Report on Management Accounting for Unicorn Retail UK, 2017

This report delves into the realm of management accounting, specifically tailored for Unicorn Retail, a UK-based organization. The report commences with an explanation and assessment of various management accounting systems, followed by a discussion on different reporting methods used within the field. A significant portion is dedicated to the preparation of an income statement utilizing both marginal and absorption costing methods, providing a comparative analysis of their applications. Furthermore, the report explores the advantages and disadvantages of planning tools utilized for budgetary control, offering insights into effective financial planning. Finally, the report concludes by comparing different systems that a business unit should adopt in response to financial problems. Overall, this report provides a comprehensive understanding of management accounting tools and techniques, aiding in financial decision-making and problem-solving within a retail context.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explaining and assessing the requirements of different types of management accounting
system..........................................................................................................................................1
P2 Stating the different types of methods which are used for management accounting reporting
.....................................................................................................................................................4
TASK 2............................................................................................................................................5
P3 Preparing an income statement through marginal and absorption costing method................5
TASK 3............................................................................................................................................8
P4 Explaining the advantages and disadvantages of different types of planning tools which are
used for budgetary control...........................................................................................................8
TASK 4..........................................................................................................................................10
P5 Comparing the system which business unit should adopt for responding financial problems
...................................................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13
Working Note 1.........................................................................................................................16
Working Note 2.........................................................................................................................16
Working Note 3.........................................................................................................................16

INTRODUCTION
Management accounting is the field of finance which in turn provides managers with
highly accurate report for decision making. In this, manager of the firm places emphasis on
recording data with the motive to generate suitable report regarding financial performance.
Management accounting and reporting is highly significant which in turn provides assistance to
the firm in making highly effectual day to day business decisions. Hence, system of management
accounting is highly concerned with the identification, measurement and analysis of data which
in turn aid in growth and profitability aspect of firm. The present report is based on Unicorn
retail store which is one of the leading organizations of UK operating in small segment. In this,
report will develop understanding about the various tools related to management accounting
system. Besides this, it will also shed light on the tools and techniques that help in resolving
financial issues or problems. Further, report will provide deeper insight about the various costing
methods such as marginal and absorption.
TASK 1
P1 Explaining and assessing the requirements of different types of management accounting
system
To,
Higher Management,
Unicorn, UK
Date: 1st August 2017
Management accounting is highly concerned with the evaluation of internal business
performance. Hence, to aid in the managerial decision making accountants prepare reports
regarding the financial performance of each department and thereby present it to higher
authorities. In this, accountant presents quantitative expression on periodical basis and gives
indication to the manager about the areas that require improvement (Keillor, Hult and Babakus,
2015). In this way, management accounting system enables firm to take strategic action within
the specified time frame. This in turn helps Unicorn in reducing the cost and enhancing profit
level significantly. Hence, manager places high level of focus on preparing and providing timely

monetary as well as non–monetary information to the concerned authority.
Significance of management accounting
 Make or buy analysis: Management accounting system is highly significant which in turn
helps in making suitable decision. By using management accounting tools and techniques
business entity of Unicorn can decide whether they should manufacture product in-house
or buy from outside. In this way, by making in-depth evaluation of each aspect firm can
take suitable decision and becomes able to earn high profit margin.
 Future planning: Preparation of the report is one of main objectives of manager behind
undertaking the system of management accounting. Moreover, several reports which are
developed by Unicorn on the basis of management accounting system helps in making
suitable and competent plan for the near future. Moreover, management accounting
furnishes information regarding the extent to which specific department fails to meet the
standard criteria (Mehta and et.al., 2015). Hence, by considering the report of variance
analysis Unicorn would become able to draft suitable budget for the near future. In
addition to this, by considering the level of deviation firm can identify the training
requirements of personnel.
 Further, management accounting techniques also helps Unicorn in making evaluation of
the viability or attractiveness of project. In this way, management accounting system
offers opportunity to the firm to employ money in suitable investment proposal which
directly aid in the profit margin of firm.
 By using the techniques of management accounting such as ratios firm can make
evaluation of its own performance in against to competitors. In this way, by making
assessment of financial aspects Unicorn can identify where it stands in the present times.
Along with this, by comparing performance over the years business unit can take
strategic action or measure within the suitable time for improvement purpose (Yeniyurt
and et.al., 2015). Hence, by keeping all such aspects in mind it can be presented that
management accounting system helps company in achieving success in the strategic
business environment.
There are several types of management accounting system that can be undertaken by
Unicorn for tracking and evaluating the performance as follows:
Management accounting is that tool which is undertaken by mangers in making decisions

for the future. It is that type of accounting in which information is helpful for the managers to
make decisions about their day to day working of the firms. Thus, it involve a accounting
information that are useful for the management for the main purpose of performance
management system, devising planning and also controlling in formulation of business's strategy.
The main purpose of this type of accounting is to advice managers with appropriate data
regarding monetary consequences that Unicorn decides it helps in controlling financial aspects;
also describe the effects of the competitive landscape. Combination of financial and cost
accounting is management accounting. There are different type of management accounting
system that are described below-
 Lean accounting- It together brings the control, performance measurement methods and
accounting which supporting the lean manufacturing introduction. Lean accounting
system mainly focuses on minimizing the cost of goods sold rather than determination of
the cost which is incurred the time of process of manufacturing (Asugman and
McCullough, 2015). This system perform different functions which are removing non-
value-add procedure in reporting as well as accounting. In addition to it gives a clear
understanding of probability and apposition and it generate a real time report on regular
basis.
 Traditional cost accounting- This system of accounting be defined as a allocating the
production expenses that are produced at the time of manufacturing a goods. It is also
known as a conventional method as it allocates the indirect cost to incur in factory at the
time of manufacturing items. This system of accounting includes mainly in it are the
production machine hours, number of units produced and direct labor hours etc. Apart
from this, with the advancement of computer and machines now traditional cost system
becomes outdated. It is bad for the management in their decisions-making process as it
does non consider the non-manufacturing expense.
 Throughput accounting- Through put accounting system is based upon a principle and
the principle is freshly introduced in the management accounting. It is an accounting
from which Unicorn identifies factor that facilitate them in achieving the desired aims
and objectives in efficient and effective manner. It mainly focus on cash transaction and
ignore the costing as well as cost accounting (Asugman and McCullough, 2015). It does
not assign all the expenses such as variable and fixed cost as well as it also involves

overheads related to goods that are offer by company. Through this type of accounting
system a manager can easily make future decisions in an effective way.
 Transfer pricing- Transfer pricing is that pricing in which a government formulate the
rules and regulations when one enterprises transfer any kind of goods across boarders.
Management accountant use this to determine the cost which are incurred at the time of
transaction among division (Elenkov, 2014). The main advantage of this is that it
provides accuracy as well as fairness about the business entities as there are various
regulation are formulated in transfer price.
P2 Stating the different types of methods which are used for management accounting reporting
To,
Higher Management,
Unicorn, UK
Date: 1st August 2017
Reporting is highly concerned with providing information about cots and profit level; which in
turn helps manager in making day to day business decisions. In the management accounting
reporting detailed information is included by the manager regarding each and every aspect. Such
reporting system is highly significant which in turn enables manager to take suitable decision
regarding strategic and policy framework. Manager of Unicorn can track the level of
performance by preparing the below reports are enumerated below:
 Cost report: Such kind of report furnishes information regarding the amount incurred by
firm while carry out business activities. It includes all types of such as marketing,
operational etc. Hence, by making evaluation of the cost reports business unit can get
information about the cost incurred during the specified time period (Elenkov, 2014).
Hence, by using cost report manager of Unicorn can make comparison of current level
with the previous aspect. Hence, by making evaluation of cost report business entity can
take suitable decision regarding cost control.
 Job report: This report provides deeper insight about the money incurred by the firm in
relation to performing specific job.
 Performance report: In the recent times, with the motive to attain goals and objectives

now business units place emphasis on building responsibility centre’s such as cost, profit
etc. In this, higher authority of each responsibility centre has accountability to meet
assigned target significantly (Asugman and McCullough, 2015). Hence, performance
report provides deeper insight about the extent to which specific responsibility centre
fails to meet the target. In this way, performance report provides information to the
manager about the training need of personnel (McGoldrick and et.al., 2015). Further, by
taking into account such report firm can make suitable modifications in the existing
framework.
 Inventory report: It enables firm to make its business process and other aspects more
efficient. Inventory report furnishes information regarding the wastage level, holding and
ordering cost to the significant level (Lo and Kennedy, 2014). Hence, by making
evaluation of such aspects manager of Unicorn can take suitable decision about the
inventory which it needs to order in one time. Hence, by considering this report manager
can exert effective control on inventory level or aspect.
All such reports are highly effectual which in turn helps higher authority in tracking or
monitoring the performance level. Hence, by keeping such aspect in mind it can be stated that
performance reports aid in effective decision making.
TASK 2
P3 Preparing an income statement through marginal and absorption costing method
 Marginal costing method: It may be served as a decision making technique which in turn
helps in ascertain the total cost of production. Under this method, variable costs are
treated as product, whereas fixed cost is considered as period cost. In this, profitability
aspect is assessed by the manager through profit volume ratio. It clearly presents or
highlights the contribution which is associated with per unit. Marginal costing method
will provide high level of assistance to the manager in making profit planning (Li,
Richardson and Tuna, 2014). Moreover, such costing tool assists in determining the
profitability at each production and sales level. Effective control on variable cost can be

exerted by the corporation through the means of marginal costing. Moreover, this method
completely avoids the arbitrary allocation of fixed cost. However, on the critical note,
under marginal costing method closing stock is not valued in accordance with the
accounting standards.
 Absorption costing method: In this method, costs are apportioned by the management
accountant on the basis of cost centre. Absorption method has greater importance in the
recent times because it considers fixed and variable expenses as product cost. Costs are
classified in terms of production, administration, selling & distribution. Profit margin of
the firm is highly affected due to the inclusion of fixed costs at the time of making
assessment or evaluation (Esteban-Guitart, 2014). By using absorption costing technique
Unicorn can easily find out net profit margin and thereby would become able to take
further suitable decisions. This costing method presents cost data in a conventional
manner which in turn facilitates effective decision making. Small sized business units can
identify the cost and profit associated with the jobs (Difference between Marginal
Costing and Absorption Costing, 2017). However, it is to be critically evaluated that
absorption costing method is highly complex which in turn closely influence the
significance of such method.
Calculation of net profit using absorption costing

Calculating cost marginal costing
Analysis: The above presented table shows that actual NP margin of Unicorn retail store
is £11300 significantly in accordance with the marginal costing method. On the other hand,
actual NP margin accounts for £9585.71 respectively. Hence, by considering this, it can be

stated that net profit margin of firm was lower in the case of absorption costing method as
compared to marginal technique. The only reason behind this absorption costing method
considers fixed cost while making assessment of net profit to a great extent. Hence, Unicorn
Ltd should place emphasis on the adoption of absorption costing method which in turn helps
company in determining suitable net profit margin.
TASK 3
P4 Explaining the advantages and disadvantages of different types of planning tools which are
used for budgetary control
Variance analysis: This method is highly used by the large number of business
organizations including Unicorn for the purpose of budgetary control. Under such technique,
manager makes assessment of deviations by comparing actual performance with the standard
aspect. One of the main purposes of budgetary control is to reduce the level of overspending
(Bitektine and Haack, 2015). In this regard, by using variance analysis technique manager of
Unicorn can easily assess the reasons due to which deviations are occurred in the monetary
aspects. Further, outcome derived through the means of variance analysis technique also
provides high level of assistance in framing suitable budget framework for near future.
Advantages
 In the case of variance analysis, remedial measure or action can easily be undertaken by
the firm through the means of assessment of causes.
 Further, by using such tool business unit can fix the accountability of each department in
an effectual way. Training needs of personnel can easily be assessed by the firm.
Moreover, training activity persuade personnel about the manner in which they need to
perform task. This in turn enables employees to carry out task in the best possible way.
 This tool also enables management team to make proper allocation of financial resources
according the variance level and cause associated with it (Marandu, 2015). Hence, such
tool helps in making proper allocation of financial resources and thereby helps in
achieving success.

Disadvantages: Sometimes variances are occurred due to the failure of management in
relation to the allocation of finance. On the basis of this aspect, budget which is framed in
accordance to the outcome of variance analysis is not highly appropriate (Advantages and
disadvantages of standard costing and variance analysis, 2017). Further, high variance level
negatively affects the motivational aspect of personnel.
Zero base budgeting technique: Unicorn can frame highly realistic and suitable budget by
taking into consideration the zero base technique. In accordance with such technique manager
should start with zero base. On the basis of this aspect, manager requires to make assessment of
each possible way of performing the tasks. In this, manager allocates cost on the basis of
outcome derived through the means of market research and evaluation (McCabe, 2014). Hence,
zero base budgeting techniques is highly effectual which in turn helps in making suitable plan for
the upcoming time period.
Advantages: This budgeting technique facilitates optimum allocation of financial
resources by avoiding the historical numbers. Along with this, such budgeting tool assists in
identifying the cost effective ways of performing tasks and thereby results into reduction in
unproductive activities. The major advantages of such method are that it offers financial plan by
avoiding the limitations of incremental budgeting system such as inflation. In this, manager
considers current market trend or factors while assigning cost to the each activity (Megginson,
Ullah and Wei, 2014). Under zero base budgeting techniques each task and allocated amount is
clearly justified. Thus, it can be presented that zero base technique helps in developing highly
competent monetary plan.
Disadvantages: Zero base technique is highly time intensive process because manager of
the firm has to devote huge amount of time for this purpose. Moreover, in the case of
incremental budgeting manager can easily prepare new framework by adding some percentage.
Along with this, such budgeting system requires high manpower involvement from each
department (Mohanty, 2014). Sometimes, people of each department do not take high level of
interest in framing plan due to having high workload. Lack of high level of expertise also limits
the significance of such method. Moreover, it is highly difficult for the manager to explain each
line of item in a clear and precise manner.

Activity based budgeting: This technique facilitates optimum allocation of cost because
in this amount is assigned on the basis of tasks related with it. Hence, in this, cost incurred at
every functional area has assessed and its relationship is properly defined as well as analyzed
(Mungal and Garbharran, 2014). By considering this it can be stated that activity based
budgeting technique helps in allocating overhead in the best possible way.
Advantages: The main benefits of such method are that it facilitates accurate costing and
thereby helps in presenting the fair view of overhead expenses. This method of budgeting assists
in identifying the manner through which work is done or performed. By employing such
technique Unicorn retail store can set suitable benchmark and thereby would become able to
monitor the performance level.
Disadvantages: In case of ABB technique, higher management has to organize training
session for the personnel. Moreover, high or in-depth understanding level is highly required for
the identification of cost driver and activity (Disadvantages of Activity Based Budgeting, 2017).
In the absence of having proper knowledge regarding this manager would not become able to
frame suitable budget for the upcoming time period.
By making evaluation of all above aspects it is recommended to Unicorn to undertake
combination of methods for budgeting. On the basis of this aspect, firm should employ both
activity based and zero based budgeting technique. Hence, by using such techniques business
entity can make suitable plan for the upcoming time period.
TASK 4
P5 Comparing the system which business unit should adopt for responding financial problems
There are numerous ways through which Unicorn can respond financial problems are as
follows:
 Standard costing system: By applying the tools and techniques of standard costing
system Unicorn can respond to the monetary problems more effectually. Moreover, such
technique is highly effectual which in turn helps in assessing the causes to which
deviations are occurred in the monetary aspect. In this, by considering such causes firm