Management Accounting Report for Marks and Spencer: Detailed Analysis

This report provides a comprehensive overview of management accounting principles, with a specific focus on their application within Marks and Spencer (M&S). The report begins by defining management accounting, its role in decision-making, and its importance for companies like M&S, contrasting it with financial accounting. It explores key management accounting systems such as cost accounting, inventory management, job costing, and price optimization. The report then delves into the integration of management accounting within M&S, highlighting the benefits of integrated reporting and its impact on operational efficiency. Furthermore, it examines the origin, role, and principles of management accounting. A significant portion of the report is dedicated to explaining management accounting reports, including cost management, budgeted, and financial reports, and their importance in business operations. The report also demonstrates the calculation of income statements using both marginal and absorption costing techniques, including reconciliation of profit. Finally, it discusses planning tools for budgetary control and the application of management accounting techniques in identifying and addressing financial problems within M&S, offering insights into achieving sustainable success. The report concludes with a summary of the key findings and the implications for the company.

MANAGEMENT ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
SECTION 1......................................................................................................................................1
1.a). Defining is management accounting system.......................................................................1
1.b & 2.a,b). Defining management accounting system.............................................................2
1.c). Importance of integration of management accounting in Marks and Spencer...................3
1.d). Explaining the origin, role and principle of management accounting................................3
1.e). Distinguishing between management and financial accounting.........................................4
3.a, b,c). Explaining the management accounting report and its importance.............................4
4.a). Calculation of income statement as per marginal and absorption costing technique.........5
4.b). Reconciliation of profit.......................................................................................................8
4.c). Explaining Management accounting technique..................................................................9
SECTION 2......................................................................................................................................9
1.a) Explaining planning tools for budgetary control.................................................................9
2.a). Identifying financial problem in Marks and Spencer using management accounting
techniques..................................................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting can be referred as the process that assist the management of an
organisation in gathering, analysing, recording and presenting the information of various
department operation. This process assist the management in taking various decisions and
making strategies to improve the efficiency of the business operations by effective functioning of
management. The present report is based on the different aspects of management accounting
with reference to Marks and Spencer plc, which is a British multinational retail company with
its headquarters in Westminster, London. Marks and Spencer plc is engaged in selling different
clothing, home accessories and luxury food products.
Present report will help in understanding the importance management accounting system
and its essential requirement in Marks and Spencer. The present report will explain the
integration of management accounting and reports in context of the organisation. Further,
different application of management accounting technique in income statement will be presented.
With addition to this, different planning tool that helps in budgetary control will be discuss with
an effective calculation of planing tools for preparing and forecasting the budgets. The report
will than help in understanding the importance management accounting techniques in responding
to the financial problem. Further more, the comparison of this techniques will discuss with its
usefulness in attaining sustainable success for Marks and Spencer.
SECTION 1
1.a). Defining is management accounting system.
It is can be referred as the process to analyse and interpret in a way that can assist the
management of Marks & Spencer plc which is useful for them in decision making process
(Kaplan and Atkinson, 2015). Management accounting or managerial accounting involves
preparing and providing accurate and timely information about the different business department,
so that management can prepare policies and strategies in order to achieve goals and objectives.
It can be define as a process of identify, analyse, record and present the financial and
non-financial information to the management in order to plan and taking decisions for the
company's growth.
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1.b & 2.a,b). Defining management accounting system.
It is a system that helps the management of Marks and Spencer in getting all the essential
information about the various business activities to the management. Managerial accounting
system helps the management to get the data accurately and timely so that it could make various
strategies and decisions more effectively (Horngren and et.al., 2012). Management accounting
system helps in getting information of all the department of Marks and Spencer, on the basis of
this information the needs for improvement in identified by the company. The various
management accounting system are as follows:
 Cost accounting system: It is an important system which helps the management in
estimating the cost of the product. It is helpful for manager of Marks and Spencer in
order to analyse the profitability and assist in controlling the cost (Ellul and et.al., 2015).
It is essential to estimate the cost of product in order to analyse the profitable product of
the company. It is beneficial tool for management in analysing the profitability and take
decisions in order to control the cost of production.
 Inventory management system: it is an essential system which helps the management in
tracking the whole supply chain of a product from its manufacturing to retailing. it assist
in supervising and tracking the flow of goods, it helps the management of Marks and
Spencer in keeping records of all inventory that are manufactured, kept in warehouse or
being returned. Inventory management system also helps in knowing the manufacturing
department the needs to produce more inventory. Inventory management is very
beneficial which helps in evaluating the supply and demand in the market for the product.
This system also important in determine the need to order the raw material and need to
manufactures the stock.
 Job costing system: In this system all the manufacturing expenses has been allocated to
each product. Job order costing assist the operational ,manager of Marks and Spencer plc
to record the cost that is incurred in manufacturing of each individual product. The cost
allocated will include direct material, direct labour, overhead etc. it helps in proper
monitoring and tracking the expenses of the product (Cooper, Ezzamel and Qu, 2017).
This system will help in ascertaining the selling cost of that product which assist in
making profit for the organisation.
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 Price optimization: this system is used buy the management in order to control the price
of the available resources. This process helps in ascertaining the response of customer
with the difference in process of the product. The management of Marks and Spencer plc
can determine the process of fixing the product with the help of determining the change
in demand of the product.
1.c). Importance of integration of management accounting in Marks and Spencer.
Integration of management accounting system in Marks and Spencer will help reporting
and interconnect all the activities of different department of organisation. This is very essential
for the management of Marks and Spencer plc to adopt the integrated accounting system in
orders increase speed, accuracy and efficiency of processing the available information.
Integration of management accounting reports in Marks and Spencer plc will assist the
management in getting the information of proper functioning and the need for improvement
timely (Renz, 2016). It will help in smooth functioning of management by taking efficient
decisions and strategies for the growth and development of business organisation. It can be said
that different reports when integrated in organisation will help effective operations of the
company. With the help of different accounting reports like budget report, cost management
reports etc.
1.d). Explaining the origin, role and principle of management accounting.
Role of managerial accounting:
Management accounting plays an important role in making decisions and strategies of
Marks and Spencer plc. Its main purpose is to collect, process and communicate the information
which assist the management in planning, controlling and evaluating different departmental
operations. Management accounting helps in focusing on the future activities of business
operations also, it can be achieved by preparing the budget plans. It is an important role of
management accounting to prepare the plan for the future activities (Eldenburg, Krishnan and
Krishnan, 2017). One of the most important role of management accounting is to timely provide
the information to the management when ever required.
Principle of management accounting:
 The accounting information, reports and other data should be designed and complied in
order to meet the business problem.
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 There is a principle of management by exception which which helps in preparing all the
data and different techniques should be prepared as per the management accounting
system.
 The information that are necessary for the management should be integrated which help
in maximizing the effectiveness and helps in saving cost also.
Origin of management accounting:
After the Industrial revolution in UK, it can be said that the reason of management
accounting has been developed. Some views suggest that it is because of the increasing
requirement for optimum utilizing economic resources in companies during industrial
Revolution.
1.e). Distinguishing between management and financial accounting.
Both management and financial information helps in providing information which helps
in taking decisions. However, financial accounting is prepared in order to provide the
information about the company's financial performance to the external as well as internal users.
Financial accounting helps in disclosing the financial statement that assist the external
stakeholders in knowing the financial condition of Marks and Spencer. Stakeholder of the
company can make their decisions of investing in company with the help of financial accounting.
Financial accounting prepared at a specific time period in an accounting year.
However, management accounting is important as it helps in producing and presenting
the information which can assist the management of Marks and Spencer in taking decisions for
several business operations that helps and assist the organisation in keeping new milestones
(Difference Between Financial Accounting and Management Accounting, 2018). Unlike financial
accounting, management accounting can be prepared at any time whenever required by
management for taking decisions regarding any issues in business operations. Management
accounting is important in considering the past data of the company which helps in evaluating
the cost of production of a product.
3.a, b,c). Explaining the management accounting report and its importance.
It can be referred as an accounting tool that helped in that helps in understanding the
quantitative information about the business operations. Managerial accounting reports all kind of
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data that helps in providing management of Marks and Spencer plc useful information about the
several business operations. These reports are helpful in planning, regulating and decision
making process of the organisation. It is very important for this report to be reliable and accurate
and updated as many critical decisions of the business operations are depend on the reliability of
this reports (Saeidi and et.al., 2018). There is no standard format for this reports, but the
department's manager should prepare this reports that can be understandable for the top
executive which makes the decision making process more easy. The different type of
management accounting reports are as follows:
Cost managerial accounting reports: this reports includes all the information regarding
the raw material, overhead labour, direct and indirect cost which has incurred in the
manufacturing process of the product (Fullerton, Kennedy and Widener, 2014). It assist the
manager of Marks and Spencer plc in order to compare the cost price ans selling price of
product. It assist in estimating the profit margin as these report will give the accurate information
about the cost of production.
Budgeted reports: It can said that budget reports are the fundamental reports in all type
and size of the organisation. It is essential reports which helps in measuring the company's
overall efficiency and performance. The budget prepares is the estimation of total expenses the
performance of the company over a specific time period, it is based on the past performance of
Marks and Spencer plc. The management can evaluate the actual performance of the company by
comparing it to the estimated performance. It helps in taking various decisions regarding the
allocation of cost and control the expenses.
Financial reports: These reports included all the financial information and financial
activities of Marks and Spencer plc. Financial reports are very essential for the management in
order to analyse the financial performance of the organisation (Järvenpää and Länsiluoto, 2016).
It is very important for the management on knowing the financial position in order to make the
strategies for the future growth and development of the organisation in achieving goals and
objectives.
4.a). Calculation of income statement as per marginal and absorption costing technique.
Profit & loss statement using absorption costing:
For Quarter 1:
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Particular £ £
Sales 66000 1 66000
Cost of goods sold:
variable cost 78000 0.65 50700
Add: Fixed cost 78000 0.2 15600
Total production cost 66300
Add: Opening stock 0
Total stock available for sale 66300
Less: Closing stock 12000 0.85 10200
Cost of goods sold: 56100
GROSS PROFIT 9900
Less Under absorption of fixed
over head 16000 15600 400
Less: Selling and Admin cost 5200
NET PROFIT 4300
Profit & loss statement using absorption costing:
Quarter 2:
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Particular £ £
Sales 74000 1 74000
Cost of goods sold:
variable cost 66000 0.65 42900
Add: Fixed cost 66000 0.2 13200
Total production cost 56100
Add: Opening stock 12000 0.85 10200
Total stock available for
sale 66300
Less: Closing stock 4000 0.85 3400
Cost of goods sold: 62900
GROSS PROFIT 11100
Less Under absorption of
fixed over head 16000 13200 2800
Less: Selling and Admin
cost 5200
NET PROFIT 3100
Profit & loss statement using marginal costing:
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Quarter 1:
Profit & loss statement using marginal costing:
Quarter 2:
Interpretation:
It can be interpreted from the above calculation, that by calculating the income statement
with absorption costing technique the net income of Marks and Spencer has been reduced from
4300 pounds in Quarter 1 to 3100 pound in Quarter 2. It may be as the cost of good sold as
increased from 56100 to 62900. However, it can be said that absorption costing giver fair picture
of profit as it is considering both fixed and variable cost. Moreover, in the context of income
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statement as per marginal costing technique, it can be said that net profit has increased from
1900 from Quarter 1 to 4700 in quarter 2 (DRURY, 2013). but it can also be analysed from
calculation that cost of good sold has also increased. It can be said that marginal costing does not
provide the fair value as it only considering the variable cost.
4.b). Reconciliation of profit.
4.c). Explaining Management accounting technique.
Product cost:
This cost refers to the expenses incurred in manufacturing a product. Fixed cost are the
cost that are fixed and doesn't change as per the output of the production like building and
machinery depreciation which fixed. Variable cost are the expenses that changes as per the
volume of the production. Like raw material, direct labour etc. Cost allocation can be defined as
a task which helps in identifying, accumulating and assigning the expenses of an item which
company wants to assign a cost separately.
Normal costing can be defined as a method which is used to determining the value of the
manufacturing product with the help of actual material cost (Production Cost , 2018). Normal
cost includes booth direct and manufacturing cost which are based on the predetermined
manufacturing overhead . Whereas, standard costing helps in valuing the manufacturing cost on
a predetermined material expenses, direct labour cost and manufacturing overhead cost.
Cost of Inventory:
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Inventory cost can be referred as cost that are related to maintaining the stock over a
period of time. There are different type of inventory cost: Ordering cost: It is a set up cost which are essential cost that are incurred with every
order placed. Transportation cost,receiving and placing cost are part of such cost.
 Carrying cost: it is the cost that are incurred before the inventory are being sold.
It can be said that it is beneficial to reduce inventory cost which helps in saving
the cost of the company. Inventory are manufactured in order to meet the need of customer. It is
important for company to analyse the demand of the product and manufactured the inventory as
per the need (Epstein and et.al., 2011). Higher stock leads to block the investment of company.
SECTION 2
1.a) Explaining planning tools for budgetary control.
Budgetary control is an essential process which assist the management in determining
and analysing the reasons for variances between the actual and budgeted performance of the
company. Budgetary control helps in providing an effective tool to the manager of Marks and
Spencer plc in order to control the variances and increase the performance of business operations
by minimizing the expenses of the company. Planning tools are the essential in order to control
and maintain the performance of the company as per the budgeted plan. Following are the
planning tool for budgetary control:
Capital expenditure budget: This is the planning tool which helps in controlling the
budgets for the capital expenditures of the company. The capital expenditures included the
purchasing or maintenance of major assets like plant and machinery, building and land. It can be
termed as the formal plan by the manager of Marks and Spencer plc which mentioned all the
expenses related to such capital expenditure of company (Hofstede, 2012). Capital budget is
prepared after evaluating different appraisal techniques of capital expenditure which are:
Payback period: This method will help in finding the time that will be required to get
back the amount invested in the capital project of company. Example of payback period are:
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