Management Accounting Report: Analysis of Jaguar Land Rover's Finances

This report provides a detailed analysis of management accounting principles and their application to Jaguar Land Rover. It begins with an introduction to management accounting, defining its role in preparing financial reports for decision-making. The report then delves into the management accounting systems used by Jaguar Land Rover, including inventory management, price optimization, job costing, and cost accounting systems. The benefits of each system are discussed, highlighting how they contribute to cost control, profit maximization, and efficient resource allocation. The report further explores the functions of management accounting, such as planning, organizing, controlling, and decision-making, and emphasizes the importance of integrating management accounting with financial forecasting and other key business decisions. Various techniques used in management accounting reporting, including process costing and activity-based costing, are explained, offering insights into how Jaguar Land Rover can use these tools to understand and manage its costs effectively. The report concludes with a discussion of financial problems and how management accounting can help address them, providing a comprehensive overview of the subject.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
ACTIVITY 1...................................................................................................................................1
PART A...........................................................................................................................................1
Management accounting..............................................................................................................1
Management Accounting Systems..............................................................................................1
Benefits of management accounting system................................................................................3
Functions of Management Accounting........................................................................................4
Importance of Management Accounting (Integration)................................................................4
The techniques which are useful in management accounting reporting......................................5
PART B...........................................................................................................................................6
Annex (A): (QUESTION 3)........................................................................................................6
Annex (B):(QUESTION 1)..........................................................................................................7
ACTIVITY 2...................................................................................................................................8
PART A...........................................................................................................................................8
Uses of Different planning tools..................................................................................................8
Annex (3) (Question 3)..............................................................................................................10
PART B.........................................................................................................................................11
Comparison of the way in which management accounting helps to deal financial problems:..13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting defines as the process of preparing management reports &
accounts which gives proper & timely financial and statistical information which is required by
the management to take business decisions for the growth of organisation. It produces financial
reports which is useful for shareholders as well as stakeholders. Management accounting reports
reflects the amount of available cash, sales revenue generated, accounts receivables, raw
material, stock etc. It is helpful to analyse the business activities which is beneficial for the
management to take effective decisions which contributes in the success of corporation. To better
understand this concept, Jaguar Land Rover has been chosen which is a British Multinational
engineering company of cars and it established in United Kingdom. In this report there are
followings are covered There are various topics has been discussed in this report such as:
management accounting systems of reporting, functions of management accounting, planning
tools and technique which are used in budgetary control. Apart from this, it also discusses about
the issues which arises in the corporation in context to financial problems.
ACTIVITY 1
PART A
Management accounting
Management accounting is the process of preparing management reports & accounts
which accurate and timely financial and statistical data and information. i It provides the
accounting information which provide help the organisation to make different policies that is
helpful to conduct regular operations in order to achieve the goals and objectives. As the finance
manager of Jaguar Land Rover handles the accounting matters and provide the suggestions for
the growth of company so that it can accomplish its objectives (McLaren and Mitchell, 2016).
Management Accounting Systems
Management accounting systems are the internal system which is used by the company to
measure & evaluate their procedures in context to the management of corporation. To manage
the accounts, management accounting systems plays an important role. There are different
methods which can be implemented by the management in this context. It is helpful for the
Jaguar Land Rover to manage the business and make effective strategies for the growth of
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company and relevant data and information can be provided which is helpful to take better
decisions. Management accounting systems are described as below:
Inventory management system: This system provides help the management to manage
the stock and keep records about the inventory so that unnecessary expenses can be minimised.
There is various software which can be used by the Jaguar Land Rover to manage the inventory
and it involves Netsuite ERP, Zoho Inventory, SellerCloud etc. Software’s can scan and gather
stock data. It also assists that how much stock is require on day to day basis and how much it is
require to meet the uncertainties and how much units are needed to be buy and at what time. For
the smooth functioning and production, it is very helpful for the organisation. As company use
this tool so that it can effectively manage the spare parts & articles of vehicles.
Price optimisation system: As per this system, an organisation can analyse how
consumers can respond to distinct prices for the products which are provided by it. By using this
method Jaguar Land Rover can set suitable price which meet the expectations of consumers and
help the organisation to fulfil its objectives and maximize the profits. By using this method,
management of company can analyse what prices are needed to be set so that it can generate
maximum profits by satisfying the demands of consumers. As Jaguar Land Rover can adopt this
tool to differentiate the prices set by rivals & maintaining reputation in the market.
Job costing system: This method has emphasis to collect information regarding the costs
associated to a particular job. It has emphasis to accumulate the information which is related to
the direct material, direct labour and overhead. By using this method, Jaguar Land Rover can
analyse accuracy of organisation’s estimating system that is useful to set the prices which is
affordable and help the company to generate maximum profits. This method has focused to
control the expenditures and reducing the risk by increasing the profits. By using this method
corporation can analyse the profit & loss of each job. To manufacture the cars where are various
process which are required to be follow and each process adds the value in that product. If
management use this system than it can know the cost of each job which incur while the
production process (Macinati and Anessi-Pessina, 2014).
Cost accounting system: This system is generally used by the manufacturing companies
to record the production activities which used in perpetual inventory system. This system can be
used by the Jaguar Land Rover in context to analyse the cost and it works by tracking raw
material which goes through various productions process & converted into final products. This
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method is helpful to anticipate the closing value of materials stock, WIP & finished products
stock while preparing the financial statements. For the organisation it is useful in optimal
utilisation of budgets & resource allocation for the specified factors. To analyse the cost of cars
this system is very useful for the organisation. There are different types of cost which are related
to these systems and these are mention below:
Fixed cost: It is that cost which remain fix for a certain period of time and does not
change over a certain level of production and it involves rent, rates, wages etc.
Variable cost: This is that cost which change while increase and decrease the production
and it involves material & labour.
Overhead cost: There are various types of overheads which are occurred in the
manufacturing business and it involves insurance and taxes.
Benefits of management accounting system
Inventory management system:
 With the help of this system an organisation can manage the fluctuation in inventory and
it occurs due to the changes in supply & demand.
 By using this system company can effectively use the stock which provide the value of
money.
 The benefit of cost management system is to putting cost control which is helpful for
Jaguar Land Rover to minimise the expenses and it leads to maximize the profits. By
applying this system unnecessary cost will reduce.
Profit maximization system:
 It is helpful for the organisation to generate higher profits by satisfying the needs of
consumers.
 As Jaguar Land Rover can make sure that cost is being covered & revenue has increased
(Zoni and Morelli, 2012).
 The benefit of cost management system is to fix the prices of products which are based
on cost of production. By applying this system effective prices can be set which attract
the consumers.
Cost accounting system:
 It is beneficial for the Jaguar Land Rover to deduct the problems and issues which are
related to the cost.
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 As company can control the excess cost which is helpful to maximize the profits and help
the organisation to achieve the objectives.
 It is beneficial for Jaguar Land Rover to make proper planning which is associated to the
cost.
Job costing system:
 With the help of this system Jaguar Land Rover can analyse the cost of each process
which involves in production process.
 As company can analyse the profits which is generated by each job.
 The benefit for Jaguar Land Rover is that it can estimate the cost of job which is based on
previous records in job costing. By applying this system overhead recovery rates can be
planned which is based on budgets.
Functions of Management Accounting
 Planning: It is useful for the planning and Jaguar Land Rover can make plans for the
growth of company and make better policies which provide support to achieve the
objectives as per the requirement. While preparing budget and future expansion plans it is
beneficial for the organisation.
 Organising: Data can be arranged in a structured way by using management accounting
and it provide help to management of Jaguar Land Rover to take effective decisions for
the growth of company.
 Controlling: With the use of management accounting tools Jaguar Land Rover can
control the unnecessary expenses which occurs in the business so that company will able
to generate higher profits.
 Decision making: There are various techniques and tools of management accounting
which can be use by Jaguar Land Rover to take better decisions which help the
organisation to achieve its goals and objectives.
Importance of Management Accounting (Integration)
As management accounting system and reports both are integrated because both of them
provide useful information related to financials of company.
 Forecasting future: The environment is very dynamic and no one can correctly assume
what will happen next and what will be the consequences. So, it is important for the
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management of Jaguar Land Rover to use management accounting tools in order to
predict the financial performance of the organisation.
 Make or buy decision: By using management accounting techniques, Jaguar Land Rover
can take the decisions that how much units they have and how much units of raw material
they require for the production (McLean and Davie, 2015).
 Rate of return: It is the annual income from an investment which express as a
proportion of the original investment. It is required for the organisation to know how
much it is earning returns from the investment which is done by the company. With the
use of management accounting Jaguar Land Rover can know which project they have
chosen so that they can higher returns and it helps the organisation to achieve its
objectives and targets and company can sustain for a long term in the market.
 Forecasting cash flow: To forecast the cash flow is important for the organisation so that
it can know how much cash it will get from the business activities and how much cash
will outflow from the business of Jaguar Land Rover. It provides helps the organisation
to know the liquidity and it should be high so that organisation does not suffer from the
problem which is associated to the shortage of cash.
The techniques which are useful in management accounting reporting
Management accounting reporting are the tools which is used to understand the numbers
behind what is going in the business.
Process costing: It is the cost accounting technique which is used to know the cost
incurred during production are charged to processes & averaged over the total units
manufactured. In this regard accounts are opened in the books of accounts, for each process & all
expenditures are associated to the process for the period in which it charged. There are various
processes through which a product has to gone so that it can convert into finished goods. This
technique can be use by the Jaguar Land Rover to know the cost of each process. For the
organisation it is necessary to know the cost of each job and this technique denotes one method
for gathering & assigning manufacturing costs to the units produced. With the help of it
manufacturing reports can be prepared by the organisation.
Activity based costing: This costing has assigns manufacturing overhead costs to
products in more logical way as compare to the traditional system of simply allocating costs on
the basis of machine hours. It is useful to assigns costs to the activities which are real cause of
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overhead. It is very useful for Jaguar Land Rover to assign the activities, the costs have assigned
to the cost objects which use to those activities. As it beneficial for the company it has different
machines & products & tangible processes which does not easy to sort out. It is useful for the
organisation to managed the activities in more effective manner which help the organisation to
achieve its objectives. With the help of it inventory management reports can be prepared.
Variance analysis: It is the quantitative investigation of difference among actual &
planned behaviour. Jaguar Land Rover can use this to manage the business activities. It is
important for the organisation to know the variance between standard and actual so that it can
take effective measures in order to control the expenses. For the organisation it is require to
know the actual cost so that it can make strategies on the basis of it. With the help of it
performance report can be prepare.
Overhead allocation: To control the overheads is important for the organisation so that
expenses can be minimize and profits will be maximized. Administrative and manufacturing
these are two types of overhead. In administrative overhead the cost does not involve in the
production of products like costs of front office administration & sales. Whereas manufacturing
overhead involves the costs which arises in the factory but does not include direct cost. It is
important for the organisation to allocate the overheads as per its nature such as finished
products or work in process. Overheads are the expenses for the organisation so it is required for
the Jaguar Land Rover to reduce the expenditure which are occurs in the form of overheads and
they are directly or indirectly associated with the specific department.
PART B
Annex (A): (QUESTION 3)
Budget 2019 2020 2021
Cost
Centre
Budgeted
production
overhead
costs in £)
Basis of
production
(overhead
absorption)
Cost
per
Hour Hours Cost Hours Cost Hours Cost
A 66000 22000 3 24200 72600 26620 79860 27500 82500
B 75000 15000 5 16500 82500 18150 90750 19500 97500
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C 83600 41800 2 45980 91960 50578
10115
6 51500
10300
0
MARGINAL COSTING
PARTICULARS AMOUNT
SALES 427500 427500
LESS VARIABLE COST
DIRECT LABOUR (15*5000) 75000
DIRECT MATERIAL (18*5000) 90000
Variable Production ( 9*5000) 45000
VARIABLE 10% OF SALES VALUE 42750 252750
LESS DIRECT LABOUR (15*500) 7500
DIRECT MATRIAL ( 18*500) 9000
VARIABLE PROD (9*500) 4500 -21000
CONTRIBUTION 195750 195750
LESS FIXED EXP. (180000/4) -45000
PROFIT FOR THE YEAR 150750 150750
ABSORPTION COSTING
PARTICULARS AMOUNT
SALES (4500*95) 427500 427500
VARIABLE COST (15+18+9*5000) 252750
VARIABLE COST (15+18+9*500) -21000 231750
COGS 276750
GROSS PROFIT AT NORMAL 150750
UNDER/OVER ABSORPTION 6819
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GROSS PROFIT AT ACTUAL 157569
-FIXED EXP -45000
NET PROFIT 112569
Annex (B):(QUESTION 1)
(a) Absorption costing using Labour hour absorption rate: -
Product X £6000*1 £6000
Product Y £8000*2 £16000
Labour hour = £2,64,000
22,000
= £12 per hour.
Overhead absorption on labour hour: -
X Y
Overhead Absorption 1*12 2*12
12 24
Total Overheads £6000*12 £8000*24
£72,000 £192,000
(b) Using ABC approach: -
Machine hour per period:
Product X £6000*4 £24,000
Product Y £8000*2 £16,000
Cost driven rate: -
Production set up £179,000/60 2893 per set up.
Order handling £30,000/72 417 per order
Machine cost £55,000/40000 1.375 per order
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Overhead using ABC approach: -
X Y
Set Up 15*2983 = 44745 45*2983 = 134,235
Order 12*417 = 5004 60*417 = 25,020
Machine Cost 24000*1.375 = 33,000 16000*1.375 = 22,000
Total 82749 181255
ACTIVITY 2
PART A
Uses of Different planning tools
Budget: It is an estimation of income & expenses over a particular period of time. To
prepare a budget, it is important for the organisation and it is made for the future and for that
purpose Jaguar Land Rover can make future plans which are related to the income and
expenditures. While making budget, it is important for the organisation to know the past years’
data and information so that current year budget can be prepared on the basis of it. In this a
company can allocate the sources through which it can get revenue. It is made for specific
period of time and it helpful for the organisation to take effective decisions for the growth of
business (Vasile and Man, 2012).
Purpose of Budgeting: Budgeting is the process of developing a plan to spend the funds
and making a spending plan allow the organisation to analyse in advance that they have
sufficient funds to do the required things which are beneficial for the success of business. With
the help of budgeting, Jaguar Land Rover can make proper strategies and collect relevant
information and data of past years so that future budget can be prepared on the basis of it.
 The main purpose of budgeting is to it prepare blueprint which is helpful for the
organisation to conduct its business operations on the basis of it and accomplish the
objectives which is set by the management of Jaguar Land Rover (Ward, 2012).
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 The main purpose of budgeting is to allocate the sources of income and expenses and
make proper plan for the future so that business can grow and achieve its targets.
Different types of planning tools: As Jaguar Land Rover can use different types of
planning tools which are very helpful for the business. It involves:
Functional budget: It is that budget in which income plan is developed through particular
procedure. Through this Jaguar Land Rover can anticipate the various types of expenditure such
as labour, manufacturing cost etc. With the help of it management can analyse the gains and
expenditures which is related to a specific time duration and help the company to take effective
decisions. Different types of budget which are discussed, they are related to the functions of
company. Advantage & disadvantage are mention as below:
Advantages Disadvantages
It is helpful to develop income plan with the
help of specific procedure.
Some targets are very high so it is not easy for
the workers to achieve it and help the
organization to achieve its goals.
It is authenticated & emphasis to resolve the
issues (Tucker and Lowe, 2014).
It is depend upon projection which involves
availability of raw material, supply, demand
etc.
Traditional budget: These types of budget are based on historical data and information. It
is helpful for the organisation to anticipate the income & expenses in context to the future. There
are various advantage & disadvantages of this budget which are mention as below:
Advantages Disadvantages
The traditional budgets help in decision
making process of manager and identify all
issues which can arise in future.
Traditional budget might be an inaccurate
representation of goals where company want to
reach.
It can provide a game regarding to business
that how to operate business in effective way.
It is time consuming budget and take time into
evaluation of past years budget (Merchant,
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