Management Accounting Report: Unilever vs. Nestle Financial Analysis

This report delves into the realm of management accounting, specifically focusing on the application of various techniques within Unilever. It begins with an overview of management accounting systems, differentiating between managerial and financial accounting, and highlighting key tools like budgets and performance reports. The report then provides a detailed background of Unilever, its business categories, organizational structure, and inventory management issues. Different types of management accounting are discussed, including prize optimization, cost accounting, and inventory management systems, along with their benefits and applications. Furthermore, the report presents income statements using marginal and absorption costing methods to analyze Unilever's financial performance. The report also explores budgetary control and compares Unilever's financial problem responses with those of Nestle, offering a comprehensive analysis of management accounting practices in the consumer goods industry.

Management Accounting

Introduction:
Considering the concerns of business accounting is a crucial term directly related to
product development and profitability. There are two broad categories of accounting and they are
managerial accounting and financial accounting. The financial accounting manages the external
factors for the organizations including the stakeholders and investors while the managerial
accounting deals with the internal factors of the organization. Moreover, managerial accounting
evaluates and identify processes required for the internal system of the organizations. So, the
most important tools for this accounting system include budgets, different performance reports
like ROI, sales analysis etc. In this paper, the organization Unilever is selected to discuss the
managerial accounting systems, cost determination process, planning tools as well as the
responses to the financial problems by the tools. The first section explains different types of
accounting systems while the second section applies management accounting techniques for the
cost analysis of Unilever. Again, the third section explains the planning tools for budgetary
control while the fourth section compares Unilever with Nestle in terms of responses to the
financial problems.
1. Understanding management accounting systems:
Company Background:
According to the annual report of Unilever is one of the most popular consumer goods company
who is dealing with 400 brands in 190 countries. The market statistics confirms that "every day
2.5 billion people" use Unilever products and the major household brands (included) are "
Lipton, Knorr, Dove, Axe, Hellmann's and Omo". Apart from including 13 of the 50 world
leading brands the company also has "13 billion Euro brands". The business portfolio is
specialized to use local brand per consumer preference and geographical locations. As an
example, Pureit and Suave in India and USA have a high grip on the local markets and the
overall market position provides 58% of the annual turnover covering all the emerging markets.
According to the recent reports the company works in four business categories. They are
"personal care, foods, home care, and refreshments". The latest business plan in 2017 has
combined the food and refreshment categories and also intended to expand the business.
Moreover, the global value chain of the company works with 161,000 global population and the
code "policies support" the business standard (Unilever.com, 2017). With 70% local market

leadership teams in 90 countries the company are focused on the consumer relevant innovation.
The organizational structure is changed with the implementation of "change 4 growth"
framework which provides a faster and simpler business structure. The key purpose of the
company is to serve " a sustainable living commonplace" where sustainable living plan (USLP)
has low-cost waste, product and packaging policies. The organisation identify management
issues in inventory management system is re order level, re order quantity and management
system must integrated with suppliers system to ensure for smooth running. For solving this
issue proper apply inventory management system in effective way and track all records on
various level of production.
Different types of management accounting:
With time the different types of management accounting have been evolved and the
changes, in this case, were observed since the early 1980s. In this context, it is significant that
innovative accounting techniques like "activity-based management, strategic management
accounting or balanced scorecard" are somehow compatible with the changing technological
factors. These comparatively new accounting types are highly supportive of the modern
technologies and new management processes. As an example, the new business cases today
requires quality management with just-in-time productions where activity-based management
can be an efficient influencer. However, there are arguments that the whole process of
management accounting including planning, control, communication, and decisions has
changed with these new processes into an overall resource based value creation process which
is way complicated than the previous roles of simple cost determination and financial controls.
Moreover, all the accounting techniques have specific requirements and they are given below.
Prize optimization system:
This is a formal mathematical model to identify demand variation with different price
levels. The inputs are collected from cost and input levels and MA can use different types of PO
models. As an example, a/b testing experiments with different price structures using trial & error
method while analytics work with historical data. Again, yield management is based on
individual transactions.
Cost accounting system
A cost accounting system is a procedure of preparation and controlling production cost in
manufacturing. This system mainly prepared for manufactures to track their routine activities of

inventory. It helps to managers to take effective decision regarding to cost of business and this
system is applied on evey kind of business. In this system including fixed cost and variable cost
because these cost are relaed to different level of production.
Inventory management system
Inventory management system is used to track goods with the help of supply chain or the
portion of it a business operates in. The system covers different aspects such as production to
retail, warehousing to shipping and all movements between stock and parts. A system is
identifying every inventory item and its related to information like as barcode label and tags of
assets. The system of inventory management is keep a detailed record of products that is entered
in company and leaves a warehouse.
Management accounting reports
Apart from the processes, there are different methods used for management accounting
reporting and they are discussed below -
Budget report:
This report helps both managers and companies to understand the performance and
requirements of cost control. The budget estimation for a financial period depends on the
historical data (actual expenses) of the previous financial periods. Moreover, the managers use
the same to determine incentives, financial goals for the future and to negotiate terms with
suppliers.
Accounts receivable aging:
This is a cash flow management tool in terms of customer credit extension phases. The
customer balances are broken into separate columns per time and ownership and the analysis
determines issues in the resource and other collection processes. It can also identify the number
of customers still remained unpaid in terms of balances which means the credit policies can be
improved by the tool. Moreover, it can settle the old debt and equity issues too (Bobryshev, A.
N. And et. al, 2015).
Inventory & Manufacturing report:
This report will focus on the inventory because the report used by the manufacturing
department for budgeted production units. The report track to material and keep detailed related
to used material, wasted material and normal loss or not. The report helps to management to
understand fluctuations of costs and planned pricing strategegy according to report.

Job cost report:
A job cost report is prepare when comp-letation of the job because it shows the amount
that will spent in job. The spent amount are compared with expected amounts and serch out
differences between both variances. The job cost report will prepare for mangement to making
sure cost are controlled gaining profit margins.
Benefits & Applications:
There are mention benefits of different accounting system and their applications -
Cost accounting system –
It provides help to the management of Unilever with nestle can create the plan and
implement on business. After that measure the efficiency and determine the performance for
making appropriate improvement. For planning need to information that are provided by this
system.
Inventory management system –
It can improve the accuracry of stocks orders in unilever and with the help of this system
tracks all stocks on various styages of production. So company has to save their time and money
during production procedure.
Price optimization system –
with the help of this system Unilever with nestle can determine the attitues of customers
relted to different prices. It helps to maximising operating profit with best prices. This system
related to budgetary control and standard costing and help to management for different aspects.
Job costing system –
This system helps to estimate of all types of cost of unilever on maufacturing process. It
will help to reduce duplicate work and reflected to as actual work that happen in an organisation.
The system helps in the evaluation of the quality will be done in effective way.
Critical Evaluation:
The management accounting system means the overall accounting structure to process
the financial information while the management reporting is the documented versions of the
information collected for the system. Therefore, the point of integration should be efficient to
join the system and reporting for maximum benefit. In the case of Unilever the accounting
system is strategic while the reporting formats cover balanced sheet, performance reports,
income statement, cash flow statement etc (Sajady, H., Dastgir, M. and Nejad, H. H., 2012) . The

point of integration is based on the proactive information collection process where capital
decisions are based on human resources and investment decisions are based on project and
incremental demands. So, a capital budgeting process is visible here in terms of decision making.
Again, the financial decisions are based on the optimal mix of financial components while
dividend analysis covers the capital allocation process. So, the accounting system and reporting
are highly integrated and aligned with the purpose of the organization.
2. Application of management accounting techniques:
This income statement of Unilever is based on marginal and absorption costs. The marginal cost
refers to the cost of the recent unit produced by the company. Again, it is the additional cost of
production in case some extra units are produced considering the estimated number of
production. The principles of marginal cost confirm that for a certain period the fixed cost will
remain the same while revenue will be increased by the sales value and cost will be changing per
variable. So, the profit is based on the range of contribution by the resources and processes. The
absorption cost can be defined as the total manufacturing cost for the total units produced. That
means it will cover the inventory information or components like materials, labor, direct and
indirect overheads. This costing is considered for the external financing and income tax
reporting.
In the case of marginal cost the contribution is determined by the difference of sales and
marginal cost. Therefore, the marginal cost is the sum of variable direct cost labor, direct
material, direct expense, and variable overheads. So, the pro-forma of marginal cost covers sales
revenue, opening stock, production cost, total production cost, sales and distribution costs, less
fixed cost and marginal profit (Kaplan and Atkinson, 2015). Similarly, the absorption cost pro-
forma will cover the revenue, additional production cost, closing stock, unadjusted profit, fixed
production absolved and incurred as well as over absorption and adjusted profit.
Income Statement (Marginal Costing)
PARTICULARS PRODUCT X PRODUCT Y
Production (Units)
(A)
5000 3500
Sales (Units) 4600 3200

(B)
Selling Price per unit (in ￡ )
(C)
180 150
Sales in value (in ￡ ) (B*C)
(D)
828000 480000
Unit cost :
Direct Material 30 24
Direct Labour 36 24
Variable Production Overhead 24 16
Variable Selling Overhead 2 2
Total (in ￡ )
(E)
92 66
Total variable cost of production (A*E)
(in ￡)
(F)
460000 231000
Opening stock of finished goods (in ￡)
(G)
0 0
Closing stock of finished goods (in ￡)
(H)
36800 19800
Total variable cost of goods sold (in ￡)
(F+G-H)
(I)
423200 211200
Contribution in value (in ￡ ) (D-I)
(J)
404800 268800
Total contribution (in ￡ ) 673600

(K)
Fixed Cost:Production Cost (in ￡ )
(L)
210000
Administration cost(in £)
(M)
54000
Profit (in ￡) (K-L) 409600
Income Statement (Absorption Costing)
PARTICULARS PRODUCT X PRODUCT Y
Production (Units)
(A)
5000 3500
Sales (Units)
(B)
4600 3200
Selling Price per unit (in £)
(C)
180 150
Sales in value (in £) (B*C)
(D)
828000 480000
Total of sale
(E)
1308000
Cost of sale :
Direct Material 138000 76800
Direct Labour 165600 76800
Variable Production Overhead 110400 51200
Fixed Production Overhead 300000 140000
Variable Selling Overhead 9200 6400

Total of above cost (in £)
(F)
723200 351200
Total of (F) (in £)
(G)
1074400
Gross Profit (in £) (E-G)
(H)
233600
Administration Cost (in £)
(I)
54000
Net Profit (in £) (H-I) 179600
3. Explanation of planning tools:
Budget -
A budget can be defined as an instrument for planning, programming and controlling the
business activities. So, it is basically a quantitative or financial statement prepared and approved
by the stakeholders for a period of time considering the external and internal factors.
Budgetary control -
The budgetary control is a system which uses the different type of budgets to plan and
control the product and services of the organizations. So, if budget is a written plan than
budgetary control is a process to implement the plan practically. Moreover, the control system
deals with various business functions to make the tools or different types of budgets efficient and
effective for the organizations. The actual expenditure and estimations are also compared by this
control system to decide the future financial actions. Considering the importance of budget this
section discusses the advantages and challenges of different tools in budgetary control. They are
discussed below.
Variance analysis: This is a quantitative tool to determine the difference between actual and
planned reports. The analysis also investigates the difference to interpret the functional issues in
accounting operations. It helps the management understand the reasons of fluctuations in the
business and how to change the situations (Ammar, 2017). Among the common variance
analysis methods the purchase price variance deals with production process, number of unit and
standard cost while the labor rate variance deals with labor rate and other production

components. There are overhead, selling price, material yield based variance analysis too.
Advantages – The advantages of variance anlysis is that is provides differences between actual
and budgeted reports. With the help of this understand fluctuations in business situations through
analysis methods. It is deal with different units of probuctions and provide result to about
purchase price, selling price and material price.
Disadvantages – The disadvantages of variance analysis is that it compare with budgeted
variance that are changed any time according to market trends.
Responsibility budgeting: This is a reporting tool where key focus is on controllable cost,
revenue and their effectiveness. In simple terms the managers use the report to observe the
expenses and their relations with controllable revenue components (Cimaglobal.com, 2018). This
is a upper level management report where insurance, premium and fixed assets are
uncontrollable and the report shows the way different components move in a particular scenario.
Advantages – Responsiblity budgeting advantage is control on cost to increase revenues and it
helps to managers to know those components helps to control cost.
Disadvantages – It is not controlling of some expenses that are need to control like as insurance
premium, fixed assets.
Standard costing: This is a practice where the expected cost is substituted for an actual cost
using the accounting records. In this case the function is like a simplified cost layering system
where historical cost information is arranged and observed. It is basically a cost estimation
process for all accounting activities without wasting time. The standard costs are close
approximation to the actual costs and budget are often made of them considering the variance
from the accounting perspective. The costing process also can help inventory, overhead issues
with price formulation.
Advantages – The main advantage of this planning tool is it provides actual data of comapny.
And easily understand activities of costing to apply different method from different prrspective
of business.
Disadvantages – It is based on historical cost and not apply budgeted amount. In future market
activities are channged and always not apply past techniques. So there is need to change
techniques according to future expectations.
Time series/Trend analysis: This is a statistical technique to deal with accounting data over a
period of time. Considering the particular time intervals there are three types of data and they are

time series data, cross section data and pooled data (Gooneratne and Hoque, 2016). The time
series data observes the data set on different times while the cross section data covers different
variables in a time period. The pooled data joins the cross section and time series data. The data
set uses a focused market segment where dependence tries multiple observed data and
stationary confirms the mean value for a time period. Moreover, the exponential smoothing
function can predict next period values while curve-fitting can analyze the non-linear
behaviours.
Advantages – Time serties provided three types of data which are need to planning tools like as
time series data, pooled data and cross section data. It is used in different time series to estimate
trend of market.
Disadvantages – The disadvantage of this tool that is is based on statical technique based. These
intervals data not reliable to every time.
Outcomes of these applications on Unilever:
Although variance analysis has given Unilever the strength of optimal performance
management but the market forces often introduce raw information which via variance analysis
cause waste increment in the system. As an example, the purchase manager may buy inferior
materials considering the raw information which increase the overall expenses. Again, the
standard costing makes the budget competent in subsequent periods but the cost-plus-contracts
often require the actual costs for price formulation. The state becomes more confusing when
those contracts drive inappropriate activities in the fast-paced environment ( cost updation
periods/ small product life cycles). However, the trend analysis is highly beneficial with great
focus on the external components and different time periods but discrepancies in unit level
information (low level management) often cause inaccurate predictions. Finally, the
responsibility budgeting is beneficial for Unilever due to its target based actual performance
observation but it often confuses the traditional system of reporting (Gates, S., Nicolas, J. L. and
Walker, P. L., 2012) .
4. Comparison of organizations:
In this section, the companies Unilever and Nestle are compared in terms of adaptation
efficiency of the following management accounting systems.

Benchmarking:
According to the corporate human right performance, both Unilever and Nestle are some
of the top performers in the world. In the case of Unilever the sustainable living plan deals with
three major organizational issues and they are health improvement, environmental impact
reduction, and lifestyle improvement. There are nine commitments which cover the social,
economic and environmental performance via regular reviews and methodologies. The financial
metrics are based on volume, price, share measurements with IFRS based measures. The
accounting report use non-GAAP measures like core operating margin, effective tax rate,
earnings per share etc. For Nestle, the benchmarking is based on the strategic transformation
while tackling leverage scales and under-performing components. The ROI based capital
management theme covers the EBIT margin and organic growth of the products per year. The six
SAP based modules measure the performance in terms of quality, time and cost. There are 12
stages of approaches for benchmarking covering the definition, partner and source identification,
gap determination, process gap confirmation, goal adjustment etc. The factories of Nestle have
individual benchmarking units too.
Balanced scorecard:
In both cases of Unilever and Nestle the balanced scorecard efficiently identifies the
areas of strength and areas for improvement. Moreover, both the companies have used the
category analysis in terms of product, governance, lifestyles, and wellbeing of the customers.
The Unilever scorecard identifies that the sustainable living plan, nutritional profiling system is
efficient while production targets for fortified products are not efficient (Unilever.com, 2017). In
the case of Nestle, the major strengths are overall nutrition governance and management, popular
product positioning while the weak points are product reformulation consumer-oriented healthy
production etc.
Activity-based costing:
In the case of supply chain and logistics management Unilever depends on the company
Selco and the warehouse and customer response management structure is based on ABC.
Therefore, the logistic efficiency and high degree customer response depend on the activity-
based costing. For Nestle, the application of ABC is quite different. In the case of Nestle ABC is
used in input information system and manufacturing system for costing (Nestle.com, 2018). The
inventory valuation process covers the ABC so that all the activities can be utilized with relevant

resources. Here the cost pool settings introduce the overhead costs and cost drivers.
Financial governance:
The process states how both the companies collect, manage and control the financial
information. For Unilever, the financial information is collected by the compensation, corporate
responsibility, and corporate governance committee. Moreover, the board committee evaluates
and controls the information with the help of the audit and risk committee. In the case of Nestle
the corporate governance committee is the interface between chairman and board. Moreover, the
sustainability committee deals with board structure, plan evaluation, future goals while the audit
committee is responsible for the audits, reporting, and compliance. Finally, the company has a
public reporting document too (Klychova, G. S., Faskhutdinova, М. S. and Sadrieva, E. R.,
2014).
Comparison between unilever and nestle
Unilever Nestle
In case of Unilever the KPIs are financial
performance based and sustainable plan based.
The financial performance indicators include
business growth components like turnover rate,
underlying sales growth, operating margin in
different business categories. The categories
include personal, home care, food,
refreshments and for each category, the KPIs
are documented in the financial review.
Moreover, the sustainable plan based KPIs are
health & hygiene, nutrition targets, GHG
targets, water, waste and sourcing targets etc.
Nestle uses a different format to identify the
KPIs for its business structure. The financial
and non-financial KPIs are covered by the
group nutrition, health, and wellness strategy.
Therefore the KPIs are group sales, organic
growth, real internal growth, underlying profit
margin, operating and free cash flow,
dividends etc. By comparison, it seems
Unilever with its distributed components is
more efficient in KPI handling.
CONCLUSION
The commercial market and different industries have identified the importance of
management accounting system for a long time. In this paper, two leading companies of UK
food and beverage industry is considered to check the practical application of the management

accounting system. As financial information is the core point of business growth and
profitability, therefore, both accounting systems and tools are highly important. In the case of
Unilever the strategic accounting management system is visible and the company is trying the
system with different components. Moreover, the company has tried ABC in warehouse and
customer response management. From the discussion, it is identified that management
accounting practices are important to determine costing, budgeting as well as evaluating the
overall business performance. The strategic analysis process also determines the type of business
suitable for specific accounting tools.

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Appendix:
Marginal costing format
Absorption costing format