Management Accounting Report: Financial Analysis for Unicorn Grocery

This report, prepared as a student assignment, delves into the realm of management accounting, focusing on its application within the context of Unicorn Grocery. The report begins by defining management accounting and differentiating it from financial accounting, highlighting its role in internal decision-making and strategic planning. It then explores various types of management accounting systems, including inventory management, job-order costing, and transfer pricing, illustrating their significance in optimizing business operations. Furthermore, the report examines different methods of management accounting reporting, such as account receivable aging reports and budgetary reports, demonstrating how these tools aid in monitoring performance and making informed financial decisions. The report also includes practical examples of cost analysis techniques, comparing marginal and absorption costing methods. Finally, it provides a comparative analysis of cost accounting and financial accounting, emphasizing their distinct purposes and applications. Overall, the report offers a comprehensive overview of management accounting principles and their practical implications in a real-world business setting.

MANAGEMENT ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Explaining management accounting and its different types.............................................1
P2. Various methods used for making management accounting report.................................3
TASK 2............................................................................................................................................5
P3. Cost analysis techniques...................................................................................................5
TASK 3............................................................................................................................................8
P4. Merits and demerits of various types of planning tools...................................................8
TASK 4..........................................................................................................................................12
P5. Comparing the ways in which firm responds to financial problem by management
accounting.............................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES................................................................................................................................1

INTRODUCTION
Management Accounting can be defined as a process of examining operations and costs
related to business and prepare financial records, accounts and reports that further assist manager
in making strategic decision in order to achieve company's goals and objectives effectively
(Management accounting, 2017). It is also known as the cost or managerial accounting . It refers
to the act of analysing and interpreting costing and financial data into valuable information for
officers and management within business enterprise. With the help of this, managers can timely
prepare financial report on weekly or monthly basis that help them in making day to day
decisions effectively. It provides information related to firm's performance and figured future
revenues or cost. Basically, it records activities that are beneficial for the internal use of
company in order to improve productivity and efficiency of business concern. In the given
report, chosen organisation is Unicorn Grocery which is headquartered in Chorlton, England.
Company primarily deals in selling fresh, organic and processed drink and food. They also sell
household, general grocery and body care products. This reports mainly covers different types
and methods of management accounting system, techniques of cost analysis and advantages and
disadvantages of planning tools.
TASK 1
P1. Explaining management accounting and its different types
From: Management Accounting Officer
To: General Manager of Unicorn Grocery
Subject: Management Accounting Report
According to the Institute of Management Accounts “The term management accounting
normally involves planning and controlling management system, giving expertise in financial
accounting or reporting, assisting administrator in implementing and formulating firm's
strategy. Management accounting refers to the process of making financial reports or accounts
that gives timely and accurate information to the manager which further assist them in making
strategic business decisions respectively. With the help of this accounting, internal audience of
company can prepare financial document on weekly and monthly basis which depicts the actual
position of business concern in marketplace. Managers often use the accounting information in
order to enhance overall efficiency and productivity. These statements normally include cash
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sales, revenue generated, inventory level, amount receivable and payable, etc. (Baldvinsdottir,
Mitchell and Nørreklit, 2010). Basically, it thoroughly looks at the activities or events that take
place within and around an organization in regards to the company needs. The concept of
management accounting is entirely from financial accounting. Financial provide information to
stakeholders of the company whereas Management Accounting assist the manager in
formulating effective decision and strategies concerned with business objective (Contrafatto
and Burns, 2013). . The role of management accounting in Unicorn Grocery are as follows:
 It assist the manager to forecast future trends of business.
 Help in buy or make decision as managers effectively make decision at both strategic
and operational level.
 It mainly deals with designing of trend charts and budgets that helps the manager to take
decision concerned with allocation of resources and money.
 With the help of various management analytical techniques, manager can deal with both
positive & negative variance in an effective manner.
 It also assist in examining the rate of return. Suppose the company is having two
investment opportunities and their manager is confused in order to chose the most
profitable one. With the help of this managers can take constructive decision regarding
choosing the most appropriate and profitable one.
Following are the types of various management accounting used by Unicorn Grocery in order to
carry out business operation successfully are as follows:
1. Inventory Management System: This technique is mainly used by the business enterprise so
to determine the stock value in an effective manner. Basically it deals with raw material, labour,
overhead cost and finished goods related with production activity. Basically it's an ongoing
process that deals with movement of factor or stock until the goods are ready and serve it to
end-customer. Companies manage their stock level on daily basis which makes easier for them
to avoid the situation of inventory turnover. It is a part of supply chain management that covers
each any every aspect from the time of production till its final production. It is essential for
each and every company to manage their stock level in an effective manner. This accounting
system is essential for organisation so that they produce according to the demand and available
inventory.
2. Job-Order Costing: This accounting system is necessary for every business concern so that
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they can perform their activities and operation in an effective and efficient manner. With the
help of this system, firm can identify the cost or expenses related with job lot or job cost. Job-
Order costing is basically for those products and services that are different in nature. Under this
system, cost is assigned to individual product or batches of goods. This system is widely used in
service and manufacturing industry. On the other hand, Process costing deals with assigning
cost as per the total unit produced.
3. Transfer Pricing: This refers to the price at which organisation's division transact with other
division such as trade of labour and between department. These are often used by large firms
when their individuals units are treated as and run as separate entities. It is also known as
transfer cost. In context of managerial accounting, when individual entities of large organisation
are responsible for their own profits and revenues, they are also in charge of creating their own
return on invested capital. Therefore, when such individuals need to transact with each other,
this system is used to determine the final cost. With the help of this system, company can
maintain accuracy in their overall profits and revenues. This method is also useful as it assist
the firm in gaining the high competitive edge.
P2 Various Methods of Management Accounting Reporting
From: Management Accounting Officer
To: General Manager of Unicorn Grocery
Subject: Management Accounting Report
Management accounting report supports business manager and owner in respect of preparing
and monitoring firm's performance in an effective way. Such reports depicts the financial
position of the business enterprise.
Owner's normally prepares reports on monthly, quarterly, weekly and annually basis depending
upon the type and time factor of the particular project. It provides holistic view of company's
finances (Figge and Hahn, 2013). Below mentioned are the following methods used for making
management accounting report are as follows:
1. Account Receivable Aging Report: Business enterprise use this periodic report in
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order to categorise the firm's accounts receivable as per the outstanding time of an
invoice. It is mainly used to identify the financial health of the company and its
customer (Giovannoni, Maraghini and Riccaboni, 2011). If this report states that for a
particular year firm has collected lower receivables as compared to previous year, then
this serve as a warning sign which depicts that business is going down or taking higher
credit risk which is not good for its long term objective. As a management tool, this
report indicates that there are certain customers who are not good at maintaining its
credit risk which ultimately results in lowering the overall profitability and revenues of
the company. This assist the business enterprise to take decision regarding whether to
work with these customers in future or not.
2. Budgetary Report: This statement defines how managers uses the budget in order to
control and monitor the operation & cost for a particular accounting year. With the help
of this, company can identify its future needs as per orderly basis. It is also used to
regulate the financial performance of an entity (Haiza Muhammad Zawawi and Hoque,
2010). This assist the company in formulating strategic decisions related with where to
spend or invest money. With the help of this report company can easily figured out its
total inflow and outflow of cash. Unicorn Grocery is recording each and every
transaction in a systematic manner that help them in identifying all expenses, cost,
profits very easily at the end of financial or accounting year when financial statements
are normally prepared.
3. Inventory and Manufacturing: It is important for every business concern to
continuously access the inventory or stock management level. It is recommended not to
store extra stock level that unnecessarily waste the time an cost of respective firm.
Managers are required to underpin inventory as per the product demand. This report
basically renders the value of business and trade sales and of goods inventories for
retailer, wholesaler, and manufacturers.
4. Job Cost Report: It is the prime responsibility of manager to overlook those areas that
generates higher profits and revenues for the firm. This looking of manager into project
assist them to optimally use the resources and eliminate waste related to it.
Above defined are the different methods used by business concern in order to make
management accounting reporting. It is not possible for manager to prepare every single report
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related to management accounting (Lambert and Sponem, 2012). Therefore, they choose or
select only those techniques which formulate accurate position of the company. Though all
tools depicts the financial position of the firm but Unicorn Grocery has chosen some of the
above mentioned tools that asses them in achieving their business objectives effectively and
efficiently.
P3 Different cost of techniques used for preparing income statement
Calculation of Net profit by using Marginal costing
Income statements
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2+3 = 16*500
8000 8000
Gross profit 9500
Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
Total Profit / Loss 7800
Calculation of Net profit by using absorption costing
Income statements
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2 - 7800
Closing stock: 100*13 - 1300 -6500
Contribution 11000
Less:
Variable sales overhead 500*1 500
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Fixed overhead -1800
Selling and administrative cost expenses (800+400) -1200 -3500
Total Profit / Loss 7500
In the above practical question, net profit has been calculated by using two techniques of
costing one is absorption and the other is marginal. Under absorption method, only fixed
overhead and cost are considered, whereas under marginal costing only variable cost are taken
into consideration. Net profit under absorption method is £7500 on the other hand net profit
under marginal cost is £9500.
Difference between cost accounting and financial accounting:
Basis Financial Accounting Cost Accounting
Meaning It is an accounting method that
mainly deals in recording and
summarising financial
information related to the
business entity. It depicts the
financial position of the
company in terms of figures or
numbers.
Under this accounting system,
managers keep record of all
cost incurred in achieving the
objective of firm.
Information Type It normally records
information that is available in
monetary terms.
It records information
concerned with labour,
material and overhead which
are mainly utilized in
manufacturing or production
process.
Type of cost recording Use only historical data Use both estimated and
historical data
Users This information is beneficial
for both external and internal
This information is beneficial
only for internal users or
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parties which include
creditors, investors, customers,
lenders, shareholders etc.
management such as
employees, managers,
supervisors and directors.
Valuation of Stock Net realisable value or cost
whichever is less
At cost
Mandatory It is mandatory for all business
enterprise.
It is not mandatory for all firms
except for production or
manufacturing company it is
necessary.
Time of Reporting It is mainly prepared at the end
of each financial or accounting
year. The time period of these
statements are usually one
year.
These are normally prepared
after managers get the
information from the cost
department. It is prepared on
monthly or quarterly basis.
Purpose Their main purpose is to
maintain the record and
summary of all financial
transaction.
Their main purpose is to
control and reduce cost related
to each department, division or
unit.
TASK 3
P4. Merits and demerits of various types of planning tools
Budgetary Control means how managers spend the budget in order to monitor or control
the business operation and cost for a specific accounting or financial period (Budgetary control,
2017). It is the process via which administrator prepares budget for future time-frame and then
compare it with actual or current performance and figured out any variances or deviation. The
comparison between estimated and current figures enables manager to identify discrepancies and
develop corrective measures in order to avoid any further delay. With the help of this company
can effectively co-ordinates different activities that has a great influence on the performance and
operation of business concern. According to Brown “It is a method of controlling cost that
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mainly consists of making budgets, comparing the actual performance with the estimated one,
coordinating various divisions and departments so to attain higher profitability and revenues.
Following are the objectives of Budgetary-control:
 Defines the goals and objective of business concern
 Maximise the profitability by utilizing the resources in an optimum way.
 Provides unambiguous and clear guidelines that enable the firm to business objective in a
structured and thorough manner (Lee, 2011).
 Assess the performance of managers, departments and units.
Advantages and disadvantage of Budgeting are as follows:
Advantages Disadvantages
 Budget assist in communication and co-
ordination in business concern.
 With the help of budget statements,
manager can make strategic decision
which help in controlling and
monitoring future performance.
 Evaluates the performance of
individuals, division, department, units
or managers.
 Motivates managers to prepare
statement on monthly, quarterly,
annually basis.
 With the help of estimated or
predetermined budget, company can
plan effective ways in which they can
utilize these budgets which give them
higher return or profitability.
 It mainly focuses on judgement and
approximations which is not always
beneficial for companies.
 Success of budgeting is depend upon
the participation and co-operation of a
manager and employee. Thus if the
company is not having effective co-
operation budget cannot prepare
properly.
 Time-consuming.
 It may limit change and innovation.
 It disrupts flexibility, change and
development of plan.
Maximum number of organisations classify the budget into three kinds which are
discussed in detailed below:
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Operating Budget: This statement is an expression of planned and organised operational
activities of business enterprise for a specific time-frame. It mainly includes:1. The Revenue Budget: It mainly includes the sources from which company is expecting to
yield income from normal business operation. It further assist the manager to understand
company's future performance and position (Luft and Shields, 2010). It shows the total
sale of business concern in a particular accounting year.2. The Expense Budget: It outlines total expense of firm in a specified financial year. It also
shows future expenses which enable managers to prepare themselves in order to meet
them effectively.
3. The Project Budget: This statement anticipates the total cost that is associated with
particular or specified task. It also focuses on analysing the difference between firm's
sales and expenses. If generated profit figure is small, then steps were developed by the
manager in order to cover that difference.
Advantages Disadvantages
 Current Expenses are managed in an
effective manner.
 Builds reserves for future uncertainty.
 Projecting Expenses related to future
time period.
 Time-Consuming
 Use of extensive research in order to
determine long range needs of
company.
 In Accurate results.
Financial Budget: This budget statement mainly identifies various sources from where a
business concern is expecting to get its cash for the future time period. It also describes the
manner in which company is expecting to utilise its cash (Lukka and Modell, 2010). There are
unlimited sources via which a firm can generate cash namely, sale of asset, loans, issuance of
inventory etc. On the Contrary, they can use cash in common ways such as purchase of
equipment, machinery, plant, land or building, an asset, pay expenses or dividends etc.
Following are the types of financial budget:1. Cash Budget: This statement covers the inflow and outflow of cash in a business entity
for a particular time-period. It suggest whether the company is having sufficient cash or
not in order to operate its day to day operations or working capital. It is essential for
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every firm to reserve sufficient amount of cash which help them to meet future
uncertainty in an effective way. It prepares on monthly, daily and on weekly basis that
enables organisation to constructively fulfil current obligations. It shows the excess of
cash that company has and develop plans to spend it efficiently. Unicorn Grocery
prepares their cash statement on monthly basis as it help them in knowing the total inflow
and outflow of cash.2. Capital Expenditure Budget: This statement focuses on the purchase of new asset, land,
plant or machinery. In order to acquire these assets, firm often borrow through various
sources such as long term securities, bond, debenture etc. Every single organisation
whether small or large pay attention towards these statements as they are mainly
concerned with large investment. Unicorn Grocery is mainly arranging their funding via
investing in debentures and securities.
3. The Balance Sheet Budget: This statement describes the financial position of Unicorn
Grocery in the market place (Nandan, 2010). It shows the total assets and liabilities of the
respective firm. This is mainly prepared at the end of accounting or financial year.
Basically it is the snapshot of firm's financial condition.
Advantages Disadvantages
 It provides awareness to the company
in terms of its total spending and
earning.
 It help in analysing future market
opportunities
 Assist in generating effective financial
plan.
 Lack of flexibility
 Lack of Non-financial factors such as
 Highly rely on estimates which is may
or may not beneficial for the company.
Non-Monetary Budgets: This budget statement describes in non-financial revenues or
sales & profits. If expected profit figure is comparatively less, then step were taken by the
managers in terms of increasing budget of sales and cut down the expense budget. Following are
the types of non-monetary budget:
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1. Fixed Costs: It normally includes those cost which takes place in an entity no matter it is
related with operation or not (Parker, 2012). These cost remains fixed for an accounting
period. For example: Salaries given by Unicorn Employees to its employees or managers.2. Variable Costs: These cost changes with the change in operation. For instance, When
Unicorn Grocery purchase raw material which includes cost of various factors such
labour, raw material or overhead that changes frequently.
3. Semi-Variable Cost: In this statement some cost are fixed while others are variable.
These cost are generally related with repairs, maintenance and advertising.
Advantages Disadvantages
 It provides stability in an organisation.
 Maximise Period Expenses which
further decrease the tax liability of firm.
 Fixed cost is mainly same for a relevant
range say 2000-5000 units
 Per unit cost decreases.
 Time-Consuming
 Variable cost changes rapidly.
TASK 4
P5. Comparing the ways in which firm responds to financial problem by management accounting
Tools of management accounting is essential for every business enterprise as it depicts
the financial position of the company for a particular accounting or financial year. Companies
keep a record of every single transaction that takes place in business premises (Qian, Burritt and
Monroe, 2011). But there are certain times, when Unicorn Grocery is facing problem and they
solve it via different management systems which are described as follows:
 Profitability: It mainly determine company's total earning for a given accounting year.
The main problem that Unicorn Grocery is facing regarding profitability is increase in
variable cost which indirectly affects its total earning. This is may be that company is
using not appropriate techniques and tools related to that. The best solution to this is to
choose zero-based costing approach. With this, it becomes easier for referred firm to
continuously monitor all transaction.
 Price- Maximisation: Unicorn Grocery faces problem due to instability in their profit
ratio. The main reason for this is difference between overhead and fixed cost of
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respective firm. They are advised to improve the profit ratios and utilize the resource in
an optimum way that generates higher output with less input. Also the referred firm is
required continuous record all cash related transaction which provides information related
with total inflow and outflow of cash respectively.
 Performance and Controls: It is essential for every business concern that their
employee or managers should be participative and co-ordinated among each other. This
further assist them in making better strategic decision. Unicorn Grocery is also facing
issues regarding maintaining proper inventory level. As a result, this lower the demand of
their product in the market place (Taipaleenmäki and Ikäheimo, 2013). Thus, it is
recommended there should be proper communication and co-operation among the
workers and managers of Unicorn Grocery which enables them to keep proper records of
stock level on timely basis.
Following are the list of tools that effectively deals with such issues which are described as:
1. Key Performance Indicators: With the help of this tool, Unicorn Grocery can deal
effectively and efficiently with financial related problem. The referred firm is required to
set long term goals and objectives, according to which company performs. Also it is
recommended to measure the performance related to particular task or activity so that
company can perform in better way when doing it for next time.
2. Benchmarking: Every business enterprise set their standards according to which they
preferably carry out or execute their work. With predetermined cost they can compare
their actual performance with the estimated one (Vaivio and Sirén, 2010). This makes
easier for them to figure out whether they performing in an effective way or not.
3. Financial Governance: With the help of this, Unicorn Grocery follows guidelines of
GAAP. This anticipates them to perform according to the defined standards and
guidelines.
CONCLUSION
As per the above mentioned report, it can be concluded that every business concern is
opting different management accounting systems that assist them in their future growth or
success. Managers keep a record of every single transaction related with cash or credit which
makes it easier for the firm to determine effectively the total inflow and outflow of cash for a
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particular accounting or financial year. With the help of different costing methods namely
absorption and marginal, business entity can evaluate its net profit and attain long term
objectives in a structured manner. It is important for every company to focus on co-operation and
communication among managers and employees as they help in making effective strategic
decision. Thus, in order to attain higher profitability, firms are required to apply different
concepts and methods of management accounting which further assist them in gaining
competitive advantages over others.
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