Analysis of Management Accounting Techniques at Keith Prowse

This report provides a comprehensive overview of management accounting, focusing on its application within Keith Prowse, a UK-based sports hospitality company. It delves into various management accounting systems, including cost accounting, inventory management, and price optimization, highlighting their benefits. The report explores different reporting methods, such as budget reports, performance reports, and account receivable aging reports, providing insights into their functionalities. Furthermore, it examines costing techniques like marginal costing and absorption costing to calculate net profit. The report also discusses planning tools, their advantages, and disadvantages, along with their application in preparing and forecasting budgets. Finally, it analyzes how organizations adapt management accounting systems to address financial challenges and concludes with recommendations for achieving synergy and sustainability.

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting and different types of management accounting systems .............1
P2. Different methods used for management accounting reporting ...........................................3
M1 Benefits of different management accounting system..........................................................4
D1 Various accounting systems and reports integrated within company operations..................4
TASK 2............................................................................................................................................4
P3 Costing techniques to calculate net profit..............................................................................4
M2 Range of management accounting techniques......................................................................9
D2 Financial reports that accurately apply and interpret data.....................................................9
TASK 3............................................................................................................................................9
P4.Planning tools with there advantages and disadvantages......................................................9
M3.Various tools with its application to prepare and forecast budgets....................................11
TASK 4..........................................................................................................................................11
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................11
M4. Management accounting can lead organisations to sustainable success...........................13
D3. Evaluation of planning tools to respond and solve financial problems.............................13
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is a branch of accounting system which is highly preferred by
the management to take crucial strategy decisions (Alsharari, Dixon and Youssef, 2015). Under
this approach to manage an organisation, The key financial information about the business is
provided by the analysts to the top executive management of the firm. The management
manipulates this information according to their needs to make an informed decision about the
future strategies and draft vision for the future goals. Management accounting is a culmination of
qualitative and quantitative data set which encompasses key factors of the business. Considering
these factors as benchmark to evaluate past performance and design future targets is the purpose
to the management body of the firm. For profound analytical study of management accounting
Grant & Thornton, a global financial and management consultancy firm is chosen which
provides consultancy services to Keith Prowse, A UK based sports hospitality company which is
engaged in providing hospitality services to the sporting events happening in UK. It is a
hospitality, sports and leisure division of Compass group PLC who is engaged in catering
services. Keith Prowse is based at London, United Kingdom.
This report contains a detailed view on the the literature of management accounting,
various management accounting systems, Different management accounting reporting
mechanisms, their applications through real time demonstrations and their usefulness in the
business context. The report subsumes the brief analysis of budgetary control mechanisms,
techniques and their implementation at Keith Prowse. This report will also include different
planning tools used by business houses and recommendations on right approach to successful use
of suggested techniques in the business to achieve synergy and sustainability.
TASK 1
P1. Management accounting and different types of management accounting systems
Management accounting: Management accounting rose to prominence from being a
traditional and auxiliary function to a modern and core business function. It has developed as a
mix of science and art over the years on management education development which has
empowered the executive position holders of the business. Keith Prowse's analysts use an
integrated management accounting system based on the fundamentals of various minor reports.
1

Management accounting system: It is a system which has many tools and techniques
which makes it a full device ready for implementation (Arroyo, 2012). It is a broad framework of
various systems which works internally and externally to the whole paradigm of management
accounting. It can be condensed that management accounting is a whole tree made up of small
and diverse systems branches. The prominent management systems are as follows:
Cost accounting system: It is an accounting system which is designed to ascertain the
cost of production of products to a company. It takes various input costs such as variable costs
like indirect labour, administrative expenses, operating expenses, etc. to fixed costs like direct
material, direct labour, depreciation etc. beneath its broad framework. Cost accounting aids the
management in comparing the input to output ratio or results. This comparison helps the
management in measuring financial soundness of the company. It is beneficial tool for the
management in designing budgeting techniques and setting up of cost control systems. It helps in
improving net margins for the company in upcoming future.
Inventory Management system: It is a system which tracks goods through the gross
supply chain structure. This system keeps a check on the flow of goods from the entry of raw
material into production process, to the different stages of production to finished goods , then
after it traces the delivery phase of goods to retailers, warehouses, exports and distribution.
Through this system the inventory management can keep a track on the flow of goods from their
birth to final delivery which helps in ensuring zero loss of goods and fast pacing the delivery
system.
Price optimisation system: It is a quantitative model which calculates the variation of
demand at different price levels. It helps in generation of data set which provides deep insights to
the management about different combination matrix of cost and stock levels which further helps
in determination of accurate prices. This improves the profit securing model as more customer
prefer to buy desired goods in order to fulfil their needs and requirement.
Job costing system: It is a system which identifies relative cost associated with each
factor of production engaged in a job. This system provides information to the client entity about
the costs assigned to each cost centre as a single unit. It aids the management in ascertaining
costs according to the customised customer specific requirements of cost assigning to each
individual factor (Baars and et.al., 2015).
2

P2. Different methods used for management accounting reporting
Management Accounting reporting: Management accounting reporting is a group of
various reports which in summation provides critical insights to the management which helps in
trimming down cost enhancing activities, eliminate under performing assets, rewarding better
performing employees and investing in the product lines which offer better returns in the future.
The said reports which are of help to the management are as follows :
Budget report: This report provides valuable data to the management about the variation
in the budgeted targets to the achieved targets. The variation in the budgeted position helps
managers to reduce costs on non performing sectors and allocate budgets to the better performing
indicators. Budget reports also helps to provide incentives to hard working employees. Extra
budgeted funds could be paid to performing employees as bonus. It aids as an indicator of
performance of various factors in an organisation as to which has performed better and which
has under performed.
Performance report: It addresses the performance of an individual or an activity
associated with the main production activity or auxiliary to it. It helps the management to
compare the standard outcome to the realised outcome (Boons and et.al., 2013). The variation
between the two aids the management to address unfavourable variance and the reason behind
such variance in the performance. The report helps the management in increasing the
productivity levels of the non performing factors. It also helps the executives to design training
and development programmes on the areas where employees underperform to increase the
efficiency.
Inventory Management report: This report provides profound information about the
status of the inventory at all times. It provides information about how much of stock is kept in
warehouse and how much is in transit? It helps in reviewing the profitability, turnover ratio and
demand supply gap for the inventory. It aids the management to review any discrepancies
between actual information and accounting information. It consists of three minor reports which
includes Inventory status reports, inventory analysis reports, inventory integrity reports.
Account Receivable ageing report: This report contains the lists of unpaid customer
invoices, unused credit memos and bills receivables on due date. This is used by collections
department to ascertain invoices which are overdue for payment. It ensures that no buck gets
wasted due to hassle of too many memos. A report enlists all the creditors and debtors
3

classification in proper order. It is very helpful to the business who do transactions mainly on
credit basis. It contains all details of interest on credit, due date, period for which credit is
allowed and contact information of the creditors (Brennan and Merkl-Davies, 2013).
M1 Benefits of different management accounting system.
Management Accounting
System
Benefits
Inventory management
system
 A good inventory management system helps the
restricted Keith Prowse retain the complete precision of
its client database.
 Updated client database will assist the manager create
powerful policies that will assist the company attain its
business goals and goals.
Cost accounting system  By using this technique, it helps the manager save
various expenses and costs.
 Using this technique, managers decrease costs that boost
the per product margin.
Price optimisation system  Help manager to create various client demand policies.
 It will assist the business identify their customers '
behaviour (Cooper, Ezzamel and Qu, 2017).
D1 Various accounting systems and reports integrated within company operations.
Any company needed to embrace a certain management accounting scheme will assist the
organisation's entire performance. The respective business includes multiple operations such as
requiring data from clients so that inventory management system helps by controlling the
database of clients. Thus managers prepare different reports to analyse their performance than
decide accordingly.
TASK 2
P3 Costing techniques to calculate net profit.
Marginal Costing: It is a method used in management accounting to calculate the break
even point for production process. This method allocate all variable cost to the number of unit
4

produces and all fixed expenses are setted of against the contribution. It also helps in deriving
desired profit (Hasniza Haron, Kamal Abdul Rahman and Smith, 2013).
Income statement under Marginal costing method for month of May & June
Particular May June
(in £) (in £)
Total Sales 50 15000 25000
Less: variable cost
Opening stock - 3200
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable Cost 3 1500 1140
Less: Closing stock -3200 -1280
Total Variable cost 4800 8000
Contribution 10200 17000
Fixed indirect production cost 4000 4000
Selling & Distribution costs 4000 4000
Administrative costs 2000 2000
Sales commission cost 750 1250
N.P. (Net profit) -550 5750
5

Absorption Cost per unit
Direct Labour cost per unit 5 5
Direct Material cost per unit 8 8
Variable cost per unit 3 3
Marginal Cost per unit 16 16
May June
Opening stock - 200
Produced units 500 380
Sold Units 300 500
Closing stock 200 80
Absorption Costing: This method to allocate all direct cost to the number of unit
produced. This method consider that all direct as well as indirect cost should be assigned to the
production so that actual cost of production can be evaluated. It also includes fixed
manufacturing overheads in cost of finished goods.
Income statement under absorption costing method for month of May & June
Particulars May June
(in £) (in £)
Total sales 50 15000 25000
Less: Cost of Goods sold
Opening stock
D.L. 5 2500 1900
6

D.M. 8 4000 3040
Variable production cost 3 1500 1140
Fixed indirect production expenditure 4000 4000
Closing stock -4800 2122.4
Total cost of goods sell 7200 7957.6
G.P. (Gross profit) 7800 17042.4
Selling & Distribution expenses 4000 4000
Administrative cost 2000 2000
Sales commission expenditure 750 1250
N.P. (Net profit) 1050 9792.4
Absorption Cost per unit
Direct labour cost per unit 5 5
Direct material cost per unit 8 8
Variable cost per unit 3 3
Fixed indirect production expenses per unit 8 10.53
Total Absorption Cost per unit 24 26.53
7

May June
Opening stock - 200
Units produced 500 380
Sold units 300 500
Closing stock 200 80
Valuation of closing stock using LIFO
LIFO: This method is used by managers to track proper record and calculate the value of
inventory available within organization. In this method, the goods which is produced most
recently is considered as sold first (Hopper and Bui, 2016). It means the cost of previously or
firstly produced products will be recorded as value of inventory.
Date Reference Purchase Issues Balance (Inventory)
Units £/
Units £ Total Units £/
Units £ Total Units £/
Units £ Total
05/01
Previous
balance
(inventory)
40 3.00 120.00
05/12 40 3.00 120.00
Bought 25
units at £ 3.60
each
20 3.60 72. 20 3.60 72.00
05/15 20 3.60 72.
Issued 36 units 16 3.00 48. 24 3.00 72.00
05/20 24 3.00 72.00
8

Bought 20
units at £ 3.75
each
20 3.75 75. 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.5 24 3.00 72.00
10 3.75 37.50
05/27 9 3.75 33.75
Issued 25 units 25 3.00 75.00
05/30 Issued 5 units 5 3.00 15.00 4 3.75 15.00
Valuation of closing stock by using weighted average method:
Weighted average method: This techniques of valuation of inventory is used by the
cost managers to calculate average value of inventory available in the warehouse. In
this method the value of per unit is calculated as total cost of goods available dividing
by total number of units of products.
05/01 Previous balance
(inventory) 40 3.0000 120.000
0
05/12 Bought 25 units
at £ 3.60 each 25 3.60 90. 65 3.2308 210.000
0
05/15 Issued 36 units 36 3.2308 116.30
77 29 3.2308 93.6923
05/20 Bought 20 units
at £ 3.75 each 20 3.75 75. 49 3.4427 168.692
3
05/23 Issued 10 units 10 3.4427 34.427
0 39 3.4427 134.265
3
05/27 Issued 25 units 25 3.4427 86.067 14 3.4427 48.1978
9

5
05/30 Issued 5 units 5 3.44 17.213
5 9 3.4427 30.9843
M2 Range of management accounting techniques.
In the company situation, a variety of costing methods are used with distinct financial
management scheme to produce the best available financial reports presentation. Different kinds
of accounting methods, such as absorption and marginal costing, are therefore crucial for
determining the real net earnings figure during an accounting period. Thus, the management of
Keith Prowse uses both costing methods to draw up income statements and to determine the
return on investment for the year (Klychova, Faskhutdinova and Sadrieva, 2014).
D2 Financial reports that accurately apply and interpret data
From the above prepared income statements, it has been determined that marginal and
absorption costing techniques both can be used to calculate net profit for the month of may and
June. It has been evaluated that by using absorption method that profit for the month of may is
£1050 and in the month of June it was £9792.4. Similarly on the other side the net profit for the
may month and June by using marginal method was £-550 and £5750 respectively.
TASK 3
P4.Planning tools with there advantages and disadvantages.
Budgeting: Budgeting is an estimation model of total expenditures and income that will
take place in a time frame. This technique is supported by a detailed financial statement called as
a budget plan. It aids in prioritising the monetary resources in the orderly way from most
important activities to the least important. Keith Prowse has a dedicated team of accountants and
financial analysts who prepare budget plans for each quarter to ensure smooth flow of business.
Budgeting control: Budgetary control can be ensured by evaluating the variations
between budgeted targets to actual outcomes. On the basis of the variations , control measures
can be implemented. At Keith Prowse the accounts department ensures effective budget control
mechanism to save extra futile costs. Budgeting control framework can be ensured through the
symphony of various budgets. These control measures devised at Keith Prowse are as follows :
10