INTRODUCTION
Management accounting is preparation of management reports and accounts that provides accurate and timely information to managers in order to make regular decisions. This helps management to perform all functions including planning, organising, staffing, directing and controlling effectively. The company selected for present assignment is Green Food Superstores, a chain of organic supermarket located around London. The present assignment is based on evaluation of two case studies in context with Green Food Superstores. The planning, decision making and controlling has been explained in context with organisation situation. Beside this, the various management accounting terms has been used to evaluate the case in reference to given situation.
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Part 1
According to case scenario, The Green Food Superstores, is a chain of organic supermarkets located around London. In past couple of years company has faced poor sales performance due to increased online competitors. To overcome this situation, company is looking for expansion of its customer base by offering online selling platform to clients. For the online selling company has two options, to decide the better option company has used management accounting tool for decision making.
Option 1
In this scenario, company wants to establish its in house online delivery system for boosting sales. To develop its own online technology, it would require management and support tasks dealt with in house, huge investment and robust delivery networks for better delivery services. Evaluation of in house online delivery system has been explained below:
Planning: It is a detail formulation of various activity to achieve definitive goals. As the management of company have to plan about various resources like human and financial for developing in house online platform. The management have to acquire employees who has prominent IT skills for smooth functioning of application (GatesNicolas and Walker, 2012).
Decision Making: Decision making is process to choose best solution among various alternatives. As decision making tool will be helpful for management to decide between in house development and outsourcing of online service, by identifying opportunities and threats of options.
Controlling: Controlling is an important element of managerial activity. It is the monitoring of plan. This will help company to take corrective action in their implemented plan like if its in house development than company have to control IT management very efficiently (Jakobsen, 2012).
Option 2
In this scenario, company is looking forward to outsource their delivery system to the third party. The evaluation of this system has been explained below:
Planning: At part of outsourcing, company needs to plan about the different outsourcing company and the investment which needs to be done for outsourcing. The planning will involve evaluation of various outsourcing service providers, so they can provide best service to company's customers. Apart from this, company have to plan about the human resource, for maintenance of outsourcing service provider application updates. So customers can enjoy seam less experience of shopping.
Decision Making: Decision making process will be helpful for company to choose the best outsourcing service provider among the alternatives. The company should decide those service provider which provides quality service at optimum cost. So organisation can earn maximum profits (Juras, 2014).
Controlling: Controlling is activity to monitor the implementation of plan and ensure plan works as expected. There is an option of outsourcing all services related to online platform, in order to effectively outsource these services, it is important to constantly control and monitor activities of service provider.
Apart from this, the expected cost of in house software would be around 10000 GBP which includes software development cost, maintenance cost and recruitment cost. And the expected cost of outsourcing would be around 12000 GBP.
From the above case it has been observed that company should go for in house software development for taking competitive advantage. As it would be beneficial decision for Green Food Superstore to boost sales, because firstly cost is lower than other option and secondly company can monitor the software with more efficiently.
Expected Cost Budget
Inhouse- Software development |
Outsourcing of software |
||
Particular |
Amount |
Particular |
Amount |
Software Development |
6500 GBP |
Software Development |
8000 GBP |
Employee Recruitment |
2500 GBP |
Maintenance |
2500 GBP |
Maintenance |
1000 GBP |
Delivery Service |
1500 GBP |
Part 2
In this scenario, one of company's employee proposed an idea that Green House should come up with new energy drink product name Greenwings. It is expected that this idea can boost the sales for company. To attract customers, drink will be freshly prepared and sold on site. As company has targeted profit of 58 GBP per day if they sell the 60 unit of drinks per day. Company wants to know whether proposal should be accepted or not. So for evaluation of this firm can use management accounting terms.
Budget:
Budget is estimation of costs, revenues and resources over specified period of time, which reflects the future financial goals (Pani and Mukhopadhyay, 2011). With the help of estimation of cost and revenue company can decide for launching the energy drinks.
Cost of equipments – 116 GBP per day
total Cost = 145.6
Cost of one drink: 3.5 GBP
Estimated sales: 60 unit per day
Total sales – 3.5*60 = 210 GBP per day
Profit = Sales – Cost
Profit = 210 – 145.6 = 64.4 GBP per day
The company earns around 65 GBP per day with the given expected data. So company should accept the proposal because business would likely to have good start and over the period of time it is expected sales will grow. It can be said that company can use the health benefits tag line with the drink. As this will attract customer more and sales will also get boost.
Non financial objectives:
Financial objectives drive higher profits for business but non financial objectives also aid in improvement the company as whole. The non financial objectives creates a stronger company as a whole which able to perform better in market. There are several objectives which can be achieved by Green Food Superstores. These are as follows:
Employee engagement and satisfaction:
The employee satisfaction allows company to create a engaged and loyal employees to company. Employee satisfaction involve giving staff greater responsibility, rewarding exceptional work and promotion to employees. As in this case it has been observed that employees put their all effort for boosting the sales of company. The employees are coming up with new ideas for better sales (Windolph and Moeller, 2012).
Quality:
Quality is another element which can help to boost the sales of company. If Green food superhouse provides quality of products and service to customer than they will be satisfied. And it will lead to achieve their goals.
Public Relation:
It is another non financial area goal of company's public image. The better relation with public increase the business and built stronger relationship with community.
Expected Profit statement with given data
Cost |
116 |
Material Cost |
0.4 |
Labour cost |
0.2 |
Fridge Cost |
29 |
Total Cost |
145.6 |
Sales Unit |
60 |
Selling Price |
3.5 |
Total Sales |
210 |
Profit |
64.4 |
The data shows that company is earning more than its targeted profit. As company has the targeted profit of 58 GBP per day and company earning 64.4 GBP per day. So it seems that this idea can be helpful for boosting the sales if company implement this idea efficiently. And it is expected that if company earns the same level of profit for a year than company can achieve break even point promptly. So Green food superhouse should implement this idea for boosting their sales.
Management accounting:
Management accounting is a process of evaluating business costs and operations to prepare financial reports, records and account to aid managers decision making process in achievement of business goals. There are some management terms which has been used are as follows:
Budget: Budget is an estimation of expenditure and revenue for a period of time. It is a tool of management accounting. It helps in segregation of expenses according to their nature. The Green Food superstore made the estimated budget for their new products (Zainun and Smith, 2011).
Planning: Planning is tool for communication of a company's goals. Planning is achieved through the budgeting process as a basis for decision made by managers.
Decision Making: The managerial accounting information provides the data to managers which helps the managers to take best decisions for firm.
Controlling: The managerial accountant is a major facilitator of this process. It ensure that actual activities conform to planned activities. And take corrective actions in case of any deviations. It helps company to cop up with changes.
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CONCLUSION
In the conclusion it can be said, management accounting plays an important role in planning, decision making and controlling. As in case, Green Food Superhouse wants to boost the sales by using online platform. And for that company has the two option, one is outsourcing and other is inhouse software development. By evaluating cost benefit, company has decided to go with in house development of software. It has been observed that there are various non financial objectives which should be achieved. For boosting sales company has planned to launch a new product Greenwings, an idea suggested by an employee of organisation. Organisation should use this proposal because it is expected it can boost company sales.
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REFERENCES
- Gates, S., Nicolas, J. L. and Walker, P. L., 2012. Enterprise risk management: A process for enhanced management and improved performance. Management accounting quarterly. 13(3), pp.28-38.
- Jakobsen, M., 2012. Intra-organisational management accounting for inter-organisational control during negotiation processes. Qualitative Research in Accounting & Management. 9(2), pp.96-122.
- Juras, A., 2014. Strategic Management Accounting-What Is the Current State of the Concept?. Economy Transdisciplinarity Cognition. 17(2). p.76.
- Pani, R. and Mukhopadhyay, U., 2011. Variance analysis of global CO2 emission–A management accounting approach for decomposition study. Energy. 36(1), pp.486-499.
- Windolph, M. and Moeller, K., 2012. Open-book accounting: Reason for failure of inter-firm cooperation?. Management Accounting Research. 23(1). pp.47-60.
- Zainun Tuanmat, T. and Smith, M., 2011. Changes in management accounting practices in Malaysia. Asian Review of Accounting. 19(3). pp.221-242.