Management Accounting Report: Financial Analysis for Unicorn Groceries

This report provides a detailed analysis of management accounting systems and their application within Unicorn Groceries, a business that offers a wide range of groceries to its customers. The report begins by explaining the essential requirements of management accounting systems, including job costing, expenditure accounting, inventory systems, and price optimization. It then presents various methods for management accounting reporting, such as budget reports, job cost reports, accounts receivable aging, and inventory reports. Furthermore, the report delves into the calculation of costs using both absorption and marginal costing systems, providing detailed profit and loss statements and a reconciliation of profit figures. The report also explores the advantages and disadvantages of different planning tools used for budgetary control. Finally, it examines how Unicorn Groceries utilizes management accounting systems to address financial challenges, making it a comprehensive resource for understanding and applying management accounting principles in a real-world business context.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
P 1 Explaining and evaluating management accounting systems and its essential requirements
within business............................................................................................................................3
P 2 Presenting different methods which can be used for management accounting reporting ....5
P 3 Calculating cost using absorption and marginal costing system ..........................................6
P 4 Explaining advantages and disadvantages of different types of planning tools which can
be used for budgetary control....................................................................................................10
P 5 Comparing ways in which organization is using management accounting system for
dealing with financial problems................................................................................................15
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting may be served as a process which in turn plays emphasis on
preparing managerial reports that aid in short term decision making. In the recent times, fore
taking profitable business decisions companies make focus on the adoption of management
accounting tools and techniques. The present report is based on Unicorn which provides
customers with wide range of choices in groceries. In this, the present report will provide deeper
insight about the requirements of management accounting tools in the context of business
organization. Along with this, it also depicts how managerial report helps in developing
competent and strategic policy framework for the near future. This report will also shed light on
the appropriateness of costing system which can be used for cost and profit assessment. In
addition to this, planning tools which can be used by Unicorn for better financial decisions will
also be discussed. Further, report also entails MA techniques which assist in responding
monetary problems effectually.
P 1 Explaining and evaluating management accounting systems and its essential requirements
within business
Management accounting is the process of identification, measurement, analysis,
interpretation and communication pertaining to information which manager undertakes for the
pursuit of an organizational goals (Management Accounting, 2019). With regards to Unicorn,
management accounting is highly significant which helps manager in making profitable
decisions. By using management accounting system business unit can manage its operations
more effectually and thereby enhances profitability aspect.
Job costing
In Unicorn, Operation costing means collecting all the cost such as material, labour and
specific overheads related to the one operation.
Advantages Disadvantages
 Assists in determining profitability
aspect of each task
 Offers basis for estimating cost of
similar jobs
 Provides with detailed assessment
regarding material, labour and overhead
 Needs more clerical work
 Lack of operation standardization
under this costing system
Highly expensive over others

cost
Expenditure accounting
Each business unit produces and sells product with the motive to generate high profit
margin. In this, it is required for the company to make assessment of per unit expenditure.
Hence, by assessing direct and indirect expenses associated with product Unicorn can determine
per unit cost. By dividing total cost from number of units produced cost per unit can be
calculated (Chenhall and Moers, 2015). Hence, by adding profit margin into per unit
consumption price can be calculated by Unicorn.
Advantages Disadvantages
 Helps in controlling financial
performance as it gives input for
standard costing
 Facilitates ascertainment of unit
production cost
 Helps in setting prices of the products
or services
 Complex in nature
 Expensive and time intensive in nature
Inventory system
Inventory system is the ongoing process of moving goods into and out of a company's
location. With regards to Unicorn effective management of inventory is highly required because
it place direct impact on cost aspect. Hence, for managing both cost and profit firm should focus
on undertaking LIFO, FIFO, EOQ etc method. Moreover, economic order quantity method
clearly presents units which need to be maintained within an organization (Elliot and et.al.,
2018). This in turn exerts control on both holding as well as ordering and thereby increases profit
margin.
Advantages Disadvantages
 Tracking of inventory level becomes
easier
 Control cost and maximizes profit
 Time consuming profit
 Need highly skilled personnel

Price optimization system
In the competitive business arena, Unicorn can attain success only when it offers products
or services at suitable cost. Moreover, now customers are looking for the retailer which offers
products or services to the customers at affordable prices. Thus, by undertaking price
optimization system business unit can assess price on which product needs to offered for
influencing customer decision making and gaining competitive edge (Kaplan and Atkinson,
2015).
Advantages Disadvantages
 Helps in setting pricing policies
 Assists in building strong customer
base
 Employees need training for operating
such software
 Expensive
P 2 Presenting different methods which can be used for management accounting reporting
Management Reports means the reports needed by different departments in order to take
the decisions for the company. As per MA, several methods are available which can be
undertaken by the firm for reporting and decision making purpose. Hence, by taking into account
below mentioned reports Unicorn can assess departmental performance and thereby would
become able to appropriate business decisions.
Budget report
This report enables manager to analyse business performance, in the context of all
departments and thereby control cost. Budget report clearly presents variances take place in the
income and expense level of firm over standards. Hence, considering the causes of variance firm
can set suitable monetary budget for upcoming time period (Kylili, Fokaides and Jimenez, 2016).
In addition to this, budget report also enables firm to measure as well as evaluate employee’s
performance and provide them with incentives.
Job cost report
It presents expenditure which associated with different project within business unit. Job
cost report is used by the firm to evaluate the figure of revenue in against to estimation with the
motive to determine profitability aspect. Job cost report provides assistance in high performing
areas so that better efforts can be made.
Accounts receivable ageing

In the context of business unit, accounts receivable ageing report is highly significant
which helps in managing cash flow to a great extent. As, it clearly exhibits time period for which
credit is taken by the customers. For instance: By undertaking this report, manager of Unicorn
would become able to assess customers or creditors who making payments within the period of
30, 60 and 90 days. Hence, using this report manager can assess problems which take place in
collection process of firm. In this way, such report helps in identifying customers who unable to
pay their balances. Considering all such aspects Unicorn can tighten its credit policies and
thereby reduce the level of defaults.
Inventory and manufacturing report
Unicorn can make manufacturing process more effective and efficient by using stock
report. Moreover, stock report contains information about physical inventory or products,
wastage level, hourly labour or per unit overhead cost. Thus, different assembly lines within
business unit can be compared easily through the means of inventory report (Van der Stede,
2015). This in turn gives clear indication about best performing departments and areas which still
require improvement.
P 3 Calculating cost using absorption and marginal costing system
Cost means the amount which is charged for any particular good by the customers. In
marginal costing system, the losing inventory is calculated by taking only variable expenses in
the account. Under absorption costing system, fixed and variable both the expenses are taken into
account while calculating closing inventory.
In the following P&L (profit and loss statements) the figures in green have been calculated
properly. Instead the figures in yellow, have not been correctly estimated or are calculations
which are not part of the P&L statement. For instance, the production cost per unit concepts must
not be included in the P&L statement. The conciliation of accounts is right
Marginal costing system
Particulars Cost per unit (in £)
Direct Material 8
Direct Labour 5
Variable O/H 3
Marginal cost per unit 16

Particulars Cost per unit (in £)
Selling price 50
-Marginal cost per unit -16
-variable selling price -2.50
Contribution per unit 31.50
Particulars Figures (in £) Figures (in £)
May: Figures
(in £)
Sales 16000
Cost of sales:
Opening inventory 0
Material (500*8) 4000
Labour (500*5) 2500
Variable o/h (500*3) 1500
8000
-Closing inventory (200*16) -3200.00
-4800
10200
-Variable selling cost -750
Contribution 9450
-Fixed costs -10000
Actual Net profit/(Net Loss) -550
Particulars Figures (in £) Figures (in £)
June: Figures
(in £)
Sales (500*50) 25000
Cost of sales:
Opening inventory (200*16) 3200
Material (380*8) 3040
Labour (380*5) 1900

Variable o/h (380*3) 1140
9280
-Closing inventory (80*16) -1280
-8000
17000
-Variable selling cost -1250
Contribution 15750
-Fixed costs -10000
Actual Net profit/(Net Loss) 5750
Absorption costing system
Computation of cost per unit
Particulars Figures (in £)
Direct Material 8
Direct Labour 5
Variable O/H 3
Absorption cost per unit 26
Particulars Figures (in £) Figures (in £)
May: Figures
(in £)
Sales (300*50) 15000
Cost of sales:
Opening inventory 0
Production cost (500*26) 13000
-Closing inventory (200*26) -5200
-7800
(Under)/ Over absorbed Fixed
production o/ h 1000

Gross Profit/Loss 8200
-Variable selling cost -750
-Fixed administration -2000
-Fixed selling -4000
Actual Net profit/(Net Loss) 1450
Particulars
Figures (in £) Figures (in £)
June: Figures
(in £)
Sales (500*50) 25000
Cost of sales:
Opening inventory 5200
Production cost (380*26) 9880
-Closing inventory (80*26) -2080
-13000
(Under)/ Over absorbed Fixed
production o/ h -200
Gross Profit/Loss 11800
-Variable selling cost -1250
-Fixed administration -2000
-Fixed selling -4000
Actual Net profit/(Net Loss) 4550
The accounts in the red circles are not part of any profit and loss statement.
Reconciliation of profit figures
Particulars May June
Profit under absorption 1450 4550
Difference in units of inventory
Fixed production overhead (200 units *£10) (120 units* £10)
2000 1200

Profit under marginal costing -550 5750
Under the marginal costing and absorption costing there is main difference of charging
the fixed cost in the valuation of the closing inventory. The valuation of closing inventory under
Marginal costing does not include the fixed costs because it only includes the variable cost
related to the production of the units.
In absorption costing, the valuation of closing inventory charges the fixed costs per unit on
the production of the normal output in the company. Absorption Costing considers all the costs
related to the production of the units which are absorbed by the company.
In the above illustration there is over absorption of the cost in the month of May due to the
increase in the fixed costs absorption. In the month of June there is under absorption of the costs
because of the units of closing inventory were less in Month of June.
Calculation of Actual performance of the company with the budgeted performance of
the company
Budgeted and Actual cost of metal generating the Product “A”
Budgeted material cost per unit of the product 2 kg at 10£/ kg
Actual Output 1000 units
Actual material purchased and used 2200 kgs
Actual material cost £20,900.00
Budget of Production
Actual output in units 1000
Kgs Budgeted per unit 2
Cost in £ per unit (each 2 kg. ) of material 10
Actual material purchased and used in £ 20900
Total cost of material a budgeted in £ 20000
Actual Costs in £

20900
Total variance
-900
Costs variance per unit in £
-0.9
Percentage (%) of variance
-4.50%
Budgeted
material cost
per unit of the
product £
Differential
per unit in £
Actual cost
per unit
10 0.5 9.5
Material price
variance=
Differential in
cost per unit
in £ *
Actual usage
in kgs
Material price
variance= 0.5 * 2200
Material price
variance= 1100 Favourable
Material usage
variance
Actual output
(units) *
Actual usage
(2 kg per
unit ) *
Budgeted
price

Material usage
variance 1000 * 2 10
Budgeted use kgs. 2000
Actual use in kgs. 2200
Differential -200
Differential in £ -2000
Unfavourable
Galway Plc material cost is been increased due to the increase in the raw material of the
company. Company has absorbed more units of raw material than the budgeted units of raw
material (Song and et.al 2017). Company’s per unit cost has been decreased but overall cost is
increased due to the over absorption of raw material.
Calculation purchases and raw material (metal) during the month of May by using
LIFO method-
Inventory ledger record for May under the LIFO valuation method
Date
Refere
nce
Purch
ase Issues
Balanc
e
(Inven
tory)
Units
£/
Units
£
Total Units
£/
Units
£
Total Units
£/
Units
£
Total
37012
Previo
us
balanc
e
(inven
tory) 50 3 150