Exploring Management and Cost Accounting in Retail

The document provides a comprehensive examination of management and cost accounting practices specific to the retail sector, emphasizing crucial components like variance analysis, budgetary controls, and performance assessment tools. Variance analysis is used to understand deviations between expected and actual outcomes, enabling retailers to identify areas for financial improvement and operational adjustments. Budgetary controls ensure that expenditures align with strategic goals, promoting fiscal discipline across organizational departments. Performance metrics are vital in gauging the efficiency of retail operations, providing insights into sales performance, cost management, and customer satisfaction. The analysis also covers how these accounting practices can be tailored to meet the dynamic needs of the retail industry, ensuring profitability and competitiveness. Case studies from prominent retailers illustrate the practical application of these techniques, showcasing real-world challenges and solutions in implementing effective financial controls.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P 1 management accounting types of management accounting systems....................................1
P2 Explain different methods used for management accounting reporting................................3
TASK 2............................................................................................................................................4
P3 Preparation of income statements by using marginal and absorption costing methods.......4
TASK 3............................................................................................................................................7
P4 Various planning tools and their advantages/disadvantages..................................................7
TASK 4..........................................................................................................................................11
P5 Comparison between management accounting systems and there role in order to respond
financial constraints..................................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management Accounting is a techniques by which manager make a complete records of
each and every transactions which affect the company's financial performance. It includes
various accounting methods such as costing, budgeting etc. in order to identify the financial
problems which highly affects its level of performance. This report analysis the concept of
management accounting and different types of management accounting system which provides
essential informations. Different methods used by Unicorn retailed company, UK which is used
to make an accounting report effectively. It also describes the process of preparing income
statement by using absorption and marginal costing method. Further, it also describes the
advantages and disadvantage of different planning tools for making effective budgetary control.
At last, it also explains the role of management accounting system to handle or responds for
solving the financial problems in this report.
TASK 1
P 1 management accounting types of management accounting systems
Management accounting is the process of taking part in the decision making through with
the help of accounting statistics. The management accounting is the making financial process to
help the managers to make important decisions regarding the finance and other strategies
(Baldvinsdottir, 2010). The management accounting is the tool which is used by the managers in
the preparation of plans and statical strategies which govern the working of the form. This
system also help the managers to control Unicorn's stores as it makes predictions which provide
the management with standards to compare with the actual figures. This management accounting
also help the company to measure the performance by preparation of various analysis such as
break even point, variance analysis etc. the management of the store is facilitated by the use of
management accounting systems There are various system of accounting which are used in the
accounting process.
 Cost accounting systems : This system of accounting is the most common system. Cost
accounting system is based on recording all the expenses in the books of accounting. This
accounting system focuses on the recording of production cost, all the expenses are
distributed under several heads (Marshall, 2016). The cost accounting system also
predicts the future cost for the production of n number of products with the details of the
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past data available and the money is allocated to the production section according to
those predictions. This system helps the manager of unicorn to record the all the expenses
in the purchase of different products separately under the heads. The system is important
to the managers as they can predict the future performance of the stores with help of
management accounting systems.
 Job costing system : when the business deals in creating authentic products on the
demand of the customers then the job costing method is used. Under this method the cost
of the of each product or service is recorded separately under the different job heads. The
essential requirement of job order costing is to record the cost of each job under a
different job head. Job order costing makes use of different methods costing such as
marginal and absorption. These methods have a different perception towards recording
cost of each job. Unicorn uses this costing process manage the cost incurred in
procurement of product from the different suppliers.
 Inventory management system : The inventory management system is an important part
in the working of the organization. This system helps the management to take a note of
the unicorn's inventory. This system helps the company to also investigate any variations
or any other issue in the inventory. Under this system the recording of expenses incurred
on inventory is also possible (DRURY, 2013). The record for each product is kept
separately in as the product line has to be identified in the many lines in the company.
This helps Unicorn to keep record of the products in the stores with the use of inventory
management and also the cost which has been incurred in the storage and safety of the
inventory in the stores and warehouse. There is a significant importance of the inventory
management system for unicorn.
 Price optimization : This system is vastly used by the business concerns. This system
focuses on taking in consideration the current price at which the company is selling its
products and then helps the management to decide a price at which Unicorn must sell its
products in the store. This system is highly beneficial to Unicorn as it allows it to
compete in the market and also get an edge over its competitors. This system is also
helpful to the management in making policies about the future prices and also deciding
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the objectives of Unicorn. This system is also highly as the maximum profit is attained
under lowest possible prices which increases the revenue of the company.
P2 Explain different methods used for management accounting reporting
It is essential for every organisation to prepare a financial statement for analysing its
current financial position in the competitive market (Schaltegger, Gibassier and Zvezdov, 2013).
It includes various kinds of formats such as balance sheet, income statement, cash flow etc. in
order to make an appropriate management report. It can be said that management accounting
report helps to take a right decision plan, policy which is related to operations of a business. The
management accounting makes a report after the accounting process. In Unicorn retail industry,
there are various kinds of methods used to make an appropriate accounting report. These reports
are of different types. Job costing report : Job costing report comprises of the expenses incurred on the
different product sections. The managers use the job costing report to find out the amount
that has been incurred on a specific job. Unicorn's management uses the job costing
report to find out the cost that has incurred on the purchase of one product from the
suppliers. This report gives the managers the over view of the total expenditure on the
purchase of one product and the price for the product therefore can be adjusted according
the report (Bebbington, 2014). This report helps Unicorn to optimize the prices of its
products. Sales report : Sales report concentrates on the total sales made by Unicorn in the
different segments of and as per diverse products with the cost incurred on each product.
This report helps the management to conclude the profitability of the products sold in the
store differently (Weygandt, 2010). With the help of sales report Unicorn can find out
whether the target of sale for a product has been achieved or not, which helps the
management of company form policies to attain the target in the future. This report is
considered as highly useful to the companies. Inventory management report : Inventory management report helps the management of
Unicorn to review the status of the inventory in the store and warehouse on a given date.
This report also includes the cost incurred on storing the inventory at its places of storage
(Macintosh, 2010). Unicorn can find out the cost incurred in storage of a product with the
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help of inventory management report and this helps the company in deciding the prices.
This concludes that the inventory management report has a particular importance for the
company (Lavia López and Hiebl, 2014). Budget Report: It includes those data and information which is related to the funds which
are required for an organisation. In Unicorn retail company, budget report are prepared to
estimate the actual acquirement of funds in each departments. By using this, manager can
estimate how much money are required in future for implementing a successful business
operations (Simons, 2013). It can be said that budget report helps to forecasting in future
and making effective fund allocation between departments for successful implementation
of business activity. Payroll Report: It includes all the expenditures which are paid by the organisation to
their employees. It may be in the form of wages, salary, bonus etc. which enhance the
capability of workers. By making the payroll report, manager of the cited firm make a
complete records of all the expenses and reduce unnecessary cost which make no effect
on their work performance. It can be said that by making an accounting report, these
kinds of term treated as expenses and it is a part of a management report (Hiebl, 2014). Manufacturing Report: All the expenses which is related to the manufacturing activity
are included in this report. By using this method, Unicorn retail company make complete
records of all the expenses such as providing products and services.
 Report of account receivables: It records those informations of resources by which a
cited firm receives the money at the end of accounting year. It is assumed that if company
receives high money, it means that firm's earning capacity will be high and it generate
profit more.
TASK 2
P3 Preparation of income statements by using marginal and absorption costing methods
To analysis the company's actual performance, it is essential for every business
organisation to prepare their financial statements (Fullerton, Kennedy and Widener, 2014). It
includes preparation of income statement for analysing the estimated profit or loss occur at the
ending of accounting period. Balance sheet also prepare by the firm to analysis the actual
financial position and estimating the position of assets/liability at the end of year ended.
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Furthermore, preparation of cash flow helps the manager to estimate the actual cash requirement
by determining net cash inflow and outflow in an organisation. Unicorn retail industry also
prepare the financial statements in order to analysing its current financial position in the
competitive market. To estimating and calculating the cost and net profit, cited firm adopt two
approaches such as marginal and absorption costing method. Cost and profit calculations are as
follows:
Absorption Costing method: It is a method which assumes that all the manufacturing
cost are absorbed by the production of units. It is also known as a direct costing method because
it includes all the direct material, labour and overheads while calculating the unit produced. Itn is
a useful method to make external financial and income tax reporting.
Calculations of overvalued absorption
Actual fixed production overheads = 2,000
Fixed production overhead absorbed (700*3) = 2,100
Over-absorbed overheads = (100)
Marginal costing method: It is a type of costing method which is used while making a
decision of an organisation. It is a techniques which mainly focuses on the changes which highly
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affects the results and objectives while making a decision process (Fullerton, Kennedy and
Widener, 2013). By calculating the costing through marginal costing, all the variable cost is to be
considered by an organisation and no fixed cost is considered. Hence, it is a sum of all the direct
material, labour, expenses and variable cost so that volume of production and sales will be
increases. To calculate the profit through marginal costing, calculation are as follows:
Calculation of overhead absorption rate for fixed production overhead
= Budgeted fixed production overheads/Number of units
= 1800/600
= 3
Interpretation
From the above calculated table, it describes the financial statements which are different
in various condition. Both the marginal and absorption costing method calculates the profits but
methods does not give same results. While analysing the result, it can said that net profit
calculated from marginal method is higher than absorption costing method's result. Net profit of
cited firm would be £9300 higher whereas in absorption costing the result would be £9600. The
reason behind is that for calculating profit through marginal costing, it includes those
expenditures which can easily converted and move as per the yield of an organisation.
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There are some conditions in which many organisations choose absorption costing
method more suitable and reliable rather than marginal costing approach. The reason behind is
that by the use of absorption approach, fiscal execution in the economical sectors can be done
effectively. Hence, it can be said that it is beneficial for Unicorn Retail Company to adopt
absorption costing approaches by which value will get by deducting all kinds of expenditure
which occurs during a workplace. On the other hand, marginal costing is less uses by the firm
because in this method management cannot identify the actual position of a company. Thus, it
can be concluded that Unicorn Retail Company need both the methods while estimating their
cost and actual financial position in a particular time period.
Difference between marginal and absorption costing method
Basic for Comparison Marginal Costing Absorption Costing
Meaning It is a method which is used to
determine the total cost of
production in an organisation
(DRURY, 2013).
In this cost of production will
be segregated into cost centres
in order to determine the total
cost of production in an
organisation.
Cost Recognition While estimating and
preparing income statements,
only variable cost is take into
the consideration.
Whereas, absorption costing
includes both the fixed and
variable cost while calculating
the profit.
Profitability To calculate the profitability of
a business, profit volume ratio
is used by the manager.
Through absorption costing,
fixed cost will be deducted for
analysing the profitability.
Cost per unit This method is consider the
variance between opening and
closing stock which does not
make any impact on the cost
per unit.
On the other hand, absorption
costing includes variance
between opening and closing
stock and it will make great
impact on cost per unit.
Highlights Contribution per unit is the In this net profit per unit is
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main highlights while
calculating marginal costing.
take into the main factor.
TASK 3
P4 Various planning tools and their advantages/disadvantages
Capital Budgeting tools: It is a process by which firm can take the investment decision
which make positive impact on the growth of a business (Cooper, Ezzame and Qu, 2017).
Unicorn Retail Company also adopt this techniques in order to analysis the performance of
various projects or departments. While analysing the capital budgeting tools various methods
such as Internal rate of return, net present vale, pack back period method etc. will be used. To
analysis the planning tool of Unicorn retail company, example of internal rate of return and net
present vale are as follows:
Internal Rate of Return
Advantages and disadvantages: Capital budgeting helps to take a profitable decision by
which firm will get higher return from their potential investment. By using this methods, Unicorn
retail company determine its return and profitability. It is also useful to analysis the financial
ratio by which cited firm will make effective comparison with the other company in order to
estimate its actual position in the market (Renz, 2016). On the other hand, it also have their some
disadvantages such as this method not considered the cash discounting factors while estimating
its actual budgets. While analysing the ratio by the cited firm, only pre-determined policies and
rules is followed by the firm. It can said that this method not provides accurate results which is
less useful in some conditions.
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Analysis of financial ratios: Ratio analysis is a financial measurement tools which helps
to analysis the trends and actual position of a company by comparing to others (Brandau,
Endenich, Trapp and Hoffjan, 2013). Unicorn retail company uses this method in order to
estimate the actual position in the competitive market. It includes various methods these are as
follows:
 Financial ratio: By using this method cited firm has a complete understanding of all the
liquidity and financial turnover during an accounting period (Otley and Emmanuel,
2013).
 Current ratio: It is useful for the cited firm to calculate the current assets to its current
liability. It shows the actual current position of a company by determining the liquidity
situation of a firm.
In addition to this, there are various kinds of ratios such as profitability, solvency,
liquidity etc. There example are as follows:
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From the calculated table, it is clear that net yield ratio is 22.04% and earning per share
would be 0.97. BY analysing the various facts and data, it can be analysed that total asset
turnover ratio would be 0.82. It means that company has a good net yield.
Advantages and disadvantages: Ratio analysis helps to make effective forecasting and
planning of sales, profits and cost which is useful to estimate the trends in future. It is useful to
make an appropriate budgets (Bodie, 2013). For example, Unicorn retail company prepare the
sales budget with the use of past sales records. By using this method, cited firm can control on
their performance and make inter-firm comparison effectively. Furthermore, ratio analysis also
helps to make a correct decision in relation with supply of goods, bank loans etc. by which
company can achieve their desire goals appropriately. On the other hand, disadvantage of ratio
analysis is that method adopt different accounting policies and uses historical information’s
which do not reflect any current conditions of a cited firm. Another reason is that this method
used quantitative data for analysing the results. Hence, all the qualitative data can be recorded
properly. It is difficult to determine the current price level because value of assets never
remaining same. Unicorn company also face the problems with seasonal effects which highly
affects the financial data of a cited company.
Budgeting: It is a process by which Unicorn retail company making an effective plan. By
using this, cited firm try to manage their funds and utilize them as per the requirement (Morales
and Lambert, 2013). It is essential for every business to set up their financial goals and try ton
ensure the availability of resources and capital in order to achieve their desire goals. Budgeting
in a Unicorn retail company can be implemented by determining various factors such as net cash
position, number of units etc. To identify the issues, cash and labour budgets are using , which
are as follows:
Cash Budget
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