Sainsbury's Cost Accounting: Efficiency and Limitations

Desklib provides solved assignments and past papers to help students succeed.

BUSINESS STUDIES-REPORT

Table of Contents
INTRODUCTION...........................................................................................................................................3
BODY...........................................................................................................................................................4
COST ACCOUNTING.................................................................................................................................4
IMPORTANCE OF COST ACCOUNTING TO THE SAINSBURY:.....................................................................4
TECHNIQUES AND METHODS OF COST ACCOUNTING USED IN THE SAINSBURY.....................................5
LIMITATIONS OF COST ACCOUNTING FOR SAINSBURY............................................................................5
CONCLUSION...............................................................................................................................................7
REFERENCES................................................................................................................................................8

INTRODUCTION
The retail industry is growing at a faster pace as this sector has more growth opportunities. The
market share of this industry is also growing as a result of this sector can provide more products
that are innovative. This assignment thus covers a report on a well-known and multinational
organization which is Sainsbury. This assignment will cover the cost accounting part of the
Sainsbury. The role of the cost accounting in the success and growth of the Sainsbury and its
Sainsbury is among the largest chain of supermarkets in the UK. Headquarter of Sainsbury is in
London. It has a clear vision to become the most trusted retailers where customers like to have
the maximum customer satisfaction. It is one of the leading food retailers in the UK. It employs
more than 180,000 employees. Sainsbury holds an important market share in the UK market.
Many factors are affecting the company functioning influenced by financial performance.
Sainsbury sources their products and sells these products in the UK supermarket, online and
convenience stores. It also offers financial and banking services with the help of the wholly-
owned subsidiary.

BODY
COST ACCOUNTING
An accounting system is a system that makes available accurate and necessary information for
all those who are having an interest in organizational welfare. The need for the majority is
fulfilled and satisfied with the help of financial accounting. It is important to have the idea of
cost accounting (Kieso et al., 2019).
It is the method of accounting and it includes the process of accounting and recording for all
cost elements. According to the Institute of Cost and Works Accountants, London, it is the
process of accounting for the cost from the point at which the expenses incurred. It uses to
embrace the statistical data preparation, the cost control methods application and also includes
the profitability ascertainment of the activities planned (Schroeder et al., 2019).
Cost accounting is the process and technique for costs ascertainment. It is also the process of
cost accounting that starts with the expenses recording and the bases on which they end with
the statistical data preparation and by which it is calculated.
IMPORTANCE OF COST ACCOUNTING TO THE SAINSBURY:
Costs classification: This involves classification and recording of the costs like prime cost,
factory cost, direct cost, selling costs. This kind of classification allows Sainsbury in controlling
the costs and to have the profitability. This helps to evaluate the efficiency
Cost Controlling: An effective organization have focus to control the cost of the labour,
overhead and inventory cost and cost accounting help Sainsbury in this. For example, for the
achievement of the maximum efficiency in inventory management, Sainsbury can adopt the
EOQ method (Christian, 2018).
Price Determination: Cost accounting helps in making the difference between variable and
fixed costs. This is also being used by the organization for fixing the products prices as per the
product costs. This helps Sainsbury to find the most ideal product price.
Fixing of standards:

Sainsbury uses the standards for estimating the budget of the future. It is being used as a basis
for measuring the actual efficiency of the organization, process and department.
TECHNIQUES AND METHODS OF COST ACCOUNTING USED IN THE SAINSBURY
Being a big organization, the Sainsbury needs to have an idea of the cost of all elements. Many
different cost accounting techniques are used by the Sainsbury. Below is the method of the cost
accounting used by the Sainsbury to record all cost activities and measure all expenses:
Standard Costing System: This system is used by the Sainsbury in which an average cost is
being assigned to each direct costs that are material, labour, overhead etc. associated with the
product for standardization of the cost accounting system (Devine, 2016).
Activity-based costing: This system is used by the Sainsbury for identifying the activities
associated with the processing products and services of Sainsbury. Every single product
assigned with its activity-based coting that represents its extra costs. HR department costs can
be allocated to a part that is based on the total number of employees involved in it.
Cost-volume-profit analysis: It is the process that helps Sainsbury to gain an understanding of
cost behaviour of the merchandises and it provides Sainsbury with the information that helps in
the decision making. Since Sainsbury is covered with the food market merchandising so this
method help Sainsbury to have an understanding of the merchandising costing with the help of
the merchandise costs (Boyd and Pitre, 2019).
LIMITATIONS OF COST ACCOUNTING FOR SAINSBURY
Cost accounting has many advantages for the Sainsbury it is having some of the shortcomings
and which includes high dependency on the predetermined data. Also, there is no uniform
process, as the same information with the different results can arrive with the different cost
accounts. Cost accounting is more expensive and needs reconciliation with financial records.
Cost accounting is having a dependency on the financial statements for a lot of data and
information. There are a lot of estimates and conventions in the preparation of the cost
records. Thus the profit arrives from the cost records are not true always. Cost accounting also

lacks the uniform formats and procedures to prepare the cost information of a product and
service (Schroeder et al., 2019).

CONCLUSION
It can be concluded from this report that cost accounting is an important part of an
organization. Cost accounting plays a vital role in the cost management of Sainsbury. All
expenses have been managed and noted with the help of the cost accounting. The importance
of the cost accounting has also been covered in this report. This report thus has provided an
understanding of the cost accounting system of the Sainsbury. This has also provided the
methods and techniques of the cost accounting system used in the Sainsbury. Further, the
limitation of the cost accounting is also being covered in this report.

REFERENCES
Boyd, J. and Pitre, R., 2019. Creating relevance in managerial accounting. Journal of Education
for Business, pp.1-4
Christian, D., 2018. Building Cost Management: Case Study Using Costing Methods. IJAME
Devine, K., 2016. ACCT 201-02-07-08 Introductory Financial Accounting.
Kieso, D.E., Weygandt, J.J. and Warfield, T.D., 2019. Intermediate accounting. John Wiley &
Sons
Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2019. Financial accounting theory and analysis:
text and cases. John Wiley & Sons