Management and Cost Accounting Report on Woolworths Performance

This report provides a comprehensive analysis of Woolworths' management and cost accounting practices. It begins with an overview of Woolworths, its operations, and its cost leadership approach. The report examines the company's financial statements, highlighting the cost of goods sold, rent expenses, and finance costs. It delves into the company's use of the cost leadership approach, including the "sale-up / costs down" strategy and the just-in-time approach. The report also presents a detailed cost forecast and budget for the years 2017-18, 2018-19, and 2019-20, analyzing key financial metrics like sales, cost of goods sold, expenses, and profit. The analysis reveals insights into Woolworths' performance and its strategies for cost reduction, with recommendations for future diversification and competitive advantage in the retail market. Finally, the report concludes with a list of references.

Running head: MANAGEMENT AND COST ACCOUNTING
Management and cost accounting
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1MANAGEMENT AND COST ACCOUNTING
The background of Woolworths can be stated as it is the longest supermarket chain from
Australia. Operating more than 1990 stores all over Australia, the company runs its business
through 11,500 team members with distribution centers, stores and the support offices for
providing the customers with wide range of services, convenience, value and superior services.
As it falls under the most innovative Australian retailers, the company is well aware about the
fact that the customers always look for simple and new way for shipping and accordingly
provide the customers with comfortable experience of shopping (Woolworths.com.au 2017).
The company recognizes the cost – leadership approach as the action set for delivering
or producing the services or goods at minimized cost as compared to the competitors along with
various acceptable features to the customers. To get maximum output at the minimized cost, the
company developed “sale-up / costs down” approach for last few years that were designed to
reduce cost associated to production and Woolworths successfully applied the strategies to lower
their prices (Mortimer and Ingersoll 2015). Looking at the financial statement of the company, it
can be identified that the cost of goods sold of the company is directly related with the increase
or decrease in the sales level. However, the cost of doing the business for the year 2016 is higher
as compared to the sales level as it reached to $ 13,074.5 million as compared to $ $ 12,702.4
million in 2014. Looking at the rent expenses it is identified that the rent of the company is in
increasing trend and from $ 1898.70 million in 2014 it went up to $ 2033.9 million in 2016.
However, the company was able to make payment of its borrowing during the year that reduced
the finance cost of the company during 2016 to $ 207.7 million from $ 218.9 million in 2014
(Woolworths.com.au 2017).
The cost leadership approach is used by the company for cost reduction with regard to
the operating cost like just-in-time approach. This strategy is used for managing the products in

2MANAGEMENT AND COST ACCOUNTING
the supply chain for reducing the wastage cost and storage cost through making the goods
available to the retailers exactly at the time when they require the goods. To implement the
strategy efficiently the company is required to implement the cost replenishment approach
efficiently for forecasting the expected demand for the future period. The benefits of this strategy
will reduce overall cost through cutting off the storage cost and wastages and increasing the
margin of profit (Klein 2017). However, the primary challenges that the company faces here is
the long range of distance between suppliers and stores as the suppliers of Woolworth is
scattered all over Australia. Apart from this, the storage costs are expected to rise if the system of
prediction gives poor performance (Fernie and Sparks 2014).
There are various social benefits and value additions through minimizing the wastes as it
deliver the regular opportunities to the communities and the cost forecast and budget of the
company can be prepared as follows –
Particulars 2017-18 ($ m) 2018-19 ($ m) 2019-20 ($ m)
Budgeted sales 39,000.00 40,950.00 42,997.50
Less: cost of goods sold 30,030.00 31,941.00 32,248.13
Gross profit 8,970.00 9,009.00 10,749.38
Expenses
Depreciation on fixed asset 170.00 182.00 178.00
Amortization of intangible assets 25.00 28.00 32.00
Employee remuneration and the on-cost
expenses 4,200.00 4,700.00 4,600.00
Superannuation expenses 720.00 610.00 680.00
Expenses towards share-based payments 120.00 110.00 90.00
Minimum lease payments 1,200.00 900.00 1,400.00
Other operating expenses 400.00 670.00 320.00
Total Expenses 6,835.00 7,200.00 7,300.00
Net profit before interest and tax 2,135.00 1,809.00 3,449.38
Less: interest expenses 560.00 410.00 730.00
Net profit before tax 1,575.00 1,399.00 2,719.38
Less: Tax expenses 614.25 517.63 1,087.75
Profit after tax 960.75 881.37 1,631.63

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From the above budget, the performance of the company can be analyzed as that the
sales of the company will increase by 5% over the next 3 years and the cost of gods sold will be
77% and 78% for the year 2018-19 and 2019-20. However, the company is expected to reduce
the COGS and bring it to 75% in 2019-20 (Santos et al. 2015). Further, the depreciation
expenses of the company will increase during 2018-19 as compared to 2017-18 as the company
is expecting to purchase a new machine for the factory. The amortization expenses will be in the
increasing trend. Further, the superannuation expenses of the company are expected to reduce
during 2018-19 as few employees are retiring in the previous year (Arli et al. 2013). It can be
noted from the budget that the expenses that are expected to increase in 2018-19 as compared to
2017-18 are expected to be reduced by the company during 20129-20.therefore, it can be said
that the company will take the necessary steps to minimize the cost wherever possible.
From the above analysis it can be concluded that Woolworths is one of the trusted brands
in Australia in the retail sector and the company faces high level of competition owing the
availability of the substitute products. However, the company can achieve competitive
advantages over its competitors through offering the products at lower cost, which is possible
through minimization of wastages and curtailing the expenses, wherever possible.
Therefore, the company is recommended to diversify the range of products in the future
years. For instance, Woolworths became more successful after taking over the liquor store from
Dan Murphy for delivering the new product range in the same market for attracting new
customers. This was a good strategy to achieve competitive advantage in a mature market like
Australian retail market. Along with reducing the wastages and cost, the company is also

4MANAGEMENT AND COST ACCOUNTING
suggested to provide the communities with their requirements and preferences in which they
operate.

5MANAGEMENT AND COST ACCOUNTING
Reference
Arli, V., Dylke, S., Burgess, R., Campus, R. and Soldo, E., 2013. Woolworths Australia and
Walmart US: Best practices in supply chain collaboration. Journal of Economics, Business &
Accountancy Ventura, 16(1).
Fernie, J. and Sparks, L., 2014. Logistics and retail management: emerging issues and new
challenges in the retail supply chain. Kogan page publishers.
Klein, M., 2017. African retail darlings. Personal Finance Newsletter, 2017(435), pp.14-15.
Mortimer, D. and Ingersoll, L., 2015. The impact of deregulation on employment relations in the
Australian retail industry. Employment Relations Record, 15(2), p.43.
Santos, M.D., Svensson, G., Padin, C. and Høgevold, N.M., 2015. Corporate risk exposure by
implementing sustainable business practices-an African case. International Journal of Logistics
Economics and Globalisation, 6(3), pp.223-235.
Woolworths.com.au. (2017). Woolworths.com.au. [online] Available at:
https://www.woolworths.com.au/ [Accessed 13 Oct. 2017].