Managerial Accounting
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Table of Contents Introduction................................................................................................................................3 Question 1..................................................................................................................................3 a) Production report for Department A..................................................................................3 Question 2..................................................................................................................................5 a) Outline of industry, organization and internal accounting system.....................................5 (b)...........................................................................................................................................6 c) Agency costs for Marks and Spencer.................................................................................8 d) Recommendations for reducing agency costs....................................................................9 Conclusion................................................................................................................................10
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INTRODUCTION Managerial accounting is considered to be highly important for the purpose of estimating costs and preparation of budgets. It is through managerial accounting that the organization is able to support its decision making process in an effective manner. The accounting techniques provide a way to maintain budgets and it also estimates the cost for different operations. The range of costing techniques is available under the scope of managerial accounting.
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Moreover, the organization is able to undertake appropriate pricing decisions through adoption of appropriate methods. In case of managerial accounting, the reports and calculations are presented for different departments. The report presented herewith provides an overview of manner in which costs are estimated. Moreover, it throws light on the accounting systems that have been adopted and techniques that can be adopted under managerial accounting.
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QUESTION 1 a) Production report for Department A The business unit is assumed to be responsible for estimating cost per unit manufactured. The organization needs to accounts for work in process and proportion of work completed. This in turn helps in estimating appropriate cost per unit of products manufactured.
Product report for Department A of Nano Tech Pte Ltd is presented
underneath in detail. It helps in estimation of physical flow of units, equivalent units, per unit cost and so on. The calculations and table presented below develops an understanding of estimation of per unit cost through weighted average method. Total input=Opening work∈ progress units+Units introduced Total input=10000 units+160000 units Total input=1700000 units Closing work ∈progress=18000 units Completed production=Total input −Closing work−¿−progress Completed production=170000−18000 Completed production=152000 units
Table 1: Units to be accounted for IN Units to be accounted for Units in beginning WIP inventory, June 1 (Beginning balance) Units started during June (Transfer in) Total units to be accounted for OUT Units completed (transfers out) Units in ending WIP inventory , June 30 (Ending balance) Total units accounted for
Units accounted for Units completed and transferred out Units in ending WIP
Table 2: Equivalent units Equivalent units % Direct complete Materials 152000 18000
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100% 30%
152000 18000
Units 10000 160000 170000 152000 18000 170000
Direct Labour
Overh eads
152000 5400
152000 5400
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inventory 170000
170000
Table 3: Total costs to be accounted for Direct Direct Costs to be accounted for Materials Labour Costs in beginning WIP 102000 69000 Costs incurred during June 2040000 880650 Total costs to be accounted for 2142000 949650
Total costs to be accounted for Total equivalent units
Elements of costs Direct Material Direct Labour Overhead expenses
157400
157400
Overhea d 45000 540000
Total 216000 3460650
585000
3676650
Table 4: Cost per unit Direct Material Direct Labour Overhead Total 2142000 949650 585000 3676650 170000 157400 157400 484800 12.60 6.03 3.72 22.35
Table 5: Summary of equivalent units and cost per unit Cost incurred Equivalent Previous Current units period period Total 170000 102000 2040000 2142000 157400 69000 880650 949650 157400 Total
Elements of costs Completed production Direct Material Direct Labour Overheads Closing work in progress Direct Material Direct Labour Overheads Total cost
45000
540000
Table 6: Total costs Equivalent Cost per units unit
585000 3676650
3.72 22.35
Total cost
Component cost
3397200
152000 152000 152000
12.6 6.03 3.72
1915200 916560 565440
18000 5400 5400
12.6 6.03 3.72
226800 32580.11 20069.89
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Cost per unit 12.6 6.03
279450 3676650
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QUESTION 2 It is essential to evaluate the organizational structure and its performance from time. In order to conduct the analysis of industry, organization’s design and financial resources of Marks and Spencer is selected. An in-depth evaluation of the business unit and its accounting system is presented underneath in detail. a) Outline of industry, organization and internal accounting system Marks and Spencer is operating as a retail sector unit with its operations across various countries. Retail industry is considered to be a highly growing sector within United Kingdom. The industry has achieved the high level of growth in recent past. The retail industry in United Kingdom is highly developed. The large number of players within an economy indicates the growth that is achieved by the sector. The country is known for highly developed retail industry. It can be said that the retail sector provides a wide range of opportunities to the organizations.
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As per the estimations wholesale and retail trade within United Kingdom constitutes approximately 16% of economic output and 16% of employment in 2012. It can be said that the sector supports economic growth and development at whole. Moreover, it is expected that retail sector is going to achieve high growth in future. Marks and Spencer Plc is one of the leading organizations in retail sector of United Kingdom. It has occupied prominent positions through its unique selling proposition for clothes, home products and luxury food products. The organization is known for goods TOLL-FREE NO: +44 2038681671 WHATSAPP NO: +44 7999903324
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offered since it specializes in selling British-made products. The business unit acquires products by entering into long-term relationship with manufactures. The business unit is known for quality of products. Moreover, the organization also sells some of branded products so as to satisfy consumers ‘demand. Clothing division of the organization has acquired approximately 11% of market share of United Kingdom by 2013. It can be said that the business unit has achieved significant growth by capturing large market share through its unique value proposition. It facilitates to cater need of different types of buyers and create distinctive image of the firm at the marketplace. On the other, company has wide range of products and services in different segment that aid to increase overall rate of return. In order to maintain internal accounting system, Marks & Spencer follows several practices and regulations that have been laid down by the government. In this regard, firm follows International Financial Report Standard by which all important financial statements are prepared by the firm such as balance sheet, cash flow statement and income statement. The same is published for the sake of investors that provide evidence that firm is operating in an effectual manner (Elmassri and Harris, 2011). At this stage, Marks & Spencer gives detail specification about debt, dividend and return of shareholders. In addition to this, management takes into account general account principle that aid to maintain transparency ion the internal accounting system of company. It assists investors to get detail knowledge about the company so as to invest in the same for getting higher rate of return. Further, in case of any fault that has occurred in the financial statement, management is entitled to report the same to public (Lindhoim and Suomala, 2007). It facilitate to safeguard interest of all stakeholders by which corporation can create its good will in the marketplace. Along with that, company also disclose its on- balance sheet and off-balance sheet instrument that aid to depicts fair value of the firm. Furthermore, all information related to employee benefits and managerial remuneration is also disclosed along with corporate social responsibility of company. Moreover, proper reporting is done for intangible assets as well that aid to build strong image of firm in the marketplace. (b) (i)System for measuring performance
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From the analysis of organizational structure and internal accounting system it has been found that, Marks & Spencer measures its performance on the basis of financial statement. For example if there is increase in the revenue of company increased from the previous years then organization is said to better performance (Macintosh and Quattrone, 2010). Furthermore, performance is measured in several aspects such as employees’ retention, increase in number of customers and increase in share value of firm. Here, increase in the number of customers, depicts that employees are delivering good quality of services to large number of buyers. It facilitates to create brand image of firm in the marketplace and also assist management to motivate employees in monetary or non-monetary term (Waal and et. al., 2011). On the other hand, if share value of firm is increased then it depicts that Marks & Spencer is able to satisfy investors. It increases scope of development and growth of organization as the inventors attract to invest in the organization. It contributes towards increasing productivity as well as profitability. In addition to this, Marks & Spencer keep daily record of personnel and appraise the same by taking views of managers of different departments. Moreover, management of firm also takes into account growth of several other branches of the same in order to measure the performance. (ii) System for rewards and punishes the performance In order to reward of punish performance of employees; Marks & Spencer adopt several types of strategies. It consists of monetary or non-monetary rewards that facilitate to boosts morale of employees and enables them to meet expectations of top management. Here, workforce of Marks & Spencer is rewarded for their achievement and their work is appraised in company. It gives higher level of motivation among employees by which they are powered to move to ahead (Oliveira and et. al., 2010). On the other hand, demotion can be offered for those who are not performing up to the mark even on lot of efforts by the management end. By this way, employees get motivation for recover their position in the organization. It can be critically evaluated that, demotion may leads to resignation of employees from the Marks & Spencer. In addition to this employees are provided equal opportunities for learning and personal growth that serve as motivation for them (Terrance, 2014). In this regard, workers who perform on the basis of set standard are paid incentive, bonus and other benefits, Furthermore, transfer and promotion is also the imperative ways to rewards workforce so TOLL-FREE NO: +44 2038681671 WHATSAPP NO: +44 7999903324
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they can work with zeal and enthusiasm. Hence, the rewards and punishment system of Marks & Spencer is appropriate so as to ensure organizational success for the long run. (iii) System for partition decision right Management of Marks & Spencer uses appropriate partition decision right for employees. Under this, employees are asked while allocating the job and manage make it sure that they possess knowledge and skills to do the particular task (Silvester and et. al., 2014). However, it based on situation of company. For example, in case company want to implement immediate change then employees will not be asked and they will directly give order to follow. It facilitates management to implement change as soon as possible that leads to increase overall rate of return of company in the marketplace (Sandalgrh and Bukh. 2014).
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On the other hand, in daily work schedule, employees or line managers are asked related to their interested work areas and they are also communicated properly for the same. Moreover, line managers take suggestion of employees for bringing improvement at the workplace so that management can make modifications accordingly. Likewise, employees are also invested to give suggestion when company plan to expand the business or cover new geographical areas and also at the time of setting standard for the quality of products as well as services. c) Agency costs for Marks and Spencer Agency costs are referred to as internal costs that are paid to individuals who assumes role of agents. The costs is incurred due to conflict arises in interest of agents and principles. In the publically listed company, agency costs mainly arise due to problems between
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shareholders and management. Shareholders are considered to be real owners of the organization who wish to maximize their wealth by increasing value of the business unit. However, management tends to earn more amount of money in the form of fringe benefits or basic salary. It can be said that the management desires to maximize their individual wealth and decision making power. The conflict in interests among shareholders and managers leads to rise of agency costs within business unit (Silvester and et. al., 2014). Marks and Spencer, being a publically listed company is funded by investment on part of shareholders. The business unit tends to satisfy shareholders’ needs by declaring interim and annual dividends on regular basis. The organization however is owned and operated by experienced professional. In return for the services offered to the company, the top and middle level management demands high amount of return. The business operations are management by management on account of shareholders. Henceforth, the major agency costs for marks and Spencer is conflict that arises between shareholders and management. The management although strives to increase overall profitability of the organization (Oliveira and et. al., 2010). However, they attempt generate huge return for themselves instead of shareholders. On other hand shareholders desires to earn sufficient amount of return on investment made. Besides, shareholders agency costs in case of Marks and Spencer arises due to conflict of interests between management and bond holders. The debenture or bond holders have provided debt within business unit (Terrance, 2014). They also desire to earn adequate amount of return on the money invested. The management tends to delay their return for their personal benefit. This in turn results in rising of agency costs within the business unit. It can be therefore said that high level of agency costs arises in case of Marks and Spencer. The conflict between investors and management results in increasing costs for the organization. Further, the business unit tends to outsource some of its operations so as to manage large-scale operations. In such cases the consultants tend to charge high fees for the efforts involved on their part (Elmassri and Harris, 2011). This in turn leads to rising of agency costs for the organization. It is essential for the business unit to control agency costs so as to improve efficiency. The organization needs to evaluate interests of stakeholders before deciding business strategies. The agency costs may result in hampering business operations in long run. Moreover, the profitability of the organization may also reduce due to high level of TOLL-FREE NO: +44 2038681671 WHATSAPP NO: +44 7999903324
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agency costs. It becomes difficult for business unit to formulate appropriate strategies due to conflict in interests (Macintosh, and Quattrone, 2010). Moreover, the management is unable to decide future course of action without permission of shareholders. It can be said that the organization is able to conduct its operations in an efficient manner when all interests of all stakeholders are satisfied. The agency costs arise only when there is a conflict between two groups of stakeholders. It is essential for the business unit to maintain a balance between interests of all groups of shareholders. The consequences of high level of agency costs are highly adverse in nature (Oliveir and et. al., 2010). It is therefore necessary for the organization to take appropriate measures for controlling the same. d) Recommendations for reducing agency costs It is seen that high level of agency costs may lead to hamper overall growth of the organization. Marks and Spencer is one of the leading organizations within retail industry. The business unit should strive to satisfy need of all its stakeholders. This in turn helps in reducing agency costs for the organization. First of all, the organization should involve some of its shareholders into decision making process. Moreover, the management should be allotted certain amount of shares. The organization should strive to reduce difference between shareholders and management. This in turn helps in reducing agency costs for the organization (Sandalgrh, and Bukh. 2014). Majorly, the organization faces issues of agency costs due to conflict of interests among shareholders and management. This conflict can be resolved by including same group of individuals among shareholders and management of the business unit. The agency costs that arise as a result of conflict between bond holders and management can also be resolved. The business unit should ensure regular payments in form of interests to bond holders. This in turn makes them satisfy for the amount received as a return on investment made. The bond holders demand adequate level of return on their investment. It is through regular payment of interest at pre-decided rate the organization is able to satisfy their needs. It can be said that the business unit is able to reduce their cost by implementing above described strategies. Company can reduce the overall costs by reducing the overlapping and replication of activities. Further it is essential to ensure waste management. Agency cost can also be improved by developing a sound and healthy
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relationship between shareholders and management. Relationship is to be build up in a manner that they can perform negotiation over all types of costing issues.
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CONCLUSION The report presented herewith deals with various concepts of managerial accounting. It is seen that the organization is able to achieve success only when proper accounting methods are adopted. The report provides an overview of manner in which weighted average method can be adopted for the purpose of estimating per unit cost. It is seen that the marks and Spencer is adopting appropriate accounting concepts to support business operations. However, the organization faces an issue of agency problems due to conflict of interests among stakeholders. It is therefore necessary for business to take appropriate measures so as to support growth in long run.
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REFERENCES Besley, S., and Brigham, E., 2007. Essentials of Managerial Finance. Cengage Learning Butt, M., 2010. Variance analysis. Accounting, Auditing & Accountability Journal. 23(6). pp.816-816. Elmassri, M., and Harris, E., 2011. Rethinking budgetary slack as budget risk management. Journal of Applied Accounting Research. 12(3). pp. 278-293. Lindhoim, A., and Suomala, P., 2007. Learning by costing: Sharpening cost image through life cycle costing. International Journal of Productivity and Performance Management. 56(8). PP. 651-675. Macintosh, N. B., and Quattrone, P., 2010. Management Accounting and Control Systems: An Organizational and Sociological Approach. John Wiley & Sons Oliveira, L., and et. al., 2010. Intellectual capital reporting in sustainability reports. Journal of Intellectual Capital. 11(4). pp.574-594. Sandalgrh, N., and Bukh. N., 2014. Beyond Budgeting and change: a case study. Journal of Accounting & Organizational Change. 10(3). pp. 409-423. Silvester, K., and et. al., 2014. Does process flow make a difference to mortality and cost? An observational study. International Journal of Health Care Quality Assurance.27(7). pp.616-632. Terrance, L. C., 2014. Strategic budgeting instead of strategic planning. The Bottom Line: Managing Library Finances. 27(2). pp. 49-53. Waal, D. A., and et. al., 2011. The evolutionary adoption framework: explaining the budgeting paradox. Journal of Accounting & Organizational Change. 7(4). pp. 316336.
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