Management Accounting and Financial Analysis: A Samsung Case Study

This management accounting report provides a comprehensive analysis of Samsung's financial strategies and systems. It begins with an overview of management accounting, detailing its essential requirements and reporting methods. The report then delves into cost analysis, comparing absorption and marginal costing methods to prepare income statements and understand their differences. Furthermore, it explores various planning tools for budgetary control, evaluating their advantages and disadvantages. Finally, the report benchmarks Samsung against a competitor to assess how organizations adapt management accounting systems to address financial challenges, offering valuable insights into practical applications of management accounting principles. Desklib provides access to this and other solved assignments for students.

Applying expertise in Management
Accounting
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Contents
Introduction:....................................................................................................................................3
Task 1...............................................................................................................................................4
P1. Explain management accounting and give the essential requirements of different types of
management accounting systems.................................................................................................4
P2. Explain different methods used for management accounting reporting................................6
Task 2...............................................................................................................................................7
P3. Calculate cost per unit using absorption and marginal costing and explain why they differ.
Explain how they are used to prepare an income statement under Marginal costing and
absorption costing........................................................................................................................7
Task 3.............................................................................................................................................12
P4. Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.......................................................................................................................12
Task 4.............................................................................................................................................17
P5. Compare Samsung with one of its competitor in order to establish how organisations are
adapting management accounting systems to respond to financial problems...........................17
Conclusion:....................................................................................................................................20
References:....................................................................................................................................21
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Introduction:
The management accounting report will be prepared here to gain knowledge about the various
uses and advantages of using management accounting system in context of an organisation
chosen in the given case. The various concepts regarding management accounting systems and
the relation of these systems with performance of the company will be evaluated in this report.
The report will contain a brief introduction about the management accounting definition along
with the types of reporting required in management accounting. The report will then include the
use of various types of costing methods in analysing the cost structure of the enterprise. The
various financial reports will be generated using marginal and absorption coting method. Further
the report will include the explanation of use of standard costing in responding to various
financial problems of the organisation. The types of management accounting tools will be
analysed in order to resolve these types of problems and gaining competitive edge in the market.
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Task 1
P1. Explain management accounting and give the essential requirements of different types
of management accounting systems.
The function of management accounting is associated with the operational function of
management where they require the information for various types of economic decision making
of the company and the reports prepared in this management accounting helps in providing this
type of information to the management of the company. The process of management accounting
includes identification of current situation of the business, extracting the information, evaluating
the information and presenting the same in the data format to various users of management of
company (Hemmer & Labro, 2016).
The various types of systems along with their essential requirements are explained below:
Management accounting
systems
Description Essentials
Cost accounting systems The cost accounting systems
considered in management
accounting are related with
identifying and evaluating the
cost items related with the
production in an enterprise.
The various items of cost are
considered in a business
process and information is
presented accordingly (Botes,
et. al., 2017).
 There should
be a proper
classification of
various cost items into
fixed and variable
costs so that proper
reporting can be made.
 The
management should
ensure the integration
between the cost data
and the financial data
of the company so that
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accurate financial
reports can be
generated.
Inventory management
systems
The management system is
associated with the
optimisation of the inventory
level in the company so that
the cost associated with the
carrying cost of inventory can
be reduced to an appropriate
level. The inflow and outflow
of various inventory uses in
the company shall be
maintained properly in this
system (Rothaermel & Frank,
2015).
 The focus of
the system should be
on achieving the
economies of scale and
the optimum inventory
level in the company.
 The emphasis
should be given on the
cost reduction and cost
control activities of the
company.
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P2. Explain different methods used for management accounting reporting.
The different method and reports which can be used in Samsung for proper decision making and
financial reporting are as follows:
 Inventory report – The inventory report of the company is concerned with maintaining
the records about the inflow and outflow of various items of inventory utilized and remaining
in the company for production of products and services of the company. The finished
products of the company along with the material remaining to be utilized in producing the
finished goods are recorded along with the prices associated with these products and material
in this report. The same can be used by the management of Samsung in order to reduce the
level of inventory and the carrying cost associate with it (Anderson, et. al., 2015).
 Budgetary reports – The budgetary reports of the company are concerned with presenting
the budgeted results along with the comparison of these results with the actual results of the
company so that there can be identification of the deficiencies associated with the budgeted
performance of the company and the necessary measures can be taken accordingly. The same
can be used by Samsung in order to improve the efficiency and effectiveness of the activities
performed (Botes, et. al., 2017).
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Task 2
P3. Calculate cost per unit using absorption and marginal costing and explain why they
differ. Explain how they are used to prepare an income statement under Marginal costing
and absorption costing.
The cost per unit for the enterprise Samsung as per absorption costing and marginal costing is
prepared below:
Cost per unit under absorption costing:
Particulars ₤
Direct material 20
Direct labor 8
Variable manufacturing overhead 4
Fixed manufacturing overhead (500000/50000) 10
Unit cost 42
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Cost per unit under marginal costing:
Particulars ₤
Direct material 20
Direct labor 8
Variable manufacturing overhead 4
Total unit cost 32
Difference between marginal costing and absorption costing:
The calculation of manufacturing unit per cost is different under both the costing method because
under absorption costing the fixed manufacturing overheads are absorbed by the units of
production and the same are allocated to the different units of product whereas in marginal
costing the fixed manufacturing cost related to the product is not apportioned to the unit cost and
rather written off form the contribution achieved by the company. The fixed overhead cost in
marginal costing is treated as period cost and written off in the profit and loss obtained by the
company represented as contribution for the company (Tanis & Özyapici, 2012).
In the case of Samsung the fixed manufacturing cost of 500000 will be written off form the
contribution achieved in marginal costing.
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Use in preparing the income statement under Absorption costing:
The unit cost obtained under absorption costing will be used to obtain the cost of the closing
inventory and the same will be reduced form the cost of the goods available for use which will
give the amount to be used for deduction to be made from the revenue of the company. The same
will give the gross profit for the company (Anderson, et. al., 2015).
The income statement as per absorption costing is prepared below:
Particulars ₤ ₤
Sales (40000 * 67.50) 2700000
Less: Cost of goods sold
Opening inventory -
Add: Cost of goods manufactured (50000*42) 2100000
Available for use 2100000
Less: Closing Inventory 420000 1680000
Gross Margin 1020000
Less: Selling an administrative expenses 840000
Net operating income 180000
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Use in preparing the income statement under marginal costing:
The unit cost obtained under marginal costing will be used to obtain the contribution achieved by
the company for the concerned period or the product. The contribution achieved will then be
used to understand the profitability of the company (Tanis & Özyapici, 2012).
The income statement as per marginal costing is prepared below:
Particulars ₤ ₤
Sales (40000 * 67.50) 2700000
Less: Cost of goods sold
Opening inventory -
Add: Cost of goods manufactured (50000*32) 1600000
Available for use 1600000
Less: Closing Inventory (10000*32) 320000 1280000
Less: variable selling and administrative expenses
(40000*6)
240000 240000
Contribution 1180000
Less: Fixed manufacturing cost 500000
Fixed selling and administrative expenses 600000
Net profit 80000
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Reconciliation of net profits:
The difference in profits is due to the under absorption of fixed overheads in absorption costing
methods which amounted to ₤100000 and when the same is considered in marginal costing gives
the same net profit of ₤180000 (Cooper, 2017).
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Task 3
P4. Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.
Budgetary control involves the preparation of various types of budget and comparison difference
between the actual cost and standard cost and identifying the variation between the actual cost
and standard cost. There are various tools and techniques of budgetary control. Each tool has its
own significance. As such, selection and implementation of various tools of budgetary control is
a very crucial decision and requires significant judgment. Some of the planning tools of
budgetary control are financial budget, Zero Based Budgeting and
Financial Budgets:
According to Amirya, et. al., (2014), different types of budgets are prepared under financial
budgets. Some of the most common types of budgets prepared by almost every organization are
cash budget, sales budget, expense budget, master budget and likewise (Amirya, et. al., 2014),.
Advantages of various types of financial budgets:
 Preparation of cash budget is very crucial in the dynamic environment since it
forces the business enterprise to maintain a sufficient amount of cash to face any future
uncertainty. As such, the concerned organization controls their expense and accordingly
kept aside the reasonable cash.
 According to Anna (2015), expenses budget preparation involves various
unreasonable assumptions and as such a significant change in any assumption may render
the budget useless. There can be a rise in the raw material prices by the supplier which
the expense budget fails to consider (Anna, 2015).
Disadvantages of various types of financial budgets:
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 Preparation of cash budget requires prediction of cash outlays and other
significant assumption. However, in a practical scenario, estimating the cash position is
difficult to predict and generally, there is no use of preparing cash budget.
 Sales budget determines the expected quantity to be sold in the nearby future. It is
unreasonable to assume that the sales will be expected to continue in the forthcoming
year since the consumer behavior is difficult to predict and understand.
Zero Based Budgeting:
Zero-based budgeting is similar to Budgeting. However, there is a significant difference between
budgeting and zero-based budgeting. Under the concept of zero-based budgeting, a limit of
expenses is specified for each period and as such personnel should aim to achieve the cost within
their pre-determined limit.
Advantages of Zero-based budgeting:
 According to Mahal & Hossain (2015), zero-based budgeting requires every
department of the business enterprise to fix criteria for their associated departmental cost.
This requires the department to focus on their core areas and accordingly plan their
activities in a better way (Mahal & Hossain 2015).
 Implementation of zero-based budgeting facilitates a better coordination among
the employees of the organization. As such, all the employees work towards the
achievement of the objectives of the organization.
Disadvantages of Zero-based budgeting:
 Zero-based budgeting is a time-consuming process since all the departments are
required to spend a lot of time on this concept.
 According to Anna (2015), the concept of zero-based budgeting requires the
involvement of various experts otherwise it may create wrong standards which are
impossible to achieve for the organization (Anna, 2015).
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Standard costing:
Standard costing can be defined as the process of compairing the standrad results set up by the
management wit the actual results obtained during the period whih will identify the varianvces
involed in performabce of the enterprise.
Advantages of standard costing:
 Preparation of standards involves the careful consideration of all the factors.
Budgets are prepared after deep analysis of the standards established by management. As
such, it involves significant assumptions.
 Since standard costing is a thoughtful exercise implementation will eliminate or
reduce the bottleneck to the extent possible.
Disadvantages of standard costing:
 According to Aruomoaghe & Agbo (2013), standard costing is a complex by its
nature since it involves devotion of both time and cost. Personnel may find difficult to
understand the various aspects involved in standard costing (Aruomoaghe & Agbo 2013).
 The preparation of standards requires the incurring of various associated cost. As
a result, the small organization cannot afford to implement standard costing system.
Calculation of variances:
Calculation of Standard cost of 4000 keyboards:
Material
Particulars Qty. Rate Amount
PVC 10000 feet £3.60 £36,000.00
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Calculation of Actual cost of 4000 keyboards:
Material
Particulars Qty. Rate Amount
PVC 11000 feet £3.40 £37,400.00
Difference between Actual cost and Standard cost:
Standard Cost £36,000.00
Actual cost £37,400.00
Unfavourable Variance £1,400.00
Thus, it can be observed that there is a difference between the standard cost and the actual cost
incurred amounting £1,400.00. Also, the said difference is unfavorable.
Calculation of Material Usage Variance:
Standard
Qty.
Actual
Qty.
Standard Rate Material Usage Variance
10000 feet 11000 feet £3.60 -£3,600.00
The material usage variance is unfavorable or adverse to the concerned business enterprise.
Calculation of Material Price Variance:
Standard
Rate
Actual
Rate
Actual Qty. Material Usage Variance
£3.60 £3.40 11000 feet £2,200.00
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The material variance is favorable amounting £2,200.00 since the PVC sheet has been purchased
at lower than the standard cost.
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Task 4
P5. Compare Samsung with one of its competitor in order to establish how organisations
are adapting management accounting systems to respond to financial problems.
The finance is the most critical part of the organisation whether it is acquiring, allocating and
generation of the same. There are various financial problems that companies try to overcome
them in order to increase the productivity and profitability of the company. It also helps in
sustainable development by optimum utilisation of the available resources. Management
accounting can be useful in doing so in the following way:-
Comparison of the results – The Management accounting can overcome the financial problem
by comparing the results of the company with the other leading companies in the market and find
the reason for variances. The Samsung can compare the performance with the Apple Inc and
identify the reason for the difference among the processes, revenue and also cost that is incurred
for the production of the product and takes preventive steps to eliminate them and make better
resulting in long-term growth and sustainability.
Operational control – The process of creating a product must be fully effective for reducing the
cost of the company and increase the productivity. Management accounting can improve the
operational control and also in reducing the cost of the company. It also helps in determining the
operational efficiency and take steps for strengthening it. There are a lot of processes which is
being carried out for the production in the Samsung Company. The management accounting can
result in making those processes better and reducing the cost which will lead to increase in
revenue and ultimately result in companies long-term growth and sustainability.
Allocation of the funds – The allocation of the resources and funds is very important in an
organisation and can affect the business of the company. The resources are always scarce in
relation to the demand so it’s necessary to utilise them effectively. Samsung is established
around the globe and it is important that the funds are allocated appropriately for better returns.
Management accounting can help in determining the best available option and select them for
investment depending upon the various tools and analysis. The company can also save the cost
and get maximum return out of resources (Guinea, 2016).
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Understanding among the employees – The management accounting can help in proper
execution and distribution of the plans and policies that need to be followed. The company is
recruiting the new people and the management accounting system can help in making them
understand and the existing employees the framework under which they must work so that the
company can earn the highest productivity (Pitcher, 2015).
The Tools that can be used to overcome the financial problem are:-
Key performance indicators – The key performance indicators can be financial as well as non-
financial. It is important to consider the non-financial factors also along with the financial factors
for determining if the performance (Hara, et. al., 2016). The financial indicators measure the
cost, revenue, profit and another financial aspect of the organisation whereas non-financial
indicators measure the Quality, after sale service and flexibilities etc. which cannot be recorded
in terms of financial measures.
Benchmarking – The benchmarking can be defined as the comparison of the company
performance in terms of revenue generated and cost incurred by the rival company or company
of same industry or performs the same set of work. The benchmarking is used to analyse and
interpret the difference in the variance between the two companies here being Samsung and
Apple. Benchmarking refers to adopt the policies according to the business need and overcome
the reason because of which the variance is there (Attiany, 2014). It helps in increasing the
productivity and efficiency of the organisation.
Comparisons:
Samsung and Apple both the companies are the undisputed rival in the field of electronics. The
Samsung has been top notch but Apple Inc. also captured the market and soon became the tough
rival. Looking at the key performance indicator it can be seen that the Gross margin % of the
Samsung Company is better than the Apple being 40.4 and 39.1 respectively (Morning Star,
2018). When it comes to the operating profit margin there is a huge difference among the ration
of Samsung and Apple. The Apple Inc. is having a percentage of 26.8 whereas in case of
Samsung Company it is just 14.5 (Morning Star, 2018). The difference is due to high increasing
operating profit in case of Apple Inc.
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After looking at the Key performance indicators which are non-financial it can be seen that both
the Apple and Samsung are at the same place. The score on the customer satisfaction was 840 for
Apple and 839 for the Samsung in 2017 (Mills, 2017). The customer satisfaction is an important
factor and can be seen that even after a big mess by Samsung the customer trust is still on them
which is a good index for them.
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Conclusion:
The above report leads to the conclusion that the management accounting will be considered as
critical for the purpose of performing management functions and operations in the company. The
efficiency and effectiveness of the decision making will depend on the type of reporting and
information provided by the company in the management reports. The same will allow the
company to achieve appropriate decision making. The various types of costing reports prepared
will help in analysing and evaluating the cost data of the company. The various types of
management accounting tools can be used by the company in order to respond to financial
problems occurring in the company and making efforts to resolve then in order to secure a
competitive advantage and advantage in the industry and market.
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References:
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