Management Accounting Report: Analysis of Sainsbury's Performance

This report provides a comprehensive analysis of management accounting principles and their application within the context of Sainsbury's business operations. It begins with an executive summary, followed by an in-depth exploration of management accounting tools and techniques, including costing, budgeting, and investment analysis. The report examines different methods of management accounting reporting, such as accounts receivable reports, performance reports, and trend analysis, highlighting their benefits for organizational efficiency and profitability. A critical evaluation of the integration of management accounting systems within Sainsbury is presented, along with an analysis of planning tools like standard costing and break-even analysis. Furthermore, the report includes a practical application of management accounting through the calculation of an income statement under absorption and marginal costing for Deniz Ltd, followed by an analysis of its financial performance. The report emphasizes the importance of management accounting in improving organizational efficiency, raising profitability, and facilitating informed financial decision-making. The report also highlights the benefits of inventory management and the Just-in-time method. The conclusion summarizes the key findings and offers recommendations for Sainsbury to optimize its financial strategies and achieve its business objectives.

MANAGEMENT
ACCOUNTING

EXECUTIVE SUMMARY
This report has been explained and identified the importance and requirement of the
management accounting tools and techniques with the help of which the Sainsbury company can
develop positive business performance. This report has been also covered the different methods
of management accounting reporting and system along with their benefits to the Sainsbury
company. Furthermore, the report has been integrated and apply the management accounting
systems within the Sainsbury organization with the help of which they can manage the inventory
and cost of production of the products.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
TASK 1............................................................................................................................................4
A.) Management accounting and requirement of its different types...........................................4
B) Different methods of management accounting reporting.......................................................5
C) Benefits of management accounting system in organisation..................................................6
D. Critical evaluation of the integration of management accounting system and reporting
within Sainsbury company..........................................................................................................7
E. Analysis of the two-planning tool of management accounting...............................................8
CONCLUSION................................................................................................................................9
RECOMMENDATION...................................................................................................................9
TASK 2..........................................................................................................................................10
Part A Calculation of Income Statement Under Absorption and Marginal costing of Deniz ltd.
...................................................................................................................................................10
Part B Analysis of the financial performance of Deniz ltd.......................................................12
TASK 3..........................................................................................................................................16
A.)..............................................................................................................................................16
B.)..............................................................................................................................................17
REFERENCES................................................................................................................................1

TASK 1
A.) Management accounting and requirement of its different types
Management accounting is the accounting which is used by management of an organisation. It is
used to interpret, identify and analyse information to be recorded as per accounting rules which
can help in organisation to achieve short-term as well as long-term goals and objectives.
Sainsbury uses management accounting to record transactions as well as make planning and
investment decisions.
Requirements of different types of management accounting
Costing of product: It helps in knowing cost of production, by gathering data of all direct and
indirect costs gone in production and then adding them. The total number of units produced is
then divided by this cost and thus cost per unit is found out. It thus helps in knowing the
operational costs and where it can be identified to minimize the costs (White, 2019).
Budgeting: Different department costs have to be identified and budgets have to be prepared for
financial year. Sainsbury has various departments for whose separate budget is made.
Management accounting techniques help in budget accuracy, gauging demand of each
department and analysing performance through these budgets of employees as well as
departments of who have performed according to set budgetary constraints (Wadan and
Teuteberg, 2019).
Investment analysis: It is a requirement of any organisation that choosing of a investment
technique has to be done after analysing its merits and demerits. Here comes the use of
investment analysis by methods like NPV and IRR with the former using time value of money to
take estimated values of future cash flows which organisation shall receive. Management
accounting through inclusion of these financial management techniques helps Sainsbury take
investment decisions such as opening a new branch and investing in a new category product.

B) Different methods of management accounting reporting
Accounts receivable reports: Sainsbury, like any other organisation, has account receivable.
Suppliers or debtors do not have money instantly to be given and thus payments are deferred to
be taken later. However, the time line of these account receivables should not be long. Credit has
to be divided in a time line which management accounting does in these reports bifurcating
credit in number of days like 30 days, 60 days, 90 days and so on. Report is made on who paid
on time and who has delayed payments. This also helps company review the credit policy with
people if the receivables period is extending more than usual. Thus, it helps in having check on
receivables which account for money to be used in working capital (Azudin and Mansor, 2018).
Performance reports: Performance reports are made on the basis of how the employees have been
performing and whether they have been able to meet the targets set by the managers. Similarly,
department wise performance metrics are set of which department was able to perform up to the
mark. This is done by setting budget constraints in which the departments have to perform with
responsibility centres being assigned to the employees to check on their performance. It provides
a strategy towards achieving objectives as in case of Sainsbury to be reached with accuracy
(Wadan and Teuteberg, 2019).
Analysing Trends Report
Historical parameters pertaining to consumer demographic patterns must be kept in mind by the
company. Accounting data helps managers decide where money should be spent and which
customer categories should be targeted. These figures can help Sainsbury find out who is more
likely to buy its products and what the customer dynamics are; sales volume can also be
measured to see how each product performs in its own category.
Leverage in Finance Reports
It means the company takes out a loan to purchase new assets or expand its activities. Ratios can
be used to determine whether a company is taking on the right amount of debt or too much debt,
which can stifle a company's liquidity. A mix of equity and debt is recommended by
management accountants. Sainsbury will be able to maintain a healthy balance of equity and debt

because it will be aware of the negative repercussions of excessive debt and, as a result, will look
for ways to increase equity.
Inventory Turnover Analysis Report
Managers track inventory storage expenses in addition to how soon product is sold. This assists
in making decisions about the number of units to be created or the amount of inventory to be
purchased. If the business has extra storage costs, it must find a strategy to deal with them and
reduce them so that funds can be used for operations. The amount of inventory that must be
brought in to minimise excess costs is known as the economic order quantity. Sainsbury would
be able to order on demand with the help of Economic Order quantity, lowering inventory
storage expenses. The money saved can then be invested in research and development (Pelz,
2019).
Costing reports
The total number of items produced is split by the direct and indirect costs, variable and fixed
costs, and other overhead charges. This aids in determining the business's cost per unit of goods
produced as well as the product's price. This is accomplished by calculating profit margin and
then selling the commodity for sale. As a result, it facilitates in the realisation of benefits.
Sainsbury will receive assistance in identifying their operational expenses, as well as where to
minimise costs and how to advertise their products to increase revenues.
C) Benefits of management accounting system in organisation
 Improvement in organizational efficiency: Sainsbury can increase its efficiency by
analysing and comparing results. In essence, Management Accounting indirectly
contributes to motivating employees and supporting them in completing their daily
objectives on time. Employees are promoted based on their performance, which enhances
the company's total efficiency, according to Management Accounting (White, 2019).
 Raising bar on profitability: Management accounting techniques like capital budgeting
and budgetary management help the company regulate and reduce additional and
unnecessary costs, resulting in a boost in Sainsbury's profitability.

 Simplifies financial statement decision-making: For management accountant decision-
making, a proper and succinct financial statement containing facts and a plain
explanation is essential. This aids the accountant in making the most advantageous
decisions for Sainsbury.
 Allowing for monetary fund fluctuations in a business: The organization's financial
resources are the most pressing issue that requires extra attention. Because this fund can
be used in an emergency or when there is a compelling need. Management accounting
also aids the organisation in discovering and reducing financial theft sources.
 Cost transparency: Information technology accounts for the majority of a company's
revenues and costs, and management accounting works closely with IT departments to
provide cost transparency to the business. This is an advantage for Sainsbury (Pelz,
2019).
 Flexibility and freedom: Management accounting is a multifaceted discipline that does
not require monthly or annual reporting. As a result, the accountant has sufficient time to
write an exact, significant, and flawless report in order to make the greatest option
feasible.
D. Critical evaluation of the integration of management accounting system and reporting within
Sainsbury company
With the integration of inventory management system, the Sainsbury company are able to
manage and control its inventory at the warehouse and also analyse and eliminate the
unnecessary stocks from the stores to manage the space. If the company really wants to deliver
and make the availability of the products on time at the stores and the customer doorstep. Then
they have to apply the Just in time method of the inventory management accounting report. Not
only that, the budgetary management system helps the Sainsbury company in analysing and
interpretating the expected figures of the raw material, cost and sales revenue by preparing the
various budgets report (Vaivio, 2018). And then after the company can apply the variance
analysis of the MA reports to identify the gap between the actual one and expected one and in
case of any adverse result, they can adopt proper strategy to remove the variance.

Management accounting helps the company in maintain the coordination among the
departments because for preparing the budgets gathering information from each department is
necessary. By using the activity-based costing the managers of Sainsbury ltd. can allocate the
cost on the basis of the activity occur to produce food products. By this the unprofitable and low
performance activity can be identifiable as well as removable (Ezzamel and et.al., 2020).
Implication of management accounting helps the company in planning the finances for the
growth of the business and with the help of which the Sainsbury can enter the new international
markets for expansion purpose. However, such integration may also bring clashes among the
departments and employees if the company unable to communicate properly with them. So, it is
important for the company that before implementing MA they must minimize the
communication gap if any and keep motivated their staffs.
E. Analysis of the two-planning tool of management accounting
The two planning tools of the management accounting are as follow:
Standard costing tool
By adopting this tool, the company are able to identify the gap between the actual figures and
standard figures and also adopt the strategy to remove the discrepancies and improve the cost
control. Basically, standard costing tool is the most effective tool which provide the quick
estimates of the budgeted cost and prepare accurate report on time. Not only that, this will
definitely allow the management of the Sainsbury company to take proper decision after the
identification of the variance (Atkinson and et.al., 2021). It also helps the company in knowing
the area which causes the variance and then take the decision to either eliminate their area or
need to improve it.
Once the managers of the company controlled the cost of production than in future the
difference between the standard and actual figure will get minimize and this habit help the
company in increasing the profitability (Baxter and Chua, 2019). With the implementation of
standard costing system, the chances of low production cost get increases and it is because this
tool helps the managers in identifying and analysing the spending habits of the company. And
the impact of which the employees of the company became more cost-conscious than ever
before.
Break-even Analysis tool

This is tool with the help of which the Sainsbury company’s management able to identify
the sales point where they neither earn profit nor incur loses. It is basically a very effective tool
of MA by using which the management of the company can plan its profits and also improve its
profit performance. And the profit performance of the company gets improve by either
increasing the sales volume or increasing the selling price of the products. The management of
the Sainsbury need to understand that the margin of safety increases if the break-even sales of the
company decrease. It is because it provides the idea amount the contribution which is the
difference between the sales revenue and variable cost of the products. And the break-even sales
are a point where the fixed cost and contribution is equal (Drury, 2017).
So, after identification of this knowledge they can adopt the strategy to reduce the fixed
and variable cost of the company. With the help of this chart, the company are able to prepare a
proper budget of the company (Innes and Mitchell, 2021). By using the break-even analysis, the
company able to predict the factors which affect the selling price of the products and changes it
over the period of time. This also helps the Sainsbury company in analysing the relationship
between the fixed and variable cost.
CONCLUSION
This report concludes the importance of management accounting in the Sainsbury company
and how the use and adoption of MA systems and reporting helps the management in improving
the operational and financial performance of the company. The report also concludes the two
most important and effective planning tool of MA with the help of which the company can
prepare accurate budgets.
RECOMMENDATION
From the above report and different management accounting analysis, it is recommended to
the Sainsbury company that they must adopt the management accounting systems within their
organization. It is because this helps them in identifying the exact cost and preparing the accurate
budgets of the company. It is also recommended to the company that they must use the Just-in-
time inventory management approach in order to deliver the products at the warehouse and
supermarket on time (Hemmer, 2020). This will further help in delivering the products to the

customers on time. This also helps the company in selecting the best and profitable investment
plan via investment appraisal techniques of management accounting.
TASK 2
Part A Calculation of Income Statement Under Absorption and Marginal costing of Deniz ltd.
Income statement
For the May and June
(Under Absorption costing)
Particulars May
Details
Amount (£) June
Details
Amount (£)
Sales Revenue 320000*14.75 4720000 305000*14.75 4498750
Less Cost of goods
sold:
Opening stock 0 - 0 -
Add cost of
production
3018000
(320000*9.43125)
Note1
3018000
(320000*9.43125)
Less Closing stock - - (141469)
(15000*9.43125)
(3018000) (2876531)
Gross Profit 1702000 1622219
Less Fixed selling
and Administration
overheads
- -
Net Profit 1702000 1622219
Note1 Calculation of Production cost per unit
Particular May and June
Direct Material 3.1
(992000/320000)
Direct Labour 4.3

(1376000/320000)
Fixed Production overheads 2.03125
(650000/320000)
Total production cost per unit 9.43125
Income Statement
For the May and June
(Under Marginal Costing)
Particular May
Details
Amount (£) June
Details
Amount (£)
Sales Revenue 320000*14.75 4720000 305000*14.75 4498750
Less Variable cost
Opening stock 0 - 0 -
Add cost of
production
2368000
(320000*7.4)
2368000
(320000*7.4)
Less Closing stock (111000)
(15000*7.4)
(2368000) (2257000)
Contribution 2352000 2241750
Less Fixed
production cost
(650000) (650000)
Less Fixed selling
and administration
cost
- -
Net Profit 1702000 1591750
Note1 Calculation of Variable cost per unit
Particular May and June
Direct Material 3.1
Direct Labour 4.3

Total variable cost per unit 7.4
Part B Analysis of the financial performance of Deniz ltd.
Ratios Analysis
Particulars Formula 2018 2019 2020
($) million ($) million ($)
million
Liquidity Ratios
Current Assets 42 48 61.8
Current
Liabilities
77.3 96.6 116.5
Stock 22.4 24.6 31.0
Quick assets Current Assets – Stock 19.6 23.4 30.8
Current Ratio Current Assets / Current Liabilities 0.54 0.50 0.53
Quick Ratio Quick Assets/ Current Liabilities 0.25 0.24 0.26
Profitability Ratios
Net Income 5.4 5.1 5.7
Net Sales 62.5 78.7 95
EBIT/ operating
profit
13.5 14.7 17.5
Total Assets 256.6 311.9 392.8
Current
Liabilities
77.3 96.6 116.5
Capital
Employed
Total assets – Current liabilities 179.3 215.3 276.3
Net profit Ratio Net Profit/ Net Sales * 100 8.64% 6.48% 6%
Return on
Capital
EBIT/ Capital Employed * 100 7.53% 6.83% 6.33%