Management Accounting Report: McDonald's Restaurant Analysis

This report provides a comprehensive analysis of McDonald's restaurant operations in Singapore, focusing on management accounting principles. It begins with an introduction to McDonald's, its history, and its presence in Singapore. The report then delves into the restaurant's operational aspects, including purchasing, food preparation, and customer service, and examines the physical size of a typical McDonald's operation. Financial data and the industry context, including competitors, are also discussed. A key element of the report is the analysis of McDonald's value chain, identifying key activities such as ordering, menu display, serving customers, and payment processing. These activities are then categorized into value-added and non-value-added processes. The report culminates in a discussion of activity-based accounting and its potential application to McDonald's to improve cost measurement and pricing strategies. Recommendations are made for implementing an activity-based accounting system within the organization, with the aim of enhancing efficiency and profitability. The report concludes with a summary of the findings and a list of references and bibliography.

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Contents
Introduction......................................................................................................................................2
About McDonald’s..........................................................................................................................3
Restaurant operations...................................................................................................................3
The physical size of the operation...............................................................................................4
Financials of the restaurant..........................................................................................................6
Industry........................................................................................................................................6
The value chain of the operations....................................................................................................7
Value-added and non-value-added................................................................................................11
Activity-based accounting system.................................................................................................13
Apply the activity-based accounting system to the McDonald’s..................................................14
Conclusion.....................................................................................................................................17
References......................................................................................................................................18
Bibliography..................................................................................................................................21

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Introduction
The aim of the report is to talk about the use of activity-based accounting that is used by
company with the motive to measure the cost accurately and improve the pricing strategy of
restaurant. The company that has been selected for the analysis is McDonald’s Singapore where
visit has been undertaken for meal. The main processes and activities that are performed by the
employees at the restaurant for their customers are presented. The activities, which are
performed by the company, are classed into value added and non-value added activities. The
report includes detailed analysis of company, its value chain operations and the processes and
activities that are followed by company. The recommendation for the Activity-based costing and
its implementation within the organisation is presented.

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About McDonald’s
McDonald’s is a well-known American fast food business that was established in the year 1940
as the restaurant is functioned by Richard and Maurice McDonald in California, United States.
The business has grown to more than approx. 34,000 restaurants in more than 118 countries
where the company delivered its products and services. The business opened its first store in
Singapore in the year 1979 and to the event; the world uppermost capacity of hamburgers was
severed that day in October at Liat Towers, Singapore. In addition, the company has a brand like
McCafe whose products are served to customers (McDonald’s, 2019). Presently in Singapore,
the company is able to maintain 120 McDonald’s restaurant island-wide serve 120 million
customers on a weekly basis. In addition, more than 9,000 employees keep the Singapore
favourite restaurant running shipshape (McDonald’s, 2019).
Restaurant operations
Restaurant operation is not only about the food but it includes many more things. McDonald’s
operations include pleasing the customers, generating profit, and avoiding any kind of potential
crises. In addition to this, the company handle the logistics of the ordering as well as the stocking
ingredients (McDonald's Corporation, 2019). Along with this, one of the vital components of the
restaurant operations is making a positive impression majorly on the customers.
 Purchasing - McDonald’s ensure that they are able to stock the products that help them
to accomplish the customer demand according to the menu. The purchasing operations of
restaurant majorly involve keeping the close track of the stock that is maintained by every
outlet of McDonald’s in Singapore market.

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 Preparation: - The preparation of the food within the restaurant is one of the major
operations that are performed by McDonald's. The company restaurants in Singapore
ensure that they make ingredients so that with every order of the customers they can
successfully prepare the order without any loophole (Drury, 2013). In the preparation of
the products, McDonald’s make use of different equipment’s and machinery that helps
them in serving the products. In addition to this, McDonald’s company offer a takeaway
service to its customers.
 Service: - McDonald’s operations also include the service that is accessible by the
restaurant to their consumers present in the market (Baker, 2014). The service that is
offered by the restaurant includes concentration as well as knowledge of customer
limitations. The employees greet the customers when they arrive in a restaurant and ask
for orders so that they can serve them effectively and on time. Cleaning of the restaurant
after the meal is one of the protocols that are followed by employees with the motive to
clean the place for the next customers.
The physical size of the operation
The physical size of the operations is totally depended on the service restaurant from where the
customer can purchase the products. In Singapore, there are approx. 120 McDonald’s restaurants
that are present. The operations of the company are wide as most of the operations of the
company are performed at a single place. Singapore McDonald’s exposes a green roof that is
planned to endure the local wildlife (Inhabitat, 2019).

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(Source: Inhabitat, 2019)
The restaurant shows that it has a good place where the customers can sit and consume the
products. The layout of the restaurant includes the physical size for the operations that majorly
include the Kitchen space. The operation manager keeps a good place for the kitchen so that
equipment can be effectively kept in outlets (Baker, 2014). The proper physical size off the
kitchen is essential to ensure that managers consume less time in preparing the quality food in
less time. Along with the psychical size is generally wide with the motive to maintain the health
and safety issues.
In the restaurants, the company maintain their own freezer that requires a space because most of
the stock of store is reserved in the freezer with the appropriate packaging with the motive to
safeguard cleanness of the food items. The size for managing the inventory of the store is kept by
them so that they can effectively manage at their stores. All these operations generally take place

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at McDonald’s restaurants due to which the company ensure that they open the stores at such
places where they can get the space for performing the operations and for parking.
Financials of the restaurant
The company registered a quarter ending from December 31st 2018, which was $5.163B that
reflects the decline year-over-year. The company has witnessed a decline in the profit that shows
that it is dealing with the issue related to the operating cost that is affecting the revenue of the
company (Macrotrends, 2019). In the year 2016, the quarter majorly consists of $16 million of
net pre-tax planned credits that consist of a gain of approx. $75 million that is earned by the
company majorly from the sale in the Singapore market with the motive to develop the licensee,
partly offset by restructuring the charges (McDonald's Corporation, 2017). However, on the
other hand, it comprised net pre-tax damage and rearrangement custodies of $342 million.
Industry
McDonald’s Singapore currently deals in the fast food industry of the Singapore market that is
growing with the increase in the needs of the customers. This has been found that food spending
in the country is approx. 56% of the total consumption expenditure present in Singapore. In the
year, 2009 the industry comprised of approx. 6,000 establishments with a rise of 2.4% compared
with 2008.
The below-given image reflects the foodservice market share of McDonald’s Singapore from the
year 2012 to 2016. This has been found that McDonald's in Singapore has bound foodservice
market of approx. 16.3% with an increase from around 15.9% in the year 2012 (Statista Portal,
2019). In the near future, it is expected that there will be a rise in the foodservice market of
Singapore.

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(Source: Statista Portal, 2019)
The rise in the industry of fast food will ultimately lead to an increase in the number of new
entrants in the market that become competitors for the company. The major competitors of the
McDonald’s Singapore include Subway, Burger King, KFC, Moss Burger, and local companies
present in Singapore. While performing the business operations, the company faced tough
competition as customers switch to the competitors in the market.
The value chain of the operations
A value chain includes a set of actions that are operated by the firm in a particular industry that
completes in order to provide an appreciated product or service for the market. The major
operation activities that take place in McDonald’s Singapore restaurant include ordering the
food, menu display, serving the best to customers, receiving the payment from customers and
preparing the food (David, 2011). All these activities are performed in the set process that is
performed at different stages. The major activities as well as the processes, which are followed

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by the McDonald’s Singapore in offering the services to their customers, are described with the
help of the diagram given below.

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The display shows
offering by
company
With discounts/
combos
Display of
menu on
above counter
Arrival at
McDonald
Customer
actions
Decide the
order
through
menu
Place the
order and
make
payment
Employee
contact-
On- stage
Employee
actions-
Backstage
Collect
bill
receipt
and wait
for order
Collect
the food
and
drinks
Greet the
customer and
take the
orders
Print bill and
give it to
buyer
Look the
screen for
new orders
and prepare
the food
Support
processes
Payment
system
Hand-
over
the
food
External
AppearancePhysical
Evidence

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The main processes and activities show the description related to the major activities that are
performed by McDonald’s Singapore.
 Ordering food: - Customers who visit McDonald’s outlets receive the greetings from
employees. After reviewing the menu, the customer who visits McDonald’s place the
order according to their preference and discounts. Once the order has been received by
the employees they start with the preparation of food to deliver it on time. In addition, at
the same time, the customer makes the payment for the order placed. Once the process of
preparation of food gets complete, they deliver it to the customers (Frynas & Mellahi,
2015).
 Menu – traditional or electronic/digital: - The major operations of the company include
creating the menu in the Singapore market according to the customers need. In addition
to this, the digital menu is displayed by the company that provides convenience to the
customers while placing the order. The menu of Singapore restaurant includes different
combos and offers on products that are offered to customers. Similar to this, outlets of
Burger king, subway, KFC and much others displays the menu through digital manner,
which helps the customer to make payment.
 Serving customers: - McDonald’s Singapore is able to provide effective customer
service to the customers. This has been found that the high speed of the delivery of client
service is considered as one of the modest advantages (Pinto, 2010). This effective
service to the customers in Singapore is possible because of effective and well-educated
customers. However, the efforts of the business are done to offer excellent customer
services that contradict its practices of making the minimum payment or marginally
above the minimum pays to its employees. Further, this has been found that McDonald’s

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restaurant operates in a sit-down, drive-thru, counter service outlets and others are
followed by the company.
 Preparation of food: - Preparation of the food is considered as one of the major
operations that are performed by the company. The restaurants of McDonald's in
Singapore prepare the food for all the customers in the same kitchen either it is for taking
away or for consuming it over there. This preparation requires well-equipped machinery
that is majorly used by the company for preparing the food (Grant, 2016).
 Payments by customers: - Collecting the bill from the counter is a process that is
performed by customers so that they can make the payment. McDonald’s restaurant
includes a cash counter where the payment has been done by the customers for the order
products. Similarly, Burger King also has the counter for the payment where the
customers can collect the bill and make payment. This has been found that McDonald’s
employees support for any kind of processes issues faced by the company. In addition,
the competitors and McDonald’s company itself accept the payments through different
payment modes that include Visa cards, net banking, debit card, and many others.
Value-added and non-value-added
The classification of the processes and activities are done on the bases of value added and non-
value added to McDonald’s company. The front-stage and the production of the menu items in
the back-stage are considered as the value-added activities that are performed by the company.
The reason behind it is that these value-added services because these activities can enhance the
experience of the customers of McDonald’s.

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McDonald’s company add value to mobile payments with ordering and offers. This has been
found that to offer the more convenience to the Singapore customer McDonald is considered as
first in Southeast Asia where the company launch card payments through its mobile application
that is majorly used for the food delivery. The customers make payments through visa cards and
with this; they ensure the security while making the payments through visa cards (Siew, 2015).
Back Stage
Main activities Description
Cleaning The cleaning activity includes dishwashing, disinfecting, cleaning of the
floors, washing the pots and many other activities that are majorly performed
by the employees.
Preparation The preparation of the products is also one of the major activities that are
performed by backstage of the company. This preparation is related to the
ingredients chopping and making it prepare for the cooking (Dudovskiy,
2016).
Cooking Preparing hot meals, burgers, puffs and many others according to the order
placed by the customers from the menu.
Administrating The administrative process includes purchasing the raw material, creating the
menu, managing the people, receiving, storing and forecasting.
Front Stage
Activities Description
Communicating The communication with the customers for greeting them and for taking the

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orders is one of the major activities.
Cleaning Maintaining the cleaning activity related to the floors, tables and many others
for the customers.
Set-up The set-up at the tables is required folding napkins, making order and process
orders that can provide the value-added services (Rothaermel, 2015).
Serving
customers
The serving customers for pick-up orders, serving the meals, time orders and
collect payment through different modes.
On the other hand, the non-value added undertakings that are present in the restaurant comprise
receiving, storage, moving goods, and waiting for treating of goods. This has been found that
generally, non-value added activities include the make use of resources without adding the worth
to the product. These are considered as the non-value added activities because McDonald
restaurant perform these activities in an effective manner and these activities do not create a
direct impact on the customers (Rothaermel, 2015). Further, in order to minimize the cost in the
McDonald’s restaurant, these activities should be carefully examined by means of approach.
Activity-based accounting system
Activity-based costing is managerial accounting approaches that are used by the companies with
the motive to trace the overhead activities and then assigning those activities to objects. In other
words, this can be said that it is a way to assign the indirect, overhead costs associated with
products or departments that generate the cost involved in the process of production (Drury,
2013). This has been found that this method is essential as the proper assignment of the indirect
cost is very important for the management majorly for a company whose operations are

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expanding their branches across the world. In the competitive world, numerous companies are
making use of Activity-based costing with the motive to allocate the cost that is linked with the
operations of the business.
(Source: Noreen, Brewer & Garrison, 2011)
Apply the activity-based accounting system to the McDonald’s
Implementation of the Activity-based accounting system will offer different benefits to the
McDonald’s Singapore as will effectively contribute to increasing the profit of the company.
This has been found that the Activity-based costing system helps the company to measure the
cost that is linked with the activities in an effective manner (Schulze, Seuring & Ewering, 2012).
A systematic process helps the company to measure the cost that is associated with the activities.
Step 1- Identify the main activities in the organisation
Some of the activities that can be selected by McDonald’s include- Material handling,
purchasing of stock, receipt, dispatch, machining and assembling the products

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Step-2 Determining the factors which majorly focuses on determining the cost that is linked with
an activity (Schulze, Seuring & Ewering, 2012).
The major factors that can affect the identification of the cost include a number of buying orders,
orders delivered, and some number of setups and many others.
Step-3 Collecting the cost of every activity
The costs of every activity are recognized as cost pools and are straight equal to the convention
centres of cost.
Step- 4 Charge support overhead to goods created on their practice of activities that is
communicated in terms of the selected cost driver.
ABC follows a two-stage cost assignment procedure and allocates the reserve cost like factory
overhead cost to activity cost centres. (Agarwal, 2018)
(Source: Agarwal, 2018)
The above image reflects the flow of cost assignment that is related to activity-based costing.
This cost assignment flow begins with resources and ends with the cost objects.
The pricing strategy of the restaurant

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Activity-based costing definitely creates an impact on the pricing strategy that is followed by the
restaurant in a competitive environment. The technique allows the restaurant to understand the
deep concepts related to the operating cost structure as well as the price perception of its guests.
The awareness about the true cost structure helps the restaurant to keep the prices of the products
in the menu (Raab & Zemke, 2016). The identification of the cost structure helps the managers in
making the proper allocation of cost. The structure of cost helps the restaurant to reduce the
overhead cost that will bring the reduction in the prices of the menu of McDonald’s. However,
this has been found that McDonald’s keep the affordable prices of the products. In addition to
this, the application of the ABC (activity-based costing) will help company to reduce prices and
to implement the cost leadership strategy. This has been found that there are companies who use
ABC costing methods, which include Nestle and Hilton hotel (Mahal & Hossain, 2015). In
addition to this, the method is implemented in different sectors in the current scenario. In
addition, the cost structure will help the company to generate high profits as the company is
facing the issue of the decline in profits.

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Conclusion
At the end of the report, this can be concluded that the operations of the McDonald’s Singapore
restaurant are effective but the company is dealing with the rise in the competition in the market.
The analysis of the operations of the company has been done which shows that McDonald’s
should implement the Activity-based costing. This method costing will help the company in
allocating the cost effectively that is used by them while deciding the menu, which can help them
to deal with competitors. Activity-based accounting system use and its process of
implementation are described, which shows that the company can manage the cost-effective,
which can give rise to the revenue.

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References
Agarwal, R. (2018). Activity-Based Costing: Meaning and Components. Retrieved from:
http://www.yourarticlelibrary.com/accounting/costing/activity-based-costing-meaning-
and-components/52611
Baker, M. J. (2014). Marketing strategy and management. London: Palgrave Macmillan.
Chernev, A. (2018). Strategic marketing management. Chicago:Cerebellum Press.
David, F.R. (2011). Strategic management: Concepts and cases. India: Pearson/Prentice Hall.
Drury, C.M. (2013). Management, and cost accounting. New York: Springer.
Dudovskiy, J. (2016). McDonalds Value Chain Analysis. Retrieved from: https://research-
methodology.net/mcdonalds-value-chain-analysis/
Frynas, J.G. & Mellahi, K. (2015). Global strategic management. USA: Oxford University Press.
Grant, R.M. (2016). Contemporary strategy analysis: Text and cases edition. New Jersey: John
Wiley & Sons.
Inhabitat. (2019). Singapore McDonalds Unveils a Green Roof Designed to Sustain Local
Wildlife. Retrieved from: https://inhabitat.com/mcdonalds-goes-green-in-singapore-with-
a-roof-designed-to-sustain-local-wildlife/?variation=d
Macrotrends. (2019) McDonald's Revenue 2006-2018 | MCD. Retrieved from:
https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/revenue

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Mahal, I. & Hossain, A. (2015). Activity-Based Costing (ABC)–An Effective Tool for Better
Management. Research Journal of Finance and Accounting, 6(4), pp.66-74.
McDonald’s. (2019). McDonald’s. Retrieved from: https://www.mcdonalds.com.sg/our-
brands/mcdonalds-brand/
McDonald’s. (2019). Our brands. Retrieved from: https://www.mcdonalds.com.sg/our-brands/
McDonald's Corporation. (2017). McDonald's Delivers Fourth Quarter And Full Year 2016
Results. Retrieved from: https://www.prnewswire.com/news-releases/mcdonalds-
delivers-fourth-quarter-and-full-year-2016-results-300394392.html
McDonald's Corporation. (2019). Our Business Model. Retrieved from:
https://corporate.mcdonalds.com/corpmcd/about-us/our-business-model.html
Noreen, E.W., Brewer, P.C. & Garrison, R.H. (2011). Managerial accounting for managers.
Germany: McGraw-Hill Irwin.
Pinto, J. (2010). Achieving Competitive Advantage. Prentice-Hall, Upper Saddle River, NJ.
Raab, C., & Zemke, D. M. (2016). Activity-Based Costing in the Restaurant Industry: What's
Past Is Prologue. The Journal of Hospitality Financial Management, 24(2), 133-146.
Rothaermel, F.T. (2015). Strategic management. UK: McGraw-Hill Education.
Schulze, M., Seuring, S. & Ewering, C. (2012) Applying activity-based costing in a supply chain
environment. International Journal of Production Economics, 135(2), pp.716-725.

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Siew, A. (2015). Pay for McDonald’s with Visa payWave in Singapore. Retrieved from:
https://www.techgoondu.com/2015/02/25/pay-for-mcdonalds-with-visa-paywave-in-
singapore/
Statista Portal. (2019). Chained foodservice market share of McDonald's in Singapore from 2012
to 2016. Retrieved from: https://www.statista.com/statistics/724509/foodservice-market-
share-of-mcdonald-s-in-singapore/
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E. (2015). Financial & managerial accounting. New
Jersey: John Wiley & Sons.

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Agarwal, R. (2018). Activity-Based Costing: Meaning and Components. Retrieved from:
http://www.yourarticlelibrary.com/accounting/costing/activity-based-costing-meaning-
and-components/52611
Baker, M. J. (2014). Marketing strategy and management. London: Palgrave Macmillan.
Chernev, A. (2018). Strategic marketing management. Chicago:Cerebellum Press.
David, F.R. (2011). Strategic management: Concepts and cases. India: Pearson/Prentice Hall.
Drury, C.M. (2013). Management, and cost accounting. New York: Springer.
Dudovskiy, J. (2016). McDonalds Value Chain Analysis. Retrieved from: https://research-
methodology.net/mcdonalds-value-chain-analysis/
Frynas, J.G. & Mellahi, K. (2015). Global strategic management. USA: Oxford University Press.
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Wildlife. Retrieved from: https://inhabitat.com/mcdonalds-goes-green-in-singapore-with-
a-roof-designed-to-sustain-local-wildlife/?variation=d

Management Accounting 22
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Macrotrends. (2019) McDonald's Revenue 2006-2018 | MCD. Retrieved from:
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Management. Research Journal of Finance and Accounting, 6(4), pp.66-74.
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brands/mcdonalds-brand/
McDonald’s. (2019). Our brands. Retrieved from: https://www.mcdonalds.com.sg/our-brands/
McDonald's Corporation. (2017). McDonald's Delivers Fourth Quarter And Full Year 2016
Results. Retrieved from: https://www.prnewswire.com/news-releases/mcdonalds-
delivers-fourth-quarter-and-full-year-2016-results-300394392.html
McDonald's Corporation. (2019). Our Business Model. Retrieved from:
https://corporate.mcdonalds.com/corpmcd/about-us/our-business-model.html
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Past Is Prologue. The Journal of Hospitality Financial Management, 24(2), 133-146.
Rothaermel, F.T. (2015). Strategic management. UK: McGraw-Hill Education.

Management Accounting 23
Schulze, M., Seuring, S. & Ewering, C. (2012) Applying activity-based costing in a supply chain
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singapore/
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