Management Accounting Report: Unilever and Costing Methods

This report provides a comprehensive analysis of management accounting practices within Unilever. It begins with an introduction to management accounting, its role, and different systems, including cost accounting and inventory management. The report then delves into various methods such as financial accounting, financial statement analysis, fund flow analysis, cash flow analysis, marginal costing, budgetary control, ratio analysis, and management reporting, explaining their applications within the company. The benefits of management accounting systems, including planning, controlling, and organizing, are also discussed. Furthermore, the report addresses the preparation of income statements using both absorption and marginal costing. Finally, it compares Unilever's management accounting methods with those of other organizations, evaluating the role of budgets in resolving financial problems, and concludes with a summary of findings and references.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
Role of management accounting and different management accounting system ......................1
Different methods used in management accounting system ......................................................3
Benefits of management accounting systems in select company ...............................................5
LO 2.................................................................................................................................................6
Prepare income statement using both absorption and marginal costing ....................................6
Produce management accounting reports that apply in range of different business activities ...7
LO 3.................................................................................................................................................8
Advantages and disadvantages of planning tools used in budgetary control..............................8
Analysis of different planning tools and its application in preparing budgets............................9
LO 4...............................................................................................................................................10
Comparing the management accounting methods of Unilever with other organisation...........10
Analysis of management accounting method...........................................................................12
Evaluating the role of budget for resolving financial problem.................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15
.......................................................................................................................................................16
APPENDIX....................................................................................................................................17

INTRODUCTION
Management accounting is the display of analysis of business activities to the internal
management to facilitate decisions making. The procedure of making management reports and
accounts which provides accurate and timely financial and statistical data required by managers
to prepare daily and short terms decisions. Management accounting generates monthly and
weekly reports for inside audiences with the company (Elsukova, 2015). These reports show
amount of available cash, generating sales revenues outstanding debts and also includes trends
charts, variance analysis and other applied mathematics. It is the also called as cost accounting
which is procedure of recognizing, measuring, explanation and communicating info to managers
for the movement of objectives of organization. This study is based on Unilever. It is the British
Dutch transnational consumer goods organization in the UK. The products involve food and
drinks, beauty goods and personal care goods.
Furthermore, this report will explain role of management accounting and different
management system in the company. It will state the different methods utilised in management
accounting system. It will prepare income statement using both absorption and marginal costing
in the firm. It will explain use of planning tools utilised in management accounting in the firm. It
will compare different ways of management accounting system by different companies.
LO 1
Role of management accounting and different management accounting system
Management Accounting:
Managers utilise provisions of accounting data in relation to better inform themselves
before they decide matters within their companies like Unilever that helps their management and
execution of control operations. Management accounting is the profession which includes
partnering in administration in management decision making, making planning and performance
management systems (Beattie, 2014). It is the giving expertise in financial reporting and control
to help administration in the formulation and apply of strategy of company which is called as
management accounting. The aim of management accounting is to help managers for making
decisions within the organization. It manages margin analysis to assess profits when weighed
against varying kinds of costs.
Role of management Accounting:
1

Managerial accounting plays an essential role in helping managers to lead the
organization in effective manner.
Make financial strategies:
It is the necessary to formulate financial strategies utilising sales forecasts, budgets and
job costing tool between other managerial accounting methods. It also can integrate information
from financial statement of Unilever to develop strategies which increase gross income, net
profits and earning per share.
Monitor expenditure:
It can create static, flexible, rolling budgets along with another kind of reports which
enable senior leaders and departmental heads to monitor expenditure within Unilever. It is the
essential because operation expenditure have direct effect on bottom line profits.
Communicating:
Managerial accounting plays important role in establishment and maintenance of
communication and reporting system. The report about performance equipped by accountants
communicate essential info to manager (Mihăilă, 2014). It shows them different ways well
manages their actions and highlighting those issues which requires more thorough enquiry by
management by exception action.
Motivating:
Managerial accounting plays essential role in relation to budget and performance reports
which are prepared by accountants have an essential effect in motivating staff of organization
like Unilever. The budgets are targeted intending to motivate managers to accomplish objectives
of company. The performance reports plan to motivate individual execution by communicating
information linked to the targets.
Fewer number of situation:
Managerial accounting does not have to follow norms and principles of financial
accounting within the Unilever. Still, it needs to be accurate, but accountants can present
information, so that non-accountant can easily compass what is going on in the organization.
This aids take the financial information and utilization it to create future plans for operating the
firm ( Luft, Shields and Thomas, 2016).
Looking to future:
2

Managerial accounting focus more on what is to come. Through this, trying to figure out
budget for coming financial year. Management accountant present with predictions of revenue or
list of expected expenditures. Unilever can utilise that info to work put the budget or make other
decisions for the future.
Different methods used in management accounting system
There are different management accounting system like cots accounting, inventory
management system and so on. The aim of management accounting is to help the managers of
company in recognizing and evaluating the outcomes of their judgements. It is also called as cost
accounting which includes preparation of financial reports and statistical data that can assist in
taking long-term and short term management decisions with the organization like Unilever
(Elsukova, 2015). The managerial accounting reports contains all the compulsory details about
cash flow, generating the revenue, detail of stock, payable accounts, debts and other related
statistics. In relation to, there are many methods, tools and techniques used in management
accounting. Also, there are different management accounting system like cots accounting,
inventory management system and so on.
Cost accounting system:
It is also called as costing system which is framework utilised by companies to estimate
the cost of their products for profitability analysis and inventory valuation and controlling of cost
within the Unilever.
Inventory management system:
Inventory management means to the procedure of ordering, storing, and utilising the
stock of firm. These involve management of raw material, elements and finished goods and
warehousing and processing the such items by Unilever.
Methods for management accounting system:
Financial Accounting:
It is the tool which is used in management accounting within the firm. The main objective
of any of business organization is maximising of profits. This aim is accomplished by making
proper financial planning with in Unilever. Therefore, financial planning is considered as the
best technique or method for accomplishing the objectives of company.
Financial statement analysis:
3

It is the tool which is used in management accounting within the firm. Profits & loss and
balance sheet are essential financial statements. These statements are examined for different
period (Beattie, 2014). This kind of investigation aids the management to know the rate of
growth of business concern. This examination is done through comparative financial statement,
common size statement and ratio analysis. This kind of technique help to achieve the objective of
Unilever.
Fund flow analysis:
It is the tool which is used in management accounting within the firm. This analysis
discovers the movement of fund from one period to another. Furthermore, fund flow analysis is
very useful to know whether the fund is properly utilised or not in year when compared to the
past year. The working capital modification and funds from operation are also discovered out
through fund flow analysis. This kind of technique help to achieve the objective of Unilever.
Cash flow analysis:
It is the tool which is used in management accounting within the firm. The change of
cash from one period to another can be discover through cash flow analysis (Mihăilă, 2014).
Also, the reason for cash balance and modification among two periods are also found out. It
studies the cash from operation and movement of cash in period. This kind of technique help to
achieve the objective of Unilever.
Marginal costing:
It is the tool which is used in management accounting within the firm. This technique or
method is utilised to fix selling price, selection of the best sale mix, utilization of rare raw
material or resources for making the decisions, acceptance or rejection of majority order and
international order. It is the based on fixed, variable cost and contribution. This kind of technique
help to achieve the objective of Unilever.
Budgetary control:
It is the tool which is used in management accounting within the firm. Future financial
requirements are estimated and managed according to an orderly basis under budgetary control
method ( Luft, Shields and Thomas, 2016.). It is utilised to control the fiscal execution of
business concern. Business operations are managed in desired direction. This kind of technique
help to achieve the objective of Unilever.
Ratio Analysis:
4

It is the tool which is used in management accounting within the firm. Ratio analysis is
utilised to management in the discharge of basic operations of forecasting, planning,
coordination, communication and control. It is setting the way for effective control of operations
of business by undertaking an appraisal of both physical and monetary targets. This kind of
technique help to achieve the objective of Unilever.
Management reporting:
It is the tool which is used in management accounting within the firm. It is preparing the
report on the basis of contents of profits & loss account and balance sheet as well as submit the
same before the top management. Therefore, prepared reports disclose the strength and weakness
indifferent areas of operating and financial actions (Drake, Roulstone and Thornock, 2016).
These recognitions are highly useful to management for workout control and decision making.
This kind of technique help to achieve the objective of the Unilever.
Benefits of management accounting systems in select company
Management accounting is very advantageous which is being utilised broadly. The
benefits are as follows:
Cost accounting system:
It is the tool which is used in management accounting within the firm. It presents cost
data in according to product, department, branch etc. These cost information re compared with
planned one. This comparison of two costs allows the management to decide the cause
responsible for the difference among these costs. This kind of technique help to achieve the
objective of Unilever. The management can take decisions about continuing product or changing
the sale strategy. Management accounting is not regulated by any law, the management can
decide areas which requires more analysis, investigation and accordingly draw up strategies.
Planning:
Management accounting play role in planning in which aids set future plan, accounting
information utilised in the procedure of decisions making. It plays crucial role in short terms
planning procedure within the Unilever. With this, company establish budget process and
prepares schedules and coordinates short terms plans on all business department (Lavia López
and Hiebl, 2014).
Controlling:
5

Management accounting is useful for the control procedure because it draws up
performance reports which compare the actual to budgeted revenue for each responsibility
center. It helps the control function giving immediate activities measures and recognizing
problems (Management Accounting – Meaning, Advantages & Functions, 2018). Managers are
warned about those specific actions which are not according to the plan as management
accounting.
Organizing:
It is identifying components of organizational structure more relevant and important for
proper functioning of the management accounting system which enables the preparation of
internal reporting system for this structure and suggest more appropriate organizational structure
of the Unilever. The organizational structure is handling with authority, accountability and
expertise to ensure real performance of firm (Maas, Schaltegger and Crutzen, 2016). For that,
managerial accounting is designing and applying accounting system to better define and modify
these connections.
LO 2
Prepare income statement using both absorption and marginal costing
In the given scenarios, the following figures are been stated as follows-
Per unit- (£)
Sales price: 50
Direct cost of material: 18
Direct wages: 4
Variable overhead production: 3
In addition to this company incurs fixed overheads' production for each month amounting to-
Fixed overhead production: 99000
Fixed overhead in terms of selling: 14000
Fixed overhead relating to administration: 26000
The variable overheads selling was 10% of the volume of sales. Furthermore, an entity normally
produce 11000 units of the per month production and the value of production and the sales for
the month of November and December equated as follows-
6

November (in units ) December (in units )
Sales 10000 12000
Production 12000 10000
Calculate net profit by applying absorption and marginal costing method and also over and the
under absorption of the fixed overhead production.
7

8

Preparation of income statement by using absorption cost method
9

Calculation of over and under absorption for November and December month
Months
Production
unit O/H unit
Total
overhead O/H incurred
Over/ under
absorption
November 12000 9 108000 99000 9000
December 10000 9 90000 99000 -9000
Interpretation- From the above table it has been interpreted that net profit resulted by
using the absorption costing method is higher than the marginal costing method that is 183000
from absorption costing method and 101000 from marginal costing method. This means that
absorption costing method provides for correct evaluation of the profits as it considers both fixed
and variable overhead production cost whereas marginal costing method does not give true profit
outcome as it ignores fixed overhead cost that occurs in production of an article. Over and under-
absorption resulted as 9000 for the month of November and -9000 for December.
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