Management Accounting Report: Waitrose Limited Financial Analysis

This report provides a comprehensive overview of management accounting, focusing on its fundamental requirements, different methods of reporting, advantages, and applications within an organizational context. The report uses Waitrose Limited as a case study, analyzing its use of various management accounting systems such as cost accounting, inventory management, job costing, and price optimization. It explores different reporting methods including budget reports, performance reports, inventory management reports, and accounts receivable reports. Furthermore, the report delves into planning tools used in management accounting, such as activity-based costing, benchmarking, and discounted cash flow methods, to aid decision-making processes. The report also includes a financial analysis of Waitrose Limited, covering the calculation of costs using suitable techniques and financial performance evaluation.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Part 1................................................................................................................................................1
A. Management Accounting and their fundamental requirement...............................................1
B. Different Methods of management accounting reporting......................................................2
C. Advantage of management accounting system and their application.....................................4
D. Integration of accounting system and reports within organisational processes.....................4
Part 2................................................................................................................................................4
Planning Tools used in management accounting........................................................................4
Use of various planning tools and their application....................................................................6
TASK 2............................................................................................................................................6
Part 1................................................................................................................................................6
Calculation of cost by using suitable techniques........................................................................6
Part 2................................................................................................................................................8
Financial Analysis.......................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management Accounting is part of accounting which provides financial information and
resources to the managers in decision making (Chan, and Hsu, 2016). It is mainly used by
internal team of a business and this is only thing which makes it different from financial
accounting. It is define as a process which presents financial information and reports like
balance sheet, invoice shared by finance administration with the management of the company.
The main objective of the management accounting to utilise appropriate statistical data then take
better decision. For the understand concept of the report selected company, Waitrose limited. It
is a chain of British super markets which is retailing in food section. Its head office is situated in
Bracknell, Berkshire, England. The company has approx 353 shops across the United Kingdom.
This report consist of fundamental requirement of management accounting and define different
types of management accounting system and several types of management accounting reports. In
the context of organisation determine the benefits of management accounting system and their
application. Additionally, analyse planing tools which helps in decision making process and
prepare statement of profit or loss with the help of absorption and marginal costing principles.
TASK 1
Part 1
A. Management Accounting and their fundamental requirement
Management accounting is not considering as particular system of accounting. It could
may be any type of accounting which modify a business to be conducted more effectively and
efficiently. It is mainly provided all types of financial information to manager for accomplish
organizational goals (Hsu and Lin, 2016).
Management Accounting system is a internal system which are deployed to provide
information that management can use to make good decision. These systems are connected with
organisational activities and provide statistical information. There are defines different types of
management accounting system which is important part and apply in effective manner.
Cost Accounting System – The particular system is mainly used by different types of
organisation in order to determine cost of different products which is sale out by company into
market. Through this system analysis accurate expenses in Wait rose limited regarding to their
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products. It can help to recognise cost of keeping stock and record all expenditures separately
then compare outcomes with actual outcomes and try to reduce differentiation.
Inventory Management system – This type of system is applied by company to track
record of stocks. This system helps to a manager to determine that there is stock in their
warehouse or not. In Wait rose Ltd, sale out different types of food products so manager apply
inventory management system to aware for which product need in particular period of time. As a
result they order for products and provide to customers on time (Charifzadeh and Taschner,
2017). There are three different kind of inventory management system and companies apply one
of them as per the requirement. All of them are as follows: LIFO (Last in first out) – On the basis of this method recently purchase that will sale out
firstly to customers. FIFO (First in first out) – This method defined that which stock purchase at beginning
that will sale out first. It is applied by Wait rose limited because food products have
expiry date so there is need to sale out firstly those products which comes first in
warehouse. AVCO (Average Cost Method) – According to this method all the inventory is used for
production process on average cost basis.
Job Costing System – It is part of costing system in order to assign and forecast all the
cost of production activities of a business. In Waitrose Limited apply particular system to
evaluate cost of all the processes cost of particular process. It is essential for a company to
evaluate actual cost of each job which is presented by a business.
Price Optimisation System – The Particular system is applied by business to set effective
rice structure of their different products. It can help to analysis of thoughts of customers
regarding to price strategy then collect review. On the basis of these review they set effective
pricing strategy to meet expectations of clients. In Waitrose limited, this system is applied by
management team in reference to determine reviews of customers for different food products. It
is important for a company due to direct manager to set best appropriate price of their products.
B. Different Methods of management accounting reporting
Management accounting reports is defining as a process which are produced to analysis
position of a company. These reports are presented in front of top management then they take
effective decisions. These reports related to different departments and provide detailed and
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accurate information. It is easy for a manager to understand position and know about strength
and weakness of each department. Wait rose limited prepare different types of reports in order to
analysis of record and track of operational and executional activities (Dai and et. al., 2017).
Budget Report – It is a part of internal report that is utilised by manager to comparison
actual and budgeted results of an organisation. This report can help to understand of different
monetary resources analysis of each item like purchase, sales, returns of purchase and sales. In
the reference of Wait rose limited analysis their financial performance of business. Every year
company prepare new budget report and forecast amount for future. After that they are following
of the report and try to control of cost.
Performance Report – It is produced by an organisation for a reason of analysis
performance of company as well as employees. This report mainly used by company to
encourage of their staff members through incentives and monetary rewards. It is provided by
company on the basis of their performance. In the context of Wait rose Limited utilised of this
report to determine the activities of employees than provide results in positive and negative
manner. It is advantageous for business in reference to encourage and good performed.
Inventory management Report – It is prepared by organisation to keep detailed records
of goods which are utilised by different types of organisation in reference to present activities of
production. On the basis of this report they know about remaining stock in warehouse and how
many products need to manufacturing for company. In the context of Wait Rose limited produce
this report to analysis of stock record and order for new stock before ending into warehouse.
When company does not record inventory regarding data so it will create problem and do not
understand how many products they need to conduct operational activities.
Accounts Receivable Report – This report is mainly produced by accounting
department to keep record of credit sales. It is provided detailed information about those
customers who take products on credit basis. It helps to prepare list of all the unused credit
memos and unpaid customer invoices on the basis of date. In the reference of Wait Rose Limited
develop of this type of report to determine the amount which is owed by clients. It is mainly
prepared by company to record details of their clients (Qian and Schaltegger, 2017). It is
important for organisation due to analysis of outstanding amounts of various clients. A manager
set policies in tighten manner to collect amount from clients.
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C. Advantage of management accounting system and their application
There are defined advantage of different types of management accounting system as well
as their application -
Advantage of Price optimisation system – The benefit of this system to set good price
structure as per the requirement of customers. It will fulfil the expectations of clients. As a result
customers attract for their products and increase profitability. Wait rose Limited apply this
system to fix the price of different food products as per the demand into market.
Advantage of inventory management system – It is beneficial for every organisation due
to track record from starting process of manufacturing. It provides different techniques how to
maintain stock in the company. In Wait Rose limited, it helps to proper utilise of every product
and focus on their expiry date (Dayanandan and et. al., 2016).
Advantage of Job costing system – It is related to specific job role which is provides as
per the performance of every person. With the help of this system improve the productivity and
profitability of a company. This system help to manager of Wait Rose limited in order to divide
particular role of staff members.
Advantage of cost accounting system – It provides appropriate records and management
cost. It is beneficial for Wait rose limited to calculate cost of every product to provide food
products to end user. It is categorised into direct and indirect cost.
D. Integration of accounting system and reports within organisational processes
As per the above discussion it is getting that management accounting system and reports
both are important part of organisational process. It helps to keep the records of all proceedings
which is done by Wait Rose limited. To conduct business activities in effective manner there is
required to firstly apply different types of system that will arrange activities then prepare reports
to make effective decision making. Without a system a company can not analysis of business
activities in effective manner and reports provide detail information.
Part 2
Planning Tools used in management accounting
Budget – It is a formal document which is produced by every organisation to analysis of
their performance. It is forecasted income and expenses which are received by company to
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survive their business activities. In Wait rose limited prepare budget to get organisational
objectives.
Planning Tools – It is defined as a techniques which is applied by every organisation in
order to control business activities in effective manner (Halaoua, Hamdi and Mejri, 2017). The
main purpose of these tools to gather information of expenses and control inordinate budget to
provide help in proceed business. There are described various kind of planning tools which is
applied by Wait rose limited:
Activity based costing – It is a accounting method that recognise and appoint costs on
the basis of overhead activities and then charge costs of products. The activity based costing
identify the relation among costs, overhead activities and productive products. It is connected
with indirect costs to commodities less arbitrarily and traditional methods. In Wait Rose limited,
management team apply of this tool to control business costs and overhead activities. Advantage – The advantage of this planning tool to know accurate cost of production
regarding to particular products. In Wait Rose limited it helps to understand the amount
of allocate production overhead.
 Disadvantage – It is taken more time and need to gather all information and appropriate
data so it creates cost for determining and storing information.
Benchmarking – It is a process of analysing the performance of a company regarding to
their products, services as well as processes against those of another business. Benchmarking use
by different companies in order to analysis of internal opportunities for betterment. In the context
of apply this planning tool to identify different financial problem in the company and compare
results from other companies. Advantage – The main advantage of this tool to help get minimum expected result and
focus on the changes and direct for change process (Drake Roulstone and Thornock,
2016).
 Disadvantage – A major limitation of benchmarking is is only analysing of efficiency of
operation metrics and does not focus on overall performance of a company.
Discounted cash flow method – It is a valuation method that will forecast the amount of
investments and describe future cash flow. The particular planning tool utilise by Wait rose
limited in order to calculate total of all future discounted cash flow on the basis of transactions.
The particular method can help to company to calculate value of a business.
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 Advantage – The benefit of this tool that it is based on the sound method and confident
regarding anticipation. It can help to Wait rose limited to make right decision.
 Disadvantage - It is time consuming process where consist of several assumptions. It is
typical for Wait rose limited to collect future performance.
Use of various planning tools and their application
On the basis of these planning tools it has been analysed that planning tools are important
part of any organisation that will help in decision making process. Through these tool sort out
several problems and control business activities. There are applied various types of planning
tools like activity based costing, benchmarking and discounted cash flow. In reference to wait
rose limited apply planning tool of activity base costing to know their overhead activities.
Discounted cash flow provide accurate outcomes regarding to financial position of a business.
Benchmarking help to identify financial problem and help to get minimum expected result
(Cooper, 2017).
TASK 2
Part 1
Calculation of cost by using suitable techniques
Cost – It is defined as a monetary value of expenditure for services. It is calculate by a
person to produce, achieve and sale something. It is a value of money that will use into business
and it may be based on the acquisition. The amount of money expended to accomplish their
counted as cost.
Absorption costing – According to this method from the amount of sales charge of both
amount of variable and fixed together. The main aim of this technique to calculate production
cost and gather right profit in reference to company. In the context of Wait rose limited calculate
amount of direct labour, direct material and overhead.
Marginal Costing - It is a part of costing where consist of the amount of variable cost
and fixed cost. According to this method the charged amount of fixed cost from contribution then
apply the cost of variable. After deduct the amount in the end get amount of net profit of the
company. Wait rose limited apply particular costing method in their company for assume cost of
production and provide profits.
Income statement under absorption costing method for month of May & June:
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Particulars May June
(in £) (in £)
Total sales 10.5 4200000 3780000
Less: Cost of Goods sold
Opening stock -
Variable production cost 1300000 1300000
Fixed indirect production
expenditure 600000 600000
Closing stock 4.75 - 190000
Total cost of goods sell 1900000 1710000
G.P. (Gross profit) 2300000 2070000
Selling & Distribution expenses - -
Administrative cost - -
N.P. (Net profit) 2300000 2070000
Interpretation: As per the above table it has been analysed that there are calculate profit
of two months which is May and June. Total sales Eye men Ltd in may 4200000 and in June
3780000. from the amount of sales less cost of goods sold where include of opening stock,
variable production cost, closing stock and fixed indirect production expenditure. After that
getting amount of gross profit. From the amount of gross profit less selling & administrative
expenses than administrative cost and in the end get cost of net profit.
Income statement under Marginal costing method for month of May & June:
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Particular May June
(in £) (in £)
Total Sales 10.5 4200000 3780000
Less: Cost of Goods sell
Opening stock - -
Variable production cost 1300000 1300000
Less: Closing stock 3.25 - 130000
Total cost of goods sell 1300000 1170000
G.P. (Gross profit) 2900000 2610000
Fixed indirect production cost 600000 600000
Selling & Distribution costs - -
Administrative costs - -
N.P. (Net profit) 2300000 2010000
Interpretation: From the above table apply the method of marginal costing analysis result of
May and June. There are calculate sales per unit 10.5 and sales of the company in may 4200000
and in June 3780000. from the value of sales less amount of cost of good sold where consist of
opening and closing stock and variable production cost. After that getting amount of gross profit.
After that the amount of fixed indirect production cost, administrative and selling cost less from
gross profit. In the end get amount of net profit which is in May 2300000 and in June 2010000.
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Part 2
Financial Analysis
To analysis of financial activities of a company calculate their financial ratios which
provide accurate situation of a company (Astuty, 2019). There are calculate financial ration of
Waitrose limited -
Gross Profit = Gross profit / sales * 100
As per the above table it is getting that the profitability ratio of a company in 2018 have
low gross profit 37.82 compare 2017 which is 38.48. the reason of low gross profit to decrease
sales that impact on gross profit of the company.
Net profit margin ratio : Net profit / sales * 100
On the basis of this ratio it is calculate that net profit lower in to 2018 as compare to 2017
due to decrease amount of net profit.
Current Ratio - Current assets / current liabilities
This ratio indicate that company have equal current ratio into 2017 and 2018. but it is not
meet with their ideal ratio which is 2:1.
CONCLUSION
As per the above report it is concluded that every company apply management
accounting system because it is very important to conduct business activities. There are applied
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different types of management accounting system which is increasing effectiveness and help in
organisational process. Through various accounting reports get detail information of a company
and analysis their strength and weakness. There are applied different planning tools such as
activity based costing, benchmarking and discounted cash flow. These are helping to smoothly
run of a business. There are calculate net profit of the company through applying costing
techniques absorption and marginal costing.
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