Analyzing Cost Management Accounting Issues in Nestle Europe

Verified

Added on Ā 2023/04/04

|10
|1578
|269
Report
AI Summary
This report analyzes the management accounting issues faced by Nestle Europe, a multinational food and beverage company. It identifies challenges related to target costing, decentralized manufacturing, and sales mix optimization. The report evaluates Nestle's approach to maintaining product quality and managing costs, particularly in the context of strong competition. It concludes with recommendations for improving cost-volume-profit analysis and sales mix strategies to enhance profitability. Desklib is a platform where you can find past papers and solved assignments.
Document Page
Running head: COST ACCOUNTING
COST ACCOUNTING
Name of the Student:
Name of the University:
Author’s Note:
tabler-icon-diamond-filled.svg

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
1COST ACCOUNTING
Executive Summary:
This paper aims at analyzing and explaining the management accounting issued faced by some
companies in their cost and management accounting applications and practices. Cost and
management accounting is the managerial tools which helps an organization by providing
meaningful information for various managerial decision making. For this analysis, we have
selected Nestle Europe, to find cost and management accounting issues faced by the company
and they address those and strive to improve their management accounting practices. Lastly, the
paper concludes with some recommendations, which can help an organization to improve the
cost and management accounting practices and policies to help the business organization in
managing the business in a better way.
Document Page
2COST ACCOUNTING
Table of Contents
Introduction:....................................................................................................................................3
Overview of the company:...............................................................................................................3
Management accounting issues in Nestle Europe:..........................................................................4
Conclusion:......................................................................................................................................6
References and bibliography:..........................................................................................................8
Document Page
3COST ACCOUNTING
Introduction:
Business organizations are established to earn revenue with an overall objective of wealth
maximization. They need to build certain strategies to achieve those mission visions of the
company. Cost and management accounting is such a branch of accounting which helps an
organization by providing various customized and meaningful information for better
management of the business and control over the operational activities. Management accounting
is having an important role in better cost management and achieving the operational efficiency.
Therefore, if there is any flaw in the cost and management accounting of the business, then they
could have fail in achieving their overall objectives. In this report some of such management
accounting issues in Nestle Europe have been outlined and discussed for better understanding of
the importance of the cost and management accounting and ways for improvement of the cost
and management accounting (Pettersson and Segerstedt 2013).
Overview of the company:
Nestle is a large manufacturer and supplier of food and beverages operating all over the
globe. It has become a multinational company from a small Swiss family business in 150 years.
Nestle Europe is having 115 factories in Europe, manufacturing and supplying food and
beverages all over the country. Their concentration on quality of the products and continuous
research and development helped them to invent innovative and healthy food products. They are
having multiple segments in food and beverages. They produce dairy products, baby foods, dry
foods and health products. As their manufacturing unit are diverse and uses various inputs, they
need to manage their resources very well to reduce wastage, manage costs and to achieve the
target (Pettersson and Segerstedt 2013).
tabler-icon-diamond-filled.svg

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
4COST ACCOUNTING
Management accounting issues in Nestle Europe:
Nestle Europe is having more than 115 factories in Europe and they are producing
various food and beverages. There are various other competitors such as MARS, Unilever and
Kraft Foods are creating challenges to the Nestle Europe by supplying their innovative food and
beverage products. Therefore, they need to be efficient in their manufacturing process and supply
quality products to their customers. They need to offer quality products to their customer with a
reasonable price, which in other way should be competitive to the prices offered by the other
competitors. To achieve this objective they need to use the target costing system to fix prices for
their products. Target costing helps in ascertaining the target costs of the products and help to
manage the manufacturing process to produce the goods within the target costs. In Nestle Europe
the main issue in the target costing approach is that, as the company always follows the policy of
good and healthy products, the target costing strategy stands immaterial for them, they spend a
huge amount of fund in their research and development activities and quality control and
inspection (Pettersson and Segerstedt 2013).
They are known for their quality and they have gained a huge market share and customer
loyalty for that. For maintaining this legacy, they focus on their quality control systems and
invest in research and development activities. To manage the costs they need to focus on the
wastage and proper utilization of the resources. Therefore, the target costing system is not that
much effective and useful for them. Hence, it can be understood form the case that the target
costing system is not always applicable in all the types of companies. It can be applied in such a
market situation and company structure when there is less competitive pressure in the market and
the companies are efficient to produce the products in lowest possible costs.
Document Page
5COST ACCOUNTING
Nestle always takes care of the quality of their products, hence, they will never outsource
their manufacturing process, and they always prefer to process and manufacture their products
using their own facilities in their own factories. It can be known from their financial statements,
that their manufacturing process are decentralized in nature, they are having manufacturing units
in different regions of the country to meet the demand for their products in that region. Their
dairy products are perishable in nature, therefore, they need to manufacture and supply those
products to the customers in time without much delay. To cope up with such a situation, they
have decentralized their manufacturing processes and established factories in various places of
the country. They are having almost 115 numbers of factories in Europe. Investments made in
their fixed assets and depreciation on those fixed assets is the sunk costs, which they have to
incur irrespective of volume of output or the operation of the business (Pettersson and Segerstedt
2013).
Profit is the result of the business operations; therefore, the cost volume and profit
analysis is must for analyzing the feasibility of the business operations and to cost volume profit
analysis is a cost and management accounting tool, which is used for analyzing the effect of
increase in volume to its total costs and the resultant profit. It helps in adjusting the profit
maximizing output for the company in its existing capacity of production. The Nestle Europe is
having a significant demand for their products in the European market as well as in the
international market. Though the company is having an international presence in most of the
countries all over the globe with their regional production units, they were still able to export
products to the neighboring countries for a value of € 2.4 billion. It implies that there are still
some possibilities of increasing the volume of their business. They are having a well established
Document Page
6COST ACCOUNTING
financial and cost accounting system which can produce information for such a cost volume and
profit analysis and can help in making business expansion decisions (Collis and Hussey 2017).
Most of their products are produced using the milk or some crops. These are the main
inputs for most of their products. Hence, they need to make the sales mix in such a way that, the
input resources are utilized efficiently and it can give them the best result in the form of
maximum attainable profit. Hence, the question of sales mix is important for them. They need a
proper sales mix to maximize their overall profit. They need to analyze the manufacturing
system of the business and they need to construct the sales mix, which generates maximum
contribution to the profit. Sometimes, it is not possible to maintain the sales mix, as they need to
address he customers with their required products. They become customer oriented rather than
profit oriented, but it is possible for them the output and to set the profit maximizing sales mix
(Anthony and Govindarajan 2017).
Conclusion:
From the above discussion and analysis, it can be concluded that, management
accounting is the process of creating and sharing important cost related information for better
cost control and a better cost management. Nestle Europe is a renowned and well-established
company in European food and beverages market. They are having a well-organized and well-
structured cost and management accounting system, which helps them in managing their costs
and making various important managerial decisions. They have issues in their target costing
system as it becomes immaterial as they are more customers focused and strives at maintaining
the quality of their products. Lastly, it can be recommended for them, that they need to focus on
tabler-icon-diamond-filled.svg

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
7COST ACCOUNTING
the cost-volume-profit analysis and adjust the profit maximizing output and sales mix to achieve
their desired objectives.
Document Page
8COST ACCOUNTING
References and bibliography:
Anthony, R.N. and Govindarajan, V., 2017. Management control systems.
Balakrishnan, R., Labro, E. and Soderstrom, N.S., 2014. Cost structure and sticky costs. Journal
of management accounting research, 26(2), pp.91-116.
Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
Higher Education.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Hansen, D., Mowen, M. and Guan, L., 2007. Cost management: accounting and control.
Cengage Learning.
Horngren, C.T., Sundem, G.L., Stratton, W.O., Burgstahler, D. and Schatzberg, J.,
2005. Introduction to management accounting. Upper Saddle River, NJ: Pearson Prentice Hall.
Kamal, S., 2015. Historical evolution of management accounting. The cost and
management, 43(4), pp.12-19.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Klychova, G.S., Faskhutdinova, М.S. and Sadrieva, E.R., 2014. Budget efficiency for cost
control purposes in management accounting system. Mediterranean journal of social
sciences, 5(24), p.79.
Pettersson, A.I. and Segerstedt, A., 2013. Measuring supply chain cost. International Journal of
Production Economics, 143(2), pp.357-363.
Document Page
9COST ACCOUNTING
Shank, J.K., 2014. Strategic Cost Management: New. Journal of management accounting
research.
Weetman, P., 2019. Financial and management accounting. Pearson UK.
chevron_up_icon
1 out of 10
circle_padding
hide_on_mobile
zoom_out_icon
[object Object]