Analysis of Management Accounting Practices at Nisa Retail Store

This report provides a comprehensive analysis of the management accounting practices employed by Nisa Retail Store, a UK-based retail business. It begins by defining management accounting and outlining various systems and approaches used by the company, including cost accounting, inventory management, job costing, and price optimization. The report then explores different approaches to management accounting reporting, such as sales reports, production reports, cost reports, and accounts receivable reports. Furthermore, the report delves into the computation of net profit using both marginal and absorption costing methods, presenting profit and loss statements for both approaches and comparing the results. The analysis highlights the company's profitability and performance based on these methods. Finally, the report discusses planning tools and systems for responding to financial issues and problems within Nisa Retail Store.

MANAGEMENT
ACCOUNTING

INTRODUCTION
The system of accounting in which various activities like planning, organising,
monitoring, managing etc. are included, is identified as management accounting. Very basic
importance of this particular accounting approach is to assess internal business conditions and
situations along with taking effective decisions. At the current study, Nisa Retail Store company
is undertaken to analysis various management accounting terms. The cited firm is operating in
the UK retail sector which is small business and having only national presence. Different kinds
of approaches and systems which are used by the company for managing internal business are
explained in the current report. Apart from this, marginal and absorption costing methods are
adopted to make profit and loss account which are described at the present project. Moreover, it
shows about various number of planning tools which support to Nisa Retail Store in terms of
control over the budgetary. At the end of present case, various systems are provided which helps
to the chosen entity in terms of responding financial issues and problems.
TASK 1
P1 Describing management accounting along with its several kinds of systems as well as
approaches which are undertaken by Nisa Retail Store
In the accounting criteria or concept, there are generally two approaches involved which
are such as management and financial. Such both accounting systems are highly helpful and
supportive for the cited company in terms of resolving internal and external problems
respectively. The system which includes in the company in procedure of decision making,
devising the prepared schedule and plan as well as give financial report to the expertise is called
as management accounting. It helps in order to control over the costs which are not useful and
unproductive for the business process (Takeda and Boyns, 2014). Due to this condition, Nisa
Retail Store able to command over the expenses and generate highly positive profit which will be
sign of enhancing business performance. Through this system issues as well as deficiencies about
the financial aspects are to be identified which comes into circumstance within workplace.
Therefore, it can be said that, management accounting is one of the significant as well as
effectual kind of element for every organisation in order to raise financial health.
In the management accounting criteria, there are varied systems and approaches included
which required to Nisa Retail company in different departments. Those systems which are
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considered by the chosen business firm are along with its essential requirements described
below:
Cost accounting system-
The system of management accounting like cost under which different number of
expenses generated in the business of retail store are included. At the time of manufacturing
retail goods and services various costs like purchasing raw materials, equipments, electricity,
staff etc. included. Apart from this, administration, inbound and outbound supplying
expenditures, marketing etc. are also analysed in this particular system. At the time of selling
products and services the company hire marketing experts to whom salaries and wages are given
by Nisa firm which is one of cost for the firm (Chan, 2015). Moreover, to do advertising and
promoting of new retail goods and services the firm has to make expenses which are recorded in
current system. It can be said that, overall costs and expenditures made by the Nisa Retail entity
are included in this system which is supportive in terms of making calculation of total costs.
Therefore, cost of every product and service along prices ascertained easily through cost
accounting system.
Inventory or stock management system-
Stock is one of the crucial part of each and every company and when it increases in the
working environment then reduce sales generation capacity in the industry. Further, it can be
clearly said that inventory leads to direct impact on revenue and profitability of the entity which
adverse situation. Therefore, it is mandatory to manage and reduce stock level in the firm and for
that inventory management system is the best tool. It helps to analyse stock conditions and
quantities through which judgement for further production are taken by management of Nisa
Retail firm (Klemstine and Maher, 2014). Basically it is supportive to entity in terms of
evaluating stock using main three methods of inventory. The techniques and procedures for
making assessment of stock are such as LIFO, FIFO and Weighted Average method. Here LIFO
states for Last in first out where products which are prepared at the last time are sold firstly.
FIFO indicates to the First in first out which is totally opposite of the previous technique. In the
second method for selling preference is given to those products which are produced firstly.
Job costing system-
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In the company there are different kinds of products and services are prepared or
manufactured as well as sold in the market. Various range of goods and services are comes under
the job in which items are classified or segregated. The system of management accounting such
as job costing is used by the Nisa Retail Store in order to analyse costs and expenses which are
associated under the each job (Groot and Selto, 2013). For example: the firm produces shampoo,
soaps, cloths etc. retail items and to determine expenses of such different products there is job
costing method is used. Under the stated management accounting method Nisa company able to
know that how many costs are incurred in the product like shampoo and all by classifications.
Moreover, it not needs to do any manual calculation for assessing each product cost within
workplace.
Price optimisation-
Other approach of the management accounting in which discussion about the pricing
decision is done is called as price optimisation system. In every firm whether it relies under
manufacturing or service industry there is price plays very crucial role. The reason is that it is
base to sales the products as well as services in the market and create attention of the customers
to consume their products. Apart from this, level of profitability is also majorly depended on the
pricing factor and policies of the company (Bryer, 2013). Within specific period prices of
products fluctuate on which purchasing behaviour of the customers also fluctuate. The particular
price level on which there are more number of people giving positive response and purchase
higher products that will be considered by the Nisa Retail company. Hence, it can be said that to
opt the price at which selling goes higher there is price improvement system is required by the
retail enterprise.
P2 Different number of approaches which are used by retail company for management
accounting reporting
In order to assess business performance of the Nisa Retail Store financial statements have
highly crucial place which are prepared through various small report. In the management
accounting reporting systems different number of sub reports and accounts are included and by
taking support of that overall performance is analysed in effectual manner. In the financials
several numbers of data and aspects are involved which are like income, revenue, profit, cost etc.
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Foe this all the information and financial data small, reports are prepared which are explained
below:
Sales report-
Every company looks at the sales because when it enhances on consistent basis then it
can be said that Nisa Retail Store performs well. In this kind of report there are those amounts
and financial transactions are recorded which are generated through selling retail goods and
services. The firm when operates in any particular sector or industry then always expects that it
has higher number of sales. The reason behind such kind of expectations are that, it is the basis
of generating more profit and become highly financially sound in the overall retail industry of
UK economy (Soheilirad and Sofian, 2016). The amount which is obtained and come in the
company by selling goods and services is included in sales report and total of this transacted
under the profit and loss statement. Moreover, to derive net profit of the company sales is taken
as the base which is included in P&L account at the initial.
Production report-
Other report which is used in order to management accounting reporting is production in
which those data and information are included which are related to the manufacturing goods and
services. Within workplace of the Nisa Retail Store there are how many numbers of product units
are generated and manufactured are to be recorded at this report. On the basis of production data
the company able to ascertain the cost along with using total cost sheet. Moreover, by comparing
raw materials and finished products there are performance of the company is also analysed by
the management of cited retail entity (AbRahman and et.al., 2016).
Cost report-
In the management accounting reporting, cost report plays very crucial role because it
shows all the expenses made by the Nisa retail firm to produce and selling products. Along with
this, expenditures which are made by the management in the administration process are also
included which supports to make pricing decisions. In this different parts are included which are
made on the basis of costs categorise like fixed, variable, production, overheads etc. In the profit
and loss statements such costs are recorded after segregating on different ways. Moreover, the
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basis of cost segregation under P&L are such as cost of goods sold (COGS), operating as well as
indirect expenses (Nørreklit, 2014).
Account receivables report-
The management accounting report in which the company make record of those amount
which are received by the Nisa Retail Store in form of cash is known as account receivables
report. Basically it includes sum of money which are taken by the entity from different debtors.
Apart from this, the company when allows to the customers for purchasing products and services
on credit then the amount is considered under the current mentioned report. When the total sum
of money of this report is higher, then it can be clearly assessed that credit sales of the retail
company is in more product quantities (Tucker and Parker, 2014). Summation of the overall
amount of this report is recorded or transacted under the current assets side in the balance sheet.
Moreover, it transacted as the accounts receivables in the books of financial position of selected
retailer.
TASK 2
P3 Computing amount of net profit by considering marginal and absorption approach of costing
In order to analyse profitability of the business it is highly required to derive amount or
percentage of net income. From one year to second financial period when this particular factor
increase then it is indication of raising business performance. For calculating net income and
preparing P&L account there are two basic techniques available which are such as marginal and
absorption. On the basis of such mentioned both kind of tools of costing P&L are made which
are shown below:
Statement of profit and loss as per the marginal costing:
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Statement of profit and loss as per the absorption costing:
Findings and Analysis
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From the above prepared accounts of profit and loss it can be found that, company like
Nisa Retail Store has better performance in the industry due to generating profit. Here in both the
situations it earns positive return or income which is indication of well performing at the end of
year. As per the marginal method, it has capability to earn income which worth of 9300 GBP
behind selling 600 units at the cost worth of 35 GBP. On the other side, when looking at the
second method of costing like absorption the profit generation capacity is more than marginal
approach. From the second method it able to earn profit of 9600 GBP which indicates then it
performs well in the UK retail segment. At the same value of revenue such as 21000 GBP there
are two profit amounts generated by Nisa Retail Store from various methods.
Basic reason to arise such difference in net profit income is using various approaches by
the management. Marginal tool includes only variable as well as direct costs which having nature
of changing in accordance to the production volume. Apart from this, another costing approach
involves all the expenditures which are incurred and made by the Nisa retail enterprise
(Khodzytska and Ivchenko, 2014). Due to taking different numbers of expenses there are
profitability and business performance differs.
Segregation of above used both the costing methods
Absorption costing approach Marginal costing approach
In this, both variable and fixed cost are
considered for the valuation of inventory or
stock and finding the cost of production.
For inventory valuation and product costing,
variable cost is only considered.
Costing is classified under production, selling
or distribution and administration overhead.
In this, cost is classified under fixed and
variable overhead.
Difference in the closing and opening stock
will not affect the cost per unit of output (Joshi
and Li, 2016).
Here profitability is measured by profit volume
ratio
In this technique net profit per unit is
calculated.
In this method contribution per unit is
calculated.
This approach is presented in conventional It is presented to outline the sum total
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way contribution of the each product.
In this all the manufacturing cost are
distributed to the cost centres to find out the
total cost of production.
The decision is taken regarding the
ascertainment of total cost
The objective of this assignment of total cost to
cost centre, is to regain it from the selling price
of the product.
In this management determines the fixed and
variable cost to analyse the best product and
process for the production.
All the expenses is divided into production,
administration and selling or distribution.
It is fluctuation of total cost, due to changing
in production of one extra unit of output.
It includes activity based costing, process
costing and job costing.
Variable cost is regarded as product related
cost whereas fixed cost is regard as period cost
The difference in the magnitude of the closing
and opening stock will affect the unit cost of
production due to impact of related fixed cost.
Fixed cost is not given large relevance while
determining the selling price of the product or
at the time of calculation of closing stock
(Bertz and Quinn, 2014).
Each product bears the reasonable part of fixed
cost so the profitability of the product is
influenced by the appointment of fixed cost
Here fixed cost is regarded as the periodic cost.
The profitability is considered as the P/V ratio.
TASK 3
P4 Advantages and demerits of various planning tools and techniques
Budgetary control is the measuring tool through which entity determine difference
between actual and estimated budget. With the help of this technique company can make
effective budget and can enhance its profitability (Novas, Alves and Sousa, 2015). There are
several types of budgetary control tools that supports Nisa retail store in getting estimated
outcome. One of the main objective of cited firm of using this technique is to enhance
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profitability of corporation and centralization of control system. There are several techniques that
are used in budgetary control in the entity, these are described as below:
Variance analysis
It is the tool that explains the real situation of corporation by looking upon the outcome.
Main objective of variance analysis is to make effective control over the cost ad reduce
expenditure of the firm (McLellan and Sherine, 2013). It helps in identifying the root cause of
the problem so that corporation can minimize its weakness and can improve its efficiency level
in order to make effective control over its budget. There are several types of variances that are
used by cited firm such as material cost variance, labour cost variance, favourable, unfavourable
etc.
Advantages:
 Variance analysis is the great tool that can help the Nisa retail store in finding the reason
of overall variance in the budget. That supports in getting overview of the issue so that
manager can make suitable decision for reducing the problems of the company.
 It discloses relationship between prevailing and difference variances. So that
management can make necessary changes in its cost and allocation of resources (Tucker
and Parker, 2014).
 With the help of this tool company can highlights inefficient performance and can
improve those soon.
 It is the great tool through which cited firm can make effective control over its cost. Variance analysis is the technique that supports the management in making profit
planning so that cited firm can accomplish its objective soon (AbRahman and et.al,
2016).
Disadvantages:
 Variance analysis gives results at the end of quarterly closing and that is too late. At that
time Nisa retail store fails to do anything or improve its performance.
 It does not analysis each factor effectively or in-depth. That is why sometimes actual
results get differed from budgeted outcome (Joshi and Li, 2016).
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Activity based budgeting (ABB)
It is another budgetary controlling tool that supports the Nisa retail store in making
effective control over its budget. Sometimes results may get changed due to lack of awareness of
management and ignorance of higher authorities. ABB is the tool that supports the cited firm in
preparing the effective budget so that final results do not get changed with the situation. It is the
tool which is used by most of the big organization in order to develop better understanding about
movement of money in the workplace (Tucker and Parker, 2014).
Advantages:
 It is one of the beneficial tool through which Nisa retail store can eliminate unnecessary
activities and can save cost of the cited firm. It helps in gaining competitive advantage to
the firm and enhance its profitability as well.
 ABB is the method in which entire firm is looked as single unit and final budget is
prepared by considering all these departments (Activity Based Budgeting, 20170.
 ABB is the tool in which company do deep research and analysis each and every
information then it finally prepares the fin al budget. Research and analysis support the
entity in identifying the potential issue that can take place so manager can make strategies
to reduce these problems. It is the best methods that develops relationship between customers and company. By
eliminating unnecessary activities cited firm can offer quality products at lower rates. By
this way clients will feel happy and they will be loyal towards the brand (Tucker and
Parker, 2014).
Disadvantages:
 ABB is the technique in which in-depth understanding is very important, if manager does
not have sufficient knowledge then individual will not be able to prepare accurate budget.
 It is comparatively complex in nature.
 As it looks the entire firm as single unit so resource consumption is very high (Groot and
Selto, 2013).
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 This technique focuses on achieving short term goal of the firm thus, it is unable to
accomplish long term goal of the entity.
Zero based budgeting (ZBB)
It is another budgetary control planning tool that supports Nisa retail store is making
effective control over its budget. In this technique cited has to re-evaluate every line item and
according to re-evaluation individual prepare the final budget. It is opposite to traditional
budgeting because in the traditional methods company look upon the previous records and
assume that same trend will be continue in the future. Whereas in the zero based budgeting tool
cited firm emphasis on identifying risk and analysis the situation effectively (Zero-based
Budgeting (ZBB), 2012).
Advantages:
 ZBB is one of the great method which accuracy is high as compare to other methods. By
using this method Nisa retail store can re-look each department and can compute cost
accordingly. That supports in identifying the issues and getting optimistic results.
 It is the tool that supports in effective allocation of resources. Historical data do not use
by the cited firm so entity allocate the resources as per the current requirement of each
department (Bryer, 2013).
 Zero based budgeting planning tool in reducing the redundant activities, when
unproductive activities are being eliminated then cited firm will be able to get optimistic
results.
 It is helpful in improving coordination and communication between all departments and
also it motivates managers in making sound decisions for the growth of the cited firm. ZBB is beneficial for the Nisa retail store because by this way cited firm will be able to
overcome the situation of budget inflation (Chan, 2015).
Disadvantages:
 It is time consuming process because in this company has to re-look each activity.
 In this process cited firm will require high manpower. Re-evaluation of each department
is not easy task for doing the same it will need more skilled people.
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 Company is require to invest high amount in researching and analysing in-depth
information about each task so that it can prepare the effective final budget (Takeda and
Boyns, 2014).
P5 Those methods of management accounting which supportive for Nisa Retail Store in order to
combat financial issues
In the business several types of issues and problems arise which create negative impact
on its performance in the industry. Further, management cannot meet with objectives, intentions
and goals which are made at the time of making effectual plan. The issues of financial can be in
different forms like cost increasing, profit and sales declining, taxation amount, debt etc. In order
to resolve such kind of issues management accounting supportive by including its systems which
are explained below:
Financial governance-
In the company there are different departments are made which take care and analyse
about the specific criteria. The financial governance is a sub-part of corporate governance under
which those expenses which are made by the Nisa retail firm are analysed effectually. At the
time of making evaluation it has been found that initial investment or costs are giving whether
positive or negative response to the management (McLellan and Sherine, 2013). If the company
determines from analysis that, expenses made by it are unproductive and not generate any profit
then decisions for cutting and eliminating such expenditures are taken. Therefore, the financial
trouble of creating cost burden will be reduce up to the better level.
Key performance indicators-
In order to analyse business performance there are several kinds of tools and indicators
are adopted by the company which are such as cost, expenses, quality, volume, efficiency, net
income, productivity, revenue etc. At the time of analysing total cost or product quality of 2-3
years if it can be derived that Nisa store having favourable changes over the each year then
performance will be said in well condition. On the other side, if final income or net yield of the
entity reduces in current period as compare to previous, then performance will be measure in
terms of poor.
Budgetary targets-
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Apart from this all systems, other is relating to the budgetary in which standard data are
compared with the facts and figures generated by Nisa Retail firm. When the budgeted values are
easily meet by the company which are forecasted through different budgets then it can be said
that its performance is well (Novas, Alves and Sousa, 2015). On the other hand side, if the
management analyses and derives that all the targets of budget statements are not achieved by
the firm then corrective actions are taken. Furthermore, strategies are made by the company like
controlling on cost, optimum utilisation of resources, give training to employees etc.
Bench marking-
As per the current stated system of management accounting there are standards or
benchmarks are settled by the industry and firm itself which are compared with those figures
which are generated actually. In short, for finding business performance, base is used to the
standard values in proper manner (Takeda and Boyns, 2014). For example: benchmark for Nisa
Retail Store in terms of net profit is that up to next two financial years it is required to increase
by 15%. By making evaluation after such accounting periods if entity able to earn 15% more
profit, then it can be said that Nisa store has well performance within UK's retail sector.
CONCLUSION
From the current report it can be assessed that, management accounting is one of the best
and useful tool for the Nisa Retail Store in order to take several kinds of internal business
decisions. It uses different approaches of the management accounting through which company
able to make fruitful decisions and become healthier in the financial aspects. Such adopted
systems by Nisa firm are like job costing, stock management, price optimisation and cost
accounting. Through calculation part it can be found that net income amount differs in both
marginal and absorption method which is worth of 9300 GBP and 9600 GBP respectively. Those
planning techniques and instruments used by cited enterprise to control over the budgetary are
such as variance, zero based and activity based budgeting. From the last part of the study it can
be concluded that, for resolving financial issues and obstacles there are benchmarking, financial
governance, KPIs and budgetary targets are implemented by the firm.
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