Analysis of Management Accounting Systems and Reporting at Unilever

This report delves into the realm of management accounting, examining its essential requirements, diverse reporting methods, and its crucial integration within organizational processes, with a specific focus on the case of Unilever. The report explores various management accounting systems, including inventory management, price optimization, job costing, and cost accounting, highlighting their applications and benefits within Unilever's operations. It further investigates different management accounting reporting techniques such as variance analysis, budgeting, performance reports, activity-based costing, and standard costing, emphasizing their roles in performance evaluation and strategic decision-making. The report also addresses how management accounting systems are integrated within organizational processes, with data flowing from various processes to support effective management accounting and reporting. The benefits of implementing these systems, such as improved inventory management and cost optimization, are discussed in the context of Unilever. The report concludes by providing a thorough analysis of how Unilever adapts its management accounting systems to address financial challenges, demonstrating the critical role of management accounting in driving organizational success.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
ACTIVITY 1....................................................................................................................................1
Essential requirements of different types of management accounting systems...........................1
Different techniques and methods used for management accounting reporting..........................3
Management accounting system and management accounting reporting is integrated within
organisational processes...............................................................................................................5
Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs:...........................................................................................7
ACTIVITY 2....................................................................................................................................8
Use of planning tools used in management accounting...............................................................8
Uses of different planing tools in forecasting budget................................................................10
Comparison of how organisations are adapting management accounting systems to respond to
financial problems......................................................................................................................11
CONCLUSION..............................................................................................................................14

INTRODUCTION
Management accounting implies to utilisation of professional knowledge, expertise skills,
methods and theories in presenting accounting or financial information in systematic manner
which assist managerial personnel of business organisation in framing policies and plans,
controlling various operations or functions of organisation, activities related to decision making,
proper utilisation of organisation's resources, safeguarding financial assets and reporting to top
management (Aksoylu and Aykan, 2013). This report demonstrates an understanding of
management accounting systems, different methods used for management accounting reporting,
benefits of management accounting systems and their application within an organisational
context, advantages and disadvantages of different types of planning tools used for budgetary
control, use of different planning tools and their application for preparing and forecasting
budgets and Compare how organisations are adapting management accounting systems to
respond to financial problems in the context of Unilever, a British-Dutch transnational retail and
consumer goods company. Company is engaged in selling various consumer products like food
and beverages, beauty products, home care products and personal care products. This report also
contains calculation of costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs, how management accounting systems and
management accounting reporting is integrated within organisational processes and analysis
about way to respond to various financial problems, management accounting can lead
organisations to sustainable success.
ACTIVITY 1
Essential requirements of different types of management accounting systems.
Management accounting simply refers to a systematic process of presentation and
redefining financial and accounting information or data in way that it help in evaluating and
analysing performance of managerial personnels, formulating plan and strategies, systematic
comparison, forecasting, budgeting etc. Financial data and outcomes generated from
management accounting system provide assistance in developing internal rules or policies and
operating day to day to activities or functions. Management accounting system is future oriented
approach which provide a framework for planning and decision-making. Under management
accounting system qualitative information regarding performance of managerial personnels and
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other staff is also considered on priority basis. Management accounting system is not required as
per statute. It is done as per specific and particular problem of business organisation on weekly,
monthly, quarterly or yearly basis. Also there is no specific format for presentation of
information obtained form management accounting system but information is required to be
presented in format which is easily understandable. Various kind of management accounting
systems are adopted by management for different – different purpose. But overall focus of these
different methods is to evaluate or analyse financial performance and to achieve organisational
objectives or goals. Following are some major management accounting system used by Unilever,
as follows:
Inventory management system: This is most popular and widely used management
accounting system which assist management in effective inventory management. This system of
management accounting provider support to whole production and supply chain in order to
maximise profit by optimising various inventory cost (Boiral, 2016). By applying inventory
system managerial personnel in a business organisation can note down each and every factor or
aspect concerned with inventory like raw material, work in progress, finished goods etc. and
ensure availability of inventory in production process. In Unilever, company is engaged in
selling various retail products and having wide variety of product. So in company, management
uses inventory management system to monitor, maintain and manage its various inventory leads
to reduction in inventory storage cost and other related expenses. Due to which company is
ultimately able to enhance their profits in long run.
Price optimisation system: This in an significant system of management accounting
which is used by business organisations to set or determine price of its various products
according to the latest responses and variation in demands of consumers. This system is also
assist organisation to analyse and set best optimised price products that provide assistance in
capturing production expense or cost and enhance overall profit to achieve predetermine
objective. So price optimisation system is imperative aspect of pricing decisions to ensure
profitability. Unilever is known for selling products at lower price as compare to its competitors,
it is possible for company only due to effective price optimisation system. In company managers
by analysing various trends and sceneries determine the optimum prices of products which help
is providing products at lower prices to gain competitive advantages.
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Job costing system: This kind of management accounting system is applied by business
organisation in respect of process related to predicting or forecasting useful and relevant
information concerned with cost of particular job or task within a business organisation. This
system is generally used production manager or cost accountants to identify band allocated
reaggregate cost of producing to a particular jobs or task irrespective of their nature. The job
costing system simply emphasises on cost or expanses incurred for or related with each and
every job and assign them to such job. In Unilever this system is adopted at lower level where it
is difficult to classify miscellaneous costs as per their nature then cost are classified by
accountant as per job costing system to reduce complexity in analysis of performance of various
operations or activities. Following are the some major information that is necessary for
implementation of job costing system, as follows:
Direct martial: This system required to track and monitor cost of direct material which
help to classify value of raw material related with a particular job or task. In Unilever, managers
by using information recorded by accountants, classifies and assign them to particular task.
Direct Labour: In Unilever management asses the cost of workers or employees engaged
in accomplishment of particular task to perform job costing system.
Cost accounting system: This system is used by management to assess and evaluate
detailed cost of each kind of product at every level of production and selling. This system help to
identify any variation in cost which help to optimise overall cost in order to achieve overall
objectives of organisation and probability (Bromiley and et.al, 2015). In Unilever cost
accounting system is used for detailed assessment of cost of food and beverages, cleaning agents
etc. which assist management to take significant business decisions.
Different techniques and methods used for management accounting reporting.
In big organisations like Unilever in order to keep a systematic record financial
transactions and events in proper way various reporting methods and reports are essential.
Manager and accountants are responsible preparation of different reports as per requirement.
These reports are ultimately used by top management to analyse and evaluate the overall
performance of business organisation. These reports are also used by management to prepare
strategies and action plans. These reports are also used by internal managers to implement
predetermined strategies to ensure accomplishment of goals effectively. In Unilever reporting is
done by manages to form a effective and appropriate strategy which assist organisation to gain
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competitive advantages. Following are some significant methods and techniques used by
company for management accounting reporting, as follows:
Variance analysis: It is a kind of management accounting reporting system under which
variance are calculated to track any particular weakness related to different processes. Here
variance refers to gap between actual and budgeted or standard amount. A variance may be
favourable or unfavourable. An unfavourable variance in any cost or expense points out towards
area of weakness. Under this reporting methods a detailed analysis of variances are presented to
asses the performance and efficiency (Malinić and Todorović, 2012). This analysis is done
though computing variance of factors such as labour cost, material cost, manufacturing overhead
cost and other production related cost. In Unilever, variance analysis is done by various
departments which help company to identify and resolve any problem at early stage. In company,
management prepare or modifies strategies by using outputs of variance analysis.
Budgeting: This is most popular and widely accepted technique of management
accounting reporting under which income and expense of business organisation is forecasting as
per past performance and trends to prepare a projection report to asses the performance of
organisation in near future. Budgets are prepared by managerial personnels as per organisation's
requirements like sales budgets, purchase budget etc. In Unilever this technique is used by
management to forecast organisation's performance in near future. Different budgets are analysed
by company's management to evaluate whether implemented strategy require any modification.
Performance Report: This reporting technique is used to analyse the overall
performance of an organisation as a whole and as well as for each employee during a particular
period. Department wise performance reports are prepared in big organisation like Unilever.
Managers by using these reports prepare a framework for strategic decisions making. In
Unilever, employees and workers are generally awarded for their obligations to company and
also under performers are identified. Performance-related managerial accounting reports also
help to deeply monitor the working of a company.
Activity based costing (ABC): Under activity based costing, management identifies and
allocate various cost or expenses to overhead functions and then allocate them to different costs.
This system of reporting identifies relationship between various overheads, costs, functions and
products, Through such relationship its allocated indirect costs to product less promptly than
other traditional methods. Some costs and expenses are complex to allocate through this
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technique. Indirect cost like staff salaries, management costs are some time tuff to allocate to a
particular product. This method is mostly used in manufacturing industry as its increases the
reliability of data. In Unilever this reporting method is not used at wide level but for some
activities like food and beverages processing this technique is used to determine the performance
of organisation.
Standard costing: Standard costing is method of reporting under which business
organisation determines an estimates expense or cost as against actual cost incurred during a
particular period of time. Later, manager make comparison of actual and standard cost to asses
the performance or efficiency. Such estimated or standard cost is fixed by managerial personnels
based on their skill, industry trends, previous performance etc. In Unilever management
generally use industry trends or competitors data to set standard cost. Managers by comparing
standard cost with actual cost evaluates the overall performance of company.
Management accounting system and management accounting reporting is integrated within
organisational processes
In present business scenarios every organisation emphasises on management accounting
system and reporting for which different processes are implemented by organisation in order to
integrate management accounting system and reporting within organisational processes. Data
and information used in management accounting and reporting is obtained though the outputs of
various other organisational processes, such as accounting process provide a basic information
and data for management accounting system and reporting (McLean, McGovern and Davie,
2015). In Unilever management is aware about the importance of management accounting
system so the implement process which directly provides support to management in order to
implement management accounting system and reporting. In Unilever, managers of different
department and store are generated in managing data to provide relevant information for
management accounting and reporting. In company inventory and stock is marinated through
various processes which ultimately assist in effective inventory management.
Benefits of management accounting systems:
Different type of management accounting system is used by management to implement
an overall effective management accounting system and to solve different problems. Following
are some key benefits of management accounting system, in the context of Unilever, as follows:
Different accounting Benefits
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systems
Inventory management
system
 it assist business organisation in effective utilisation of
inventory and goods.
 It ensures availability of goods any time in company.
 It help management in company to track the on-line and
real time movement of inventory and stock.
 It provide benefit to company by reducing storage and
extra inventory cost.
Job Costing system  It ensures proper and effective allocation of different cost
to various cost and job.
 It help to identify any inefficient and excessive cost
making job or task which leads to increase in overall
profitability (Takeda and Boyns, 2014).
 It help to define the performance of each task or job within
organisation for strategy formulation.
Cost accounting system  It provide assistance in evaluating the cost of various
product in Unilever which help to gain competitive
advantages.
 It assist in assessing the overall performance in term of
each unit within respective company.
 It assist management in framing policies regarding overall
cost reduction to increase profitability in company
 It help managers in Unilever to take decision regarding
whether it is cost effective to open or shout down company
store.
Price optimization system  It helps Unilever to optimise their while maintaining same
profit margin.
 Company with help of this system minimise product price
to gain competitive advantages.
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Calculate costs using appropriate techniques of cost analysis to prepare an income statement using
marginal and absorption costs:
Marginal Costing:
Income statement by marginal costing method:
PARTICULARS AMOUNT
SALES 427500 427500
LESS VARIABLE COST
DIRECT LABOUR (15*5000) 75000
DIRECT MATERIAL (18*5000) 90000
VARIABLE PROD ( 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
Income statement by absorption costing method(1st quarter)
PARTICULARS AMOUNT
SALES (4500*95) 427500 427500
COGS -231750
GROSS PROFIT AT NORMAL 195750
UNDER/OVR ABSORPTION 6800
GROSS PROFIT AT ACTUAL 202550
-FIXED EXP -45000
NET PROFIT 157550
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Working note:
1.
Total variable cost per unit 51.5
COGS
Production cost 257500
Less: closing stock -25750 231750
2.
Per quarter standard production 5500
Fixed production cost 75000
Fixed prod. Cost per unit 13.64
Actual cost 68200
absorption 6800
Income statement by absorption costing method(2nd quarter)
SALES (3000*95) 285000
COGS -180250
GROSS PROFIT AT
NORMAL 104750
Under ABSORPTION -5476
GROSS PROFIT AT
ACTUAL 99274
-FIXED EXP -45000
NET PROFIT 54274
Working notes:
1.
Total variable cost per unit 51.5
COGS
opening stock 25750
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Production cost 303850
Less: closing stock -149350 180250
2.
Per quarter standard
production 5500
Fixed production cost 75000
Fixed prod. Cost per unit 13.64
Actual cost 80476
absorption -5476
ANNEX (B)
(a) Labour hour: -
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 = 2893 per set up.
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60
Order handling = £30,000 = 416.666 = 417 per order
72
Machine cost = £55,000 = 1.375 per order
40,000
Overhead using ABC approach: -
X
Set up = 15*2983 = 44,745
Order = 12*417 = 5004
Machine cost = 24000*1.375 = 33,000
Total 82749
Y
Set up = 45*2983 = 134,235
Order = 60*417 = 25,020
Machine cost = 16000*1.375 = 22,000
Total 181,255
ACTIVITY 2
Use of planning tools used in management accounting
BUDGET: Budget is a formal statements which contains forecast of expenses, costs,
revenues and financial resources reflecting organisation's future performance and goals. It is
prepared by almost all the organisations to prepare plan for preparation of strategies and action
plan. Management by using information an data of budget analyse the actual performance as
compare to projected performance. It also indicates towards any improvement or modification
required in existing strategy. A detailed budget prepared with proper analysis help to identify any
potential issue or problem that may arise in near future. In Unilever, accountants and managers
are responsible for reparation of budgets, and top management by using these budgets implement
strategies and action plan. In company sales budget is used by management to a analyse the
overall performance in term of sales and monitor any variation in sales by product, segment,
department etc.
 Budgeting assist managers and other responsible personnels to identify or analyse any
issue or problems related to proper implementation of action plans and strategies.
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