost is 17700 which is higher than as compared to marginal costing method. It
can be concluded from above calculation that Unicorn retail stores should absorption costing
method for income statements as it includes both fixed and variable cost. In today's era, where
financial statements are used for external purpose also, it is important to consider both fixed and
variable cost incurred in producing inventory. That is why absorption costing method is more
suitable as it considered both variable and fixed cost in estimating net income. This method gives
more appropriate picture of revenue and helps in estimating time in which cost can be recovered.
8

B. Calculation of break-even analysis.
9

Break even analysis is a process which helps in determining the volume of sales to cover the cost
of business, which is known as break-even point. Break even analysis helps in determining the
BEP by calculating fixed costs, variable costs as per unit of sales and revenue per unit of sales.
Break even analysis is useful in the determination of the level of production to meet the volume
of sales. From the above calculation it can be observed that number of products to be sold to
break even is 25926. The break-even point in terms of sales revenue is 888889, and the margin
safety if 800 products are sold is 0.72.
C. Apply the range of management accounting techniques and produce appropriate financial
reporting documents.
To,
General Manager,
Unicorn retail stores
United Kingdom.
Date: 24/08/2018
This is to report the general manager of Unicorn Retail Stores about management
accounting techniques which needs to be apply in company. It can be observed that both the
techniques of absorption and marginal costing for the calculation of unit cost of product helps in
estimating net income. In the present scenario, the procedure of absorption costing method will
be proper for the true performance report as it includes all the cost incurred while the
production of the unit. However, there are many management accounting methods which are
helpful to the organizations.
On the basis of the calculation, it can be intelligibly seen that in marginal costing the profit is
deliberately low as compared to absorption method for costing. There is a profit of 17500 in
marginal costing and 17700 in absorption method. Hence, absorption method is more accurate
for the organization.
10