Management Accounting Report: Analyzing Financial Problems at Unilever

This report provides a comprehensive overview of management accounting principles, using Unilever as a case study. It begins with an explanation of management accounting, its benefits, and different systems, including job costing and cost accounting. The report then delves into various management accounting reporting methods like budget reports, accounts receivable aging, cost reports, and performance reports. The core of the report analyzes costs, preparing an income statement using marginal and absorption costing techniques. Furthermore, the report explores the advantages and disadvantages of planning tools used in budgetary control. Finally, it compares how organizations adapt management accounting systems to respond to financial problems, offering valuable insights into financial strategies and decision-making. The report is a detailed analysis of financial strategies and planning tools used in business.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Explanation of Management Accounting....................................................................................1
Methods of management accounting reporting............................................................................3
TASK 2............................................................................................................................................4
The costs using appropriate techniques of costs analysis to prepare an income statement ........4
TASK 3............................................................................................................................................7
Advantages and disadvantages of different types of planning tools used in budgetary control. .7
TASK 4............................................................................................................................................9
Comparison how the organizations are adapting management accounting systems to respond
to financial problems....................................................................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
The Management accounting refers to the recording of the business transactions on daily
basis. Hence, it consists of the preparation of the financial statements and analysing and
interpreting them. The Managers use various accounting standards and provisions in
management accounting for taking effective managerial decisions. The project report is based on
the Unilever. Unilever is the world's 3rd biggest consumer good company. Its products includes
food and beverage, cleaning agents and beauty products. The Unilever is established in the year
1929 on 2 September. It is founded by the William Lever.
The assignment will explain the management accounting. The project report will explain
the different accounting systems. The report will further determine the different methods used for
accounting reporting. The task of this report will calculate the costs using appropriate techniques
in order to prepare an income statement using marginal and absorption costs.
Furthermore, report will explain the advantages and disadvantages of different types of
planning tools that is being used in budgetary control. Lastly the project report will do
comparison how organizations are responding to financial problems through adapting
management accounting systems.
TASK 1
Explanation of Management Accounting
The study of Management accounting is also called managerial accounting or cost
accounting, this is the method to identify the cost of the operation to prepare the balance report
and sheet records, and this balance sheet help to mangers of an organisation in the different
strategies to achieve the business goals. It can also be refereed as the action of making sense for
the buisness capital and cost data and then translate them into useful capital or the finance that
can help the management and whole business operation of an organisation to take the best
decision (Kaplan and Atkinson, 2015).
Managerial accounting analysis the results that are kept for the business leaders to derive
a decision with the use of the managerial accounting and operate the organisation more
effectively. This cost accounting handles number of different faces of accounting business
which consist forcasting, constrains, valuatoin, and produc costing, trends, capital budgeting,
trends these elements help the management operation of busienss organisation to take the best
decision in order to achieve the overall organisational goal.
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Benefits of Management accounting
This study of accounting is very neccessary and beneficial for any organisation, because, this, is
being used widely in the organisation. Number of advantages of accounting are as follows:
Planning – in the management accounting all the finance related information is to be
show at the regular basis like weekly intervals, to the management of an organisation. This
includes forecast, budgets and in depth analysis. Hence it assist and help the management to
proper planning of the business activities (Manyaeva, Piskunov and Fomin, 2016).
Decision making – As the management accounting present various charts for
management of the Unilever and forecast analysis, this help the management to take different
important decision for the Unilever on the basis of these things.
Strategic management – since the management accounting is not operated by any rules
and law,so the finance management of the Unilever can take decision on any area that require
extra analysis, research and according to it make up strategies that will help the organisation to
achieve its goal.
Identify early sign of problems – If any product or services of the Unilever not performing well
in the market the management can identify it easily and early as the accounts are present at
regular intervals. This will help the Unilever to overcome those problems.
Controlling – Managemnt accounting help the organisation to the controll all the out
flow and inflow of the finance. Wit this they can have controll the access flow of theb fimnance
of the organisation.
Organising – Another benefit that, can get the help o0r organising all the resource of the
organisation. As mainatan account ion the organisation can help to mange and organise all the
operation and act9ivity of the company.
Types of management accounting system
There are number of management accounting system, this play important role via
coordination with the different operation process of the Unilever.
Job costing system – This assigns to the manufacturing cost to each individual products
of the Unilever. The company can use this accounting system to keep track of the products when
they are identical (Chenhall and Moers, 2015).
This is important for the Unilever to estimate the cost of the products and then to decide
the market price of the products by calculating the cost of each individual product.
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Price optimising system – Price optimising system is used where the Unilever have to
decide the range of the multiple products. This accounting system help the Unilever to determine
how demand of their products is fluctuated at different price level. This system consist factors
such as product life cycle, category goals,. And competitors pricing strategy
This pricing accounting system play important role in the pricing strategy of the Unilever.
Unilever use this accounting system as it helps the company to determine pricing structure for
the promotional, initial, discounting pricing.
Cost accounting system – this sytem help th Unilever when the need arises of analysis
of the profitability of the business, inventory and cost control. This help the company to set the
price of thevarious products (Maas, Schaltegger and Crutzen, 2016). This system must be
flexib;e that can heklp te Unilever to change in their pricing at any time as according to the
demand of the market.
Account receivable Aging - This report opf the accounting help to analyse the and
mange all the cash flow of the organisation, if the credit is extened for the cutomers, to the
business. This shows the balance of the cutomers credit, from how long time the have the credit
from te company (Chenhall and Moers, 2015).
Methods of management accounting reporting
Management accounting reports are those reports which provide all kinds of information
that is required to run the business smoothly in long run such as information regarding the trim
costs, investment in areas which would generate maximum profits for the company, rewarding
the efficient employees of the company and reducing the product line by avoiding manufacturing
of unproductive products. There are four methods used for management accounting reporting
and these methods are discussed in detail below:
Budget report – these are most important component of management accounting as they
are concerned with the future plans of the company(Bloomfield, 2015). These are those financial
documents which help the business firms in analysing their performance and based on the results
measures should be taken to control the cost of the organisation and project the future income.
Mostly the budget of the company is based on the actual expenses of the previous year. For
example: managers of Unilever company make use of budgets to provide assistance to the
company in planning production by comparing the actual results with the budgeted details. Apart
from that, owners of the company make use of budgets for the purpose of providing incentives to
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the employees of the company and the basic purpose behind distributing bonus is to meet the
financial goals of a company.
Accounts Receivable Aging – this report plays a very vital role in managing the cash
flow of a company in case the credit given to customers is extended for a certain period of time.
Apart from this, this report even assists the company in breaking down the balance of the
customers based on the duration they owed(Booth, 2018). For example: manager of Unilever
company makes use of accounts receivable aging report for the purpose of finding the problems
associated with the collection process of the company. Apart from this, aging report is prepared
by the company with the objective of analysing the accounts receivable periodically which in
turn helps the collection department to overlook old debts of the company. Furthermore, the
company would tighten its credit policies in case it feels that customers are not able to pay their
debts and the amount due to the company has become bad debts.
Cost reports – these are those reports which help in determining the prices of the articles
based on the expenses incurred in manufacturing them. These reports are of great importance for
the purpose of calculating profit margins because based on the manufacturing cost of the
company and desired amount of profit margins; selling price of the article is determined. Hence,
these reports are of great importance for calculating overall cost of the articles as well as specific
cost of each item(Smith, 2017). For example: Unilever company makes use of cash reports for
the purpose of identifying that areas of business which generate maximum earnings for the
company which in turn helps the company in preventing cost and time to be incurred on
manufacturing the products of low profit margins.
Performance reports – these are those reports which are prepared by a company for the
purpose of evaluating the overall performance of a company as well as the performance of each
and every employee. For example: managers of Unilever company make use of these reports for
making strategic decisions regarding the future of the company as the offer deep insight of the
working of the company. These reports assist the company in identification of flaws within the
company and take the preventive measures to overcome these flaws so that the performance of
the company is improved and this in turn helps in company in achieving its objectives effectively
and efficiently(Weygandt and et.al., 2018).
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TASK 2
The costs using appropriate techniques of costs analysis to prepare an income statement
The costing refers to the estimated cost of producing the units (Alsharari, Dixon and
Youssef, 2015). The Unilever uses absorption costing and marginal costing methodology to
prepare their income statement.
Marginal costing – The marginal costing refers to change in cost which is charged to produced
an additonal quanity per unit.
Marginal cost – The marginal cost refers to the additional cost per unit for producing an extra
quanity.
Marginal costing is calculated by the formula - Direct Material + Direct Labour + Direct
Expenses + Variable Overheads
Absorption costing – The absorption costing indicates the all the manufacturing costs that have
been absorbed to the total units produced. It includes the cost of the -
 Direct material
 Direct Labour
 Variable Manufacturing overhead
 Fixed manufacturing overhead
The Absorption costing formula - Variable production overheads per unit + Fixed production
overheads per unit ( Bloomfield, 2015).
Example – The X limited sells the grocery. Following information are available for the year
ended 30 March 2018.
Particulars £
Sales 100000
Raw material cost 24000
Direct Labour cost 14000
Variable manufacturing overheads 9000
Fixed manufacturing overheads 7000
Variables distribution and administration on
expenses
4500
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Fixed distribution and administration expenses 5000
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Marginal costing Income statement for the year ended 2018
Particulars £ £
Sales revenue
Marginal cost of sales
Direct Materials
Direct Labour
Variable production overheads
Variable distribution and administration
expenses
Contribution
Fixed costs : Production overheads
Distribution and administration expenses
24000
14000
9000
4500
7000
5000
100000
(51500)
48500
(12000)
Net profit 36500
Absorption costing Income statement for the year ended 2018
Particulars £ £
Sales revenue
Marginal cost of sales
Direct Materials
Direct Labour
Variable production overheads
Fixed production overhead
Gross profit
Distribution and
administration costs
Variable
Fixed
24000
14000
9000
7000
4500
5000
100000
(54000)
46000
(9500)
Net profit 36500
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TASK 3
Benefits & disadvantages of several t types of planning tools that are being used in budgetary
type control
It is a procedure of preparing a budget for the future and for various activities. The
preliminary aim of making budget is to find out the variance of actual figures or performance and
budgeted figure in order to take corrective actions. There are some objectives of budgeting such
as: to ensure effective planning, to coordinate of business activities and to increases profitability
(de Campos and Rodrigues, 2016). It has some limitations also as it becomes difficult to prepare
budgets effectively and accurately, it involves a heavy expenses that small businesses can not
afford.
There are different types of budgets such as cash flow, financial and static budget & operating.
Operating budget: An operating budget is an analysis and forecasting about projected
expenses & income within a specific time period. It is important for accountant to analyse all the
factors such as labour costs, overhead, administrative expenses for making an effective operating
budget. This type of budget is being created on yearly, weekly & monthly basis.
Cash flow: Cash flow budget analyse and show about cash flow as when cash come in
and goes out of a business. It is an important and helpful budget that shows the accurate position
of them regarding cash and financial. By preparing this budget, an organisation can manage cash
wisely.
There are some tools and techniques of budgeting such as active based budgeting, zero based
budgeting, traditional budgeting and incremental budgeting.
Budgeting on active based : It is a way of budgeting in which budgets are being made
by using this type of costing. It is made after considering all the overhead costs. It records and
analyse all the activities which lead to cost for an organisation. It has some advantages and
limitations such as:
Advantages
 This budgeting helps in reducing costs as it provides meaningful and useful informations.
 It also helps management of Unilever in order to concentrate on activities that add value
and reduces non value adding activities.
 Informations which are provided by this budgeting helps the management to adopt
approaches that improve productivity such as: Total quality management and business
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process re engineering.
 It provides realistic and accurate costs of manufacturing to the manufacturer of Unilever.
 Active based budgeting also support to identify those processes which have wasted costs.
Disadvantages
 This budgeting collects accurate data and informations but it takes a lot of time.
 This tool is not appropriate and useful for small companies.
 This is useful for those companies who produces a variety of products so it is not
beneficial for companies who produce one or few products (Brusca and Labrador, 2016).
By using this budgeting tool Unilever can easily get valuable informations which can be
used to increase product profit margin and also improve the effectiveness of processes.
Traditional budgeting: Traditional budgeting is other main important tool of budgeting
in which the manager take last year's budget as a base. They make & prepare present year's
budget as they adjust expenditures based on the consumer demands, market situation and
inflation rates (Lorain, M.A., García Domonte, A. and Sastre Peláez, F., 2015). It is an effective
tool that helps the management of Unilever to analyse & predict business's earning and expenses.
It also has some limitations and advantages which are as follows:
Advantages
 This budgeting tool helps in decision making process as it analyses issues easily.
 It is time saving and easier tool to implement.
 It helps the company's functioning as it brings stability in all those functions.
Disadvantages
 This type of budgets are not flexible and it is fixed.
 It relies on only past year's data.
Zero based budgeting: In this type of budgeting all types of expenditures of company
for a new period are being created and calculated on the basis of actual expenditures. The
manager of a company needs to justify every activity and explain the revenue that every cost will
generate for the company. It is an effective method of creating and making the budget with zero
prior bases.
Benefits
 It is effective tool as it helps the management in efficient allocation of resources.
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 This tool also helps in improving communication and coordination which motivates
workers by giving them opportunity to involve in decision making.
Disadvantages
 The main disadvantage of this budgeting is it takes alot of time.
 It needs adequate human resource or manpower.
Incremental budgeting
Incremental budgeting is also a type of traditional budgeting in which a budget is being
made by taking a last period's budget as a base with incremental amount which the accountant
add in the new budget period.
Advantages
 This system and tool is easy to implement and understand.
 It becomes easier to achieve coordination between budgets.
 Impacts of this budget on activities of the company can be seen quickly.
Disadvantages
 It has lack of innovation.
 For achieving favourable variances it encourages management to higher spending.
 It does not consider changes and assumes that everything remains the same as last year.
Capital budgeting: It can be defined as a procedure in which an organisation evaluates
their large investment & expenses. It helps a business in making accurate decisions about the
long term investment of an organisation's capital into all its operations. It has some objectibves
as finding and analysing the right sources for funds and selecting profitble projects.
Net present value: This value is an approach and method that shows the difference
between tehcurrent values of cash outflows and the current values of cash inflows within a
specific and determined time period. This method is being used by acccountant in capital
budgeting in ordecr to analyse the profitability of a project.
Internal rate of return: Internal rate of return is a metric that is also used in the capital
budgeting in oprder to estimate and determine the sales and ability of earning profits of large
potential investment. It is also called a discount rate that creates teh NPV of all cash flows. It is
an annualized rate of earning on investment that a business makes on a project.
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