Management Accounting Report: Taj Stores, UK - Costing and Planning

This report provides a detailed analysis of management accounting principles and practices, focusing on their application within a UK-based grocery store, Taj Stores. The report begins with an introduction to management accounting and its significance for businesses, followed by an examination of various management accounting systems, including inventory management and cost accounting. It delves into different methods of management accounting reporting, such as inventory control and budget reporting. A key section compares and contrasts marginal and absorption costing, highlighting their implications for income statements. The report further explores the merits and demerits of planning tools used in budgetary control and concludes with a discussion on adopting management accounting systems to address financial challenges. References are included to support the analysis.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Various management accounting system...............................................................................1
P2 Various method for management accounting reporting.........................................................3
TASK 2............................................................................................................................................4
P3 Income statement and difference between marginal and absorption costing.........................4
TASK 3............................................................................................................................................8
P4 Merit and demerit of many kind of planning tools which is used in budgetary control........8
TASK 4 .........................................................................................................................................11
P5 Adopting management accounting system for responding financial troubles.....................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is fundamental for each and every kind of company as with
assistance of this manager will get adequate results which are beneficial for them. It is
fundamental for company to combine their administration with procedure of accounting;
therefore, they will make their working operations more viable and in addition control their
expenditures (Ahmad and Mohamed Zabri, 2012). Along with this, by manage entire things in an
adequate way; employer will decrease their risk of business. Present report is based on Taj Stores
which is established in UK. They are providing variety of grocery goods to their clients as per
their requirements. In this report, there is description about various management accounting
system. This assignment is going to describe difference amongst marginal and absorption
costing. There are various methods which can be utilized by manager to take an adequate
decision for firm. As a result, entire work will fulfilled within specific time span.
TASK 1
P1 Various management accounting system
In previous era, it was not difficult for a person to begin their own business as he has to
identify a producer who will develop goods and then, he will sell it into market. Time goes and
this will become more tricky for an individual to start their own firm as lots of use of new
methods and techniques. As per current market trend it is required for companies to understand
importance which are associated with management accounting; thus, they can easily manage
entire operational exercises in an effective manner. This procedure is just like where manager try
to find out and examine financial as well as non financial data. Therefore, firm will use resources
adequately which is advantageous for them. With assistance of this, enterprise will manage their
fund properly (Aminbakhsh, Gunduz and Sonmez, 2013). By avoiding or resolve disputes an
association will easily attain desired goals within time.
Costing is much significance part which is associated with management accounting. This
will aid to reduce overall manufacturing cost. It can affect profits of company directly. By taking
decisions timely, firm will accomplish their targets within provided period of time. To improve
interaction amongst various levels manager will take aid of system of management accounting.
With assistance of this manager will easily understand strategies which are developed by
government. External environment will provide impact to firm either in a positive or negative
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manner. For evaluation of data and information in an adequate manner, it is required for superior
to consider extrinsic conditions. It is must for employer to manage cash; so that, they will ignore
their short term problems because this can affect their targets and goals (Burritt, Schaltegger and
Zvezdov, 2011).
Instead of many advantages, some disadvantages are associated with management
accounting. Decisions of various tools will always depend on cost and financial accounts. An
inappropriate judgement will cater adverse affect on firm. It is not easy for small firms to use
accounting system into their business as it takes high cost. Along with this, it has been
understood that management accounting will useful for management rather than bondholders.
Henceforth, some systems which are linked with it are described as below:
Inventory management system: With assistance of this technique, manager of company
will easily manage their entire inventory in effective manner. This help them to acquire adequate
data and information related to stock. As a result, risk as well as waste will get eliminate from
business. It is not easy for an association to find out appropriate stock which they will keep in
warehouse. If too much products are stored then, this will enhance carrying cost. Thus, they will
keep limited inventory which will aid them to accomplish need of customers.
To keep up profits, it is fundamental for Taj Stores to reduce their waste adequately and
appropriately. Recently, superior maintain their books of accounts with assistance of many
software (Chen, Weikart and Williams, 2014). As a result, entire data and information will get
recorded within limited time span. Instead of this, they will also use other manual techniques
which is less expansive. It is must for manager to keep up records regarding movement of
products.
There is an example in this relation that Tesco is using this technique to manage their
inventory in an effective way. It is much famous retail store who organise their crude material
adequately. This helps them to manage overall demand as well as supply effectively. They are
much able to decrease wastage risk. Organisation maintain inventory records for almost 22 days
which is high as comparison to Taj Stores (They keep up inventory for 6 days only).
Cost accounting system: This aids to improve profits of firm because this structure is
utilized by manager to estimate cost of goods and services. Along with this, with help of it
enterprise will examine their revenues, control cost and in addition they will do valuation of their
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stock. It is not much easy to use this tool; so that, administrative division needs use it effectively
(Cokins, 2013).
This methodology will assist manager to reduce their manufacturing cost. As a result,
organisation will attain success as well as improvement because cost reduction leads to
maximisation of profits. Thus, it is necessary for enterprise to manage overall records in an
adequate and appropriate manner.
In context of Taj Stores, they implement this tool of accounting systems as it assists them
to improve their profits and productivity. Therefore, it is fundamental for employer to do their
task effectively so that they can easily evaluate entire expenditure which will occurred into their
project.
In Tesco, there is implementation of this method is done appropriately because working
abilities of superior is much adequate. As a result, they will easily improve their revenues and
reputation at marketplace (Delafrooz and Paim, 2011).
Job Costing: With assistance of this, employer can easily maintain cost of each job in an
adequate manner. As a result, profits associated with every occupation can be easily identified.
Therefore, by utilization of this technique, superior can find out the revenue which will be
occupy by them with aid of a single job. It is required for company to use this methodology into
their firm.
As indicated by manager of Tesco, they estimate their job costing which is related to
manufacturing is almost 41% but real cost find out at 33% which is much near. Rather than this,
Taj Stores estimates it at 49%. It is not easy for small firms to enhance their cost of
manufacturing; therefore, their actual cost is almost 16% which is much less. Thus, it is required
for superior to concentrate on it; as a result, they will easily improve their revenues (Ekbatani
and Sangeladji, 2011).
P2 Various method for management accounting reporting
It is required for superior to develop many sorts of report; so that, they can easily present
their plan to top management. Some tools and stated as beneath:
Inventory control reporting: With assistance of this, manager can easily formulate as
well as maintain adequate records which is associated with stock. Therefore, they can enhance
their revenues and will improve circumstances to acquire opportunities from marketplace. Many
kind of problems will develop if there is overstocking as well as under stocking of goods. Like,
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organisation will not accomplish requirements of clients on time, if they do not have adequate
inventory.
Main purpose is to find out problems which is related to stock administration. Taj Stores
is doing their work at a small scale; therefore, it is not possible for them to stock maximum
material with them as it takes lots of cost which can not be bear by them (Foster, Hart and Lewis,
2011). Apart from this, under stocking will leads to lose their customers and they will switch to
another store for accomplishment of their requirements and demands. Therefore, to resolve this
sort of troubles they have to use techniques of management accounting. Like an example:
Economic order quantity, with aid of this, it will be easy for an employer to determine adequate
product amount which they have to keep in storage. This will help them diminish their unwanted
cost.
Budget reporting: With aid of an effective budget it is easy for a manager to maintain
their expenditures in an effective manner. Along with this, they will utilize fund adequately.
Instead of this, budget report is developed by superior of firm. It will consist information
regarding how much they will spend on their project. As a result, by maintaining their expenses,
enterprise will easily improve their revenues which is connected with business. For above stated
purpose, it is must for them assign resource to each task appropriately.
Fundamental aim of this report is to record and examine entire expenditures and incomes.
It helps to cover each and every unit; therefore, it is must for superior to formulate it because an
effective budget will help to provide direction to staff members. They will be able to complete
their task within provided fund. As a result, unwanted cost will get reduced and work will fulfil
in an adequate way (Fullerton, Kennedy and Widener, 2014). With assistance of proper spending
plan, association will able to maintain their goodwill at marketplace. Along with this, they will
easily compete their competitors at competitive world.
TASK 2
P3 Income statement and difference between marginal and absorption costing
Costing is consider as a most important part which is associated with management
accounting. With help of this, company can reduce their business cost; therefore, they can easily
improve their profits. In this relation, marginal and absorption costing is mentioned as below:
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Marginal Costing: If any company is manufacturing extra goods and services then, this
sort of expenditures will occurred. It can be divide into two aspects, i.e. manufacturing as well as
non – manufacturing cost. Along with this, there are some sort of expenses which will be include
in this report, like material, labour and overhead. Rather than this, it will focus on additional
expenses, such as period cost (Gaizauskas and Martinavicius, 2013). If firm adopt this kind of
methodology then, it is essential for the, to take unto under consideration the closing inventory
which is related to same year. As a result, profits of organisation will get diminished. Break even
analysis is fundamental part of this tool because it helps to show overall variable cost. Therefore,
company is at this place where, there is situation which is related to no profits and no loss. Along
with this, it is must to considered work in progress in the marginal costing.
Absorption Costing: If an association is utilizing this sort of technique in their firm, they
need to include various expenses which will include overhead, material, labour and many more.
It is must to comprise closing inventory as with assistance of this organisation will easily acquire
maximum revenues. Company will neglect their fixed expenditures because goods and services
are not sold out in the similar year. Hence, costing of absorption includes all areas related to
procedure of manufacturing (Higgins, 2012). Thus, it is foremost reason to call this method is
full costing.
There are various kinds of differences between above mentioned two methodologies,
which is portrays as beneath:
Basis Marginal Costing Absorption Costing
Stock level If closing inventory of
company is less then, it will
represent higher profits.
As per this, closing stock will
provide impact to revenue
level of organisation.
Cost As indicated by this technique,
if manager is utilizing it then,
there is no need to involve
fixed expenditures into this
(Hirth, 2013).
Whereas, if firm uses this kind
of methodology into their firm
then, it is must to include fixed
expenses.
Measurement By considering margin of
contribution employer can
Gross margin has to include
into this, therefore, manager
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easily examine revenues, but is
must to remove applied
expenses from this.
will evaluate net profits of
firm. Additionally, it is
required to comprise applied
cost at the time of using this
methodology.
Profitability Individual level of sales will
help to maximise revenues of
enterprise.
Rather than this, if company is
using this tool then, by
utilizing sales at individual
level there profits will get
reduced (Lambert and
Sponem, 2012).
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)
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Administration Cost: In this budgeted cost is £800 and Actual cost is £700.
Production cost is £700
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
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Net profit using marginal costing £ £
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
Therefore, if an association adopts methodology of costing then, they can easily improve
their revenues. If company utilizes marginal costing then they can gain £9300 which is less
according to absorption costing. The reason behind this difference is that how they treat closing
stock. Firstly, it is needed for organisation to include costs which is related to current goods and
services. But if firm is selling their products in upcoming year then this needs to be comprise in
next time duration. Instead of this, another reason of this difference will also depend on
treatment of fixed expenses. According to marginal cost, in every unit it is not essential to
comprise fixed expenditures but this will add at last. Henceforth, from above described income
statement this will be understood that Taj Stores has to use absorption costing into their firm as
by using this they will easily earn almost £9600.
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TASK 3
P4 Merit and demerit of many kind of planning tools which is used in budgetary control
By using budgetary control organisation will get stable because it is associated with a
specific time duration, like for one year (Langevin and Mendoza, 2013). As a result, various
confusions will get eliminated which will be in company. With assistance of an adequate plan of
budget manager will manage entire operational activities and in addition they will move their
entire work in a right direction. Rather than this, employer will also baffled due to distinguish
policies of their contenders. Furthermore, there strategy will assist them to do their work in
correct manner which will help them to attain their coveted goals and objectives effectively. This
will be of both kinds, one is short term and another is long term. It is required for persons to
maintain open conversation into company; therefore, they can easily share their views and
opinions with each other. Along with this, entire problems will sort out within specific time span.
To achieve best and effective results, it is mandatory for superior to develop proper coordination
between each and every division (Lavia López and Hiebl, 2014).
Instead of various pros there are many cons which are associated with budgetary control
and this can never ignored by manager of enterprise. Manager prepares budget and it is on
estimation basis which diminishes its reliableness. Future is uncertain and environment is
dynamic in nature; therefore, it is not must for employer to waste their entire time on budget
formulation. It is needed for management to take fast decisions for association. If there is no
flexibility in their budget then this will create major issue. As a result, many troubles will face by
superior to implement it into their working procedure (What is Budgetary control?, 2017).
Hence, several are popular methods which are connected with planning and will be used
by employer; as a result, they can improve overall performance of firm in an effective way. It
will be discussed as beneath:
Master Budget: If superior is going to do planning related to this then, it is required for
them consider an organisation as a particular unit. Each and every unit and in addition areas are
going to comprise in it. To formulate master budget, manager need to consider entire data as well
as information which is associated with their business. It is must for superior to provide duties to
all workers; therefore, they can do estimation more accurately. Apart from this, in this tool,
employer has to estimate entire financial gain as well as expenditure because this will be useful
for them proficiently (Maiyaki, 2011).
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