AAF043-6 Management Accounting and Financial Planning Assignment Sample
Module code and Title: AAF043-6 Management Accounting and Financial Planning Assignment Sample
Introduction
In order to run a business, it is essential to maintain it effectively. Therefore, it requires some simple procedures like bookkeeping and maintaining all the records of the business on time. It is also important to analyses the annual report of the company to check their financial condition of the business. Managerial Accounting is majorly concerned with providing valuable information to the managers.
They help in controlling and directing all the activities and operations of the organization. On the other hand, Financial Accounting is the outcome or the final result of all these activities. In this report, Unilever Company has been chosen to analyses their overall performance in the market unileverfoodsolutions.com, (2022).
Application of standard costing
Standard Costing plays an integral part in the organization and the main function of this costing is to control, plan and make decisions about the overall performance. In the Manufacturing environment, this costing helps in planning budgets for different projects ad it also manages production costs to run the business effectively (Hariyati et al. 2019, pp.480).
On the other hand, the Service business helps in analyzing the period and product cost. Therefore, it helps in computing the operational cost that is incurred on an individual unit of all intangible products and services. This costing can be used in various ways. These implications are as follows:
Manufacturing department
Efficiency
Standard Costing helps in providing a quick estimation of the project cost (Svirko et al. 2021). This helps in providing accurate and genuine reports that are managed timely and also provide prompt decision-making in the organization.
Cost control
In times of variances, all the managers are allowed to clarify and rectify any kind of discrepancies. These also help them to make improvements in the field of cost control. Therefore, it eventually helps in spreading awareness of spending the cost systematically for the future.
Help in making valuable decision-making.
Once the managers are aware of the variances and the operation of the business, the next step for the company is to improve the overall spending and practices of the business. The managers can investigate the variable cause and helps in preventing happenings in the future.
Accurate budgets
Here the managers make sure that the actual cost is close to the standard cost. This outcome is very beneficial for the business as they can create valuable planning for the project and it will also help in creating the budget more accurate.
Production cost is less
The managers should always keep their production costs lower as this will help in generating more profits for the business or an organization (Burritt et al. 2019, pp.481). Standard costing helps in analyzing the spending habits so that the employees become more conscious regarding the cost and also become more efficient in the overall performance. Lowering the cost ultimately increases profitability in the organization.
There are various modern initiatives that are taken by Unilever in order to reduce the cost and also to enhance the overall performance of the business (unileverfoodsolutions.com, 2022). New technologies have been implemented in the business to make the business more sustainable and effective. The main agenda of the company is to become sustainable and digital and to have expertise in the biological factor.
The company came up with the idea of making a Materials Innovation Factory (MIF). This innovation includes robots that handle all the chemistry work and helps in delivering data at ten times the speed (Campanale et al. 2021). Apart from this initiative, the company is also looking forward to making the business sustainable and saving the planet as well as the society from pollution. The main goal of the organization is to make the environment clean. The company majorly focuses on recycling by making renewable products.
Service department
Standard costing plays an integral part in service departments as well. In order to increase profitability, the company uses various services to enhance its overall performance. This re as follows:
Implementation of new ideas
Traditional costing does not have much effect on the business and weakens the performance of cost. Therefore, standard costing introduces new ideas and innovations in the business to make it more effective.
Cost Controlling
Standard Costing is a very useful method and is also used as a yardstick that helps in comparing the actual costs (Daniel et al. 2020, pp. 8). It is one of the most effective tools in planning the production cost of the business.
Variance Analysis
It helps the management to check the cost regularly in order to make better implementation in the business. The variance is the most effective way therefore if this factor is analyzed properly then the controlling cost becomes very easy to lower the level of all costs.
Discussion about contribution approach
The contribution Approach is the contrast between variable costing and sales revenue. It is majorly used for making short-term decisions in the market (Bajpai, 2021). The main aim of Unilever is to raise the standard of living of all the people so that they can earn incomes and wages for building an inclusive and equitable society (unileverfoodsolutions.com, 2022).
Therefore, the Contribution Approach helps the company in making valuable decisions so that the people earn a fair amount of income in order to increase their living standards. It also helps the company in understanding the main effect of cost in order to incur profits in the organization. It is one of the important factors in the break-even analysis. It also helps in separating the foxed cost by its product sales which are majorly used to determine the selling price and its range.
| Contribution Approach | ||
| Particulars | Amount ($) | Amount ($) |
| Add: Revenue | ||
| Sales | 500000 | |
| Less: Variable Costs | 150000 | 650000 |
| Wages | 120000 | |
| Materials | 80000 | |
| Contribution Margin | 200000 | |
| Less: Fixed Cost | ||
| Insurance | 50000 | |
| Rent | 20000 | 70000 |
| Net Income | 920000 | |
Table 1: Calculation of Contribution Approach (Source: Self-Created)
In the above table it is concluded that the net income incurred by the company is 920000 and the contribution margin of the company is 200000. In order to cover the fixed cost of the company, this approach has been used. It helps in deciding the actual price of the company and also resolves the bottlenecks that decided the overall price of the product (Maelah et al. 2019). This ensures that the company incurs profitability in the business.
It helps in organizing the data and makes it easier to access and manage the changes in sales and production that affect the operating profit of the business. It is an important factor that helps the business to evaluate the income statement (Vilar, 2018 pp. 501). This helps the organization to secure all the data and also makes it the management easy to change the sales and production of the costing that affects the operating profits.
It is very useful in determining the variable costs, sales as well as fixed cost that has an impact on the operating profits. In order to know the actual implementation of contribution, it is important to know the actual cost of the business. It is a kind of revenue that generates the variable cost and its production like materials and labor costs without salaries.
It is a tool that assesses the sales volume, costs and also the price that affects the profitability of operating profits. The main role is to target the profit of the company that should be achieved within a given time period. The company however has managed to reach its ultimate approach in the business to make it business sustainable and effective. The new implications in the company helped the company in generating higher revenue and also helped in making the company future-ready.
The company has increased its sales growth in the last nine years by 4.5% with a 1.6% volume and a 2.9% in price hike. The overall turnover of the company is increased by 3.4% which has a positive impact on the business (Kharlamova et al. 2020). This proves that the cost reduction methodology that the company used has helped them in retaining utmost profits in the market. The operating profit incurred by the company was 2.9% which depicts that the company’s overall performance during the year has been consistent and the financial condition of the business related to its cost and revenue has been fairly organized.
Role of costing
The main purpose of costing is to determine each and every product, its operations as well as the process in order to ensure that all the expenses are correctly absorbed in the techniques and product costs. The main role of the costing is however bifurcated into various factors. These are as follows:
Ascertaining the costs
Ascertainment of cost is important as it determines the management of cost and their techniques in order to investigate the overall costing (Zolotova, 2018, pp.502). Recording cost plays a major role that maintaining labor, material and all other expenses of the business. The management collects all this data that helps in ensuring the selling price.
Cost Control
Ascertainment of costs is solely not enough to analyses the whole concept. Therefore, it is important to evaluate the selling price to check the overall profit incurred by the company. Therefore, for this reason, a budget is prepared that compares the standard budget with the actual budget and after analyzing both budgets some corrective measures are taken by the company to reduce the overall costs.
Impact on management
Costing is an acting process that is helping the organization to develop the planning related to the management and production development. As argued by Roberts et al. (2019), this costing process provided ideas about the cost of production, cost of raw materials, and cost of labor.
All these details are important to making the selling prices and the marketing decision of the organization. In this research the chosen organization is Unilever and this organization also provides more focus on the costing to develop better management planning (unileverfoodsolutions.com, 2022).
The costing is providing the details about the cost of the product that helps the management to take important steps to reduce the cost to increase the profitability in sales. It helps the organization by providing guidance related to the organization to develop the new product line and identifies the expansion opportunities of the organization.
Unilever is a large manufacturing organization that deals with various product development like cosmetics, food, and beverages so this organization has to maintain the quality of the products to gather more customers (unileverfoodsolutions.com, 2022). In order to develop more customers, Unilever develops quality products, and to maintain the quality of the product, then cost management is very important. The cost of the products can reduce the expenses related to the production and it can help to develop the quality of the production by using more funds for product development.
Advantages of costing
The main purpose of budgeting is to develop accountability in the costing of the organization. According to MAKING, (2020), the costing process not only develops accurate results related to the cost of the organization but also provides an idea about the organizational position by critically analyzing all the important development plans related to the organization. There are some advantages they can get after practicing the casting in the decision-making process.
- The use of casting can provide benefits in developing the budgeting in the organization to develop a culture action plan to achieve the organizational goal.
- It can reduce the cost of production by eliminating the excess amount of expenses related to organizational development to increase the potential of the organization.
- This process provides brief details about the cost structure that is used in the production department and can help the management by developing the project management decisions.
- This process can reflect the accurate result related to the current value of the assets and this information can develop the organizational position by developing the decisions or developing planning.
- This process provides all the details about the costing related to the organization and is able to help in the budgeting process.
Impact of costing in financial planning
Unilever is a large manufacturing organization and able to produce a huge variety of products related to cosmetics, health care, food, and beverages. As per the viewpoint of Labro, (2019), the huge organization is actively dependent on the financial decision of the organizational development by implementing cost management.
Costing is helping organizations to indicate issues related to cost to provide clarity in the production. According toAladwan (2018), a brief idea about the cost of the organization can develop the planning related to further development. The costing can indicate the current position of the assets in the organization so this information can provide benefits in the financial decision-making.
The costing process can reveal the issues related to the particular products and can identify the position of the profit loss to the particular product. This kind of information can develop the product expansion or product demolition to develop the marketing related to the documents that support the organization.
Impact of behavioral factors
Behavioral Factors are helpful in the development of the organization by reducing the issues or the fault in the product development. Various behavioral factors like leadership, reward system, and organizational structure impact budgeting and organization development. As argued by Rahman and Gan, (2020, p.1024), economical activities and human perception are both related to behavioral factors of decision-making. These factors are forcing Unilever to develop the organizational position by developing the production, workflow, employee engagement, and developing progress in the work (unileverfoodsolutions.com, 2022). These behavioral factors are impacting the budget control and budgetary planning in this research.
Leadership
Leadership is an important factor that provides a force to develop the production and provide instruction to maintain their quality in the work culture of the organization. Good leadership is important to make decisions or to take important steps in the budgeting planning process. As argued by Rubin and Ebdon, (2020, p.22), the ladders are able to find out the important potential related to the organization to develop Unilever’s development. Effective leadership provides instruction on the development of budgeting and finding out the issues in budget planning. It can indicate the options that can increase the potential of the organization implementing in the future captivity through budgeting.
The reward system
The rewards system is one of the important ways to increase the production and the motivation of the workers. This activity is helping to develop the quality management in quality products in the organizational development by developing the quality of the employees.
As argued by Scott and Woods, (2018, p.3), this budget is mainly affected by the budgeting process by implementing a system in the budgeting process. The budget paling is indirectly affected by the reward system and productivity improvement is the main reason for the reward system being one important factor in budget planning. The reward system is providing support to increase production quality in Unilever and that affects organizational development.
Organizational structure
It is one of the most important keys in the budget developing and organizing the planning related to the profitability of the organization. Budgeting is a forecasting process that provides a financial idea about the organization and provides the guides to the organization to take action on future steps.
As argued by Ahrens and Ferry, (2018, p. 4), A strong and developed organizational structure is able to help the budget-making process to provide a suitable and profitable budget. A well-structured budget can increase the potential of the organization by developing future activities without facing any issues.
Use of actual rate of return and money rate of return in NPV
The real rate of return and the money rate return both are important factors that impacted the cash flow statement. The actual rate of return is an actual rate of return that’s taken into consideration of the taxes and inflation. The money rate of return is a rate of return that helps the organization to provide the idea related to the net gain or loss over the specified time related to the organization.
| Year | Cash flows (£) | Prevent value (£) |
| 1 | 45000 | 27941.46 |
| 2 | 50000 | 31046.07 |
| 3 | 52000 | 32287.91 |
| 4 | 51000 | 31666.99 |
| 5 | 55000 | 34150.67 |
| NPV | 157093.09 (£) |
Table 2: NPV calculation (Source: self-created)
In this calculation, the discount rate is taken 10%, the time of investment 5 years and the initial investment is £150000. This calculation is completed after using the formula related to the rate of return. The formula was the amount of cash flow/ (1+ rate of discount) ^ 5.
The real rate of return
It helps the organization to develop the investment activity related to the annual percentage earned by investment and the inflation rate of the investment. This rate of return accurately indicates the purchasing power of the organization so it has an impact on the investing captivity of the cash flow. Because the cash flow investing captivity shows the changes in the assets or the purchase of the assets. The investing actions are also affected by the inflation rate.
Money rate of return
The money rate of return is one of the rates of return that supported the NPV calculation that affected the interest rate of the money rate of return. As argued by Brand et al. (2018, p.7), this return has an impact on the money market rate and can increase the equity risk premium of the organization. The rate of return is affecting the cash flow and also affecting the investing activity related to organizational development.
Conclusion
The chosen organization for Thai research is Unilever and this research provides all the brief details about the costing and approaches that are dependent on the details of Unilever. This research critically evaluated all the impotent factors that provided details about the costing and its importance in organizational development. The application of standard costing is provided in this research to increase the knowledge related to standard costing.
Its importance and sausage in the manufacturing department and services department are briefly discussed in this research. This research is able to provide the contribution approach to organizational development. This research provides details about the role of costing in the organizational decision-making process. The financial decisions affected by cost accounting are also mentioned in this research. The actual rate of return and the money rate of return is an effective way to develop the cash flow and the NPV calculation. The importance of the behavioral factors in decision-making is also developed in this research.
Reference List
Journals
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Websites
unileverfoodsolutions.com, (2022), “marketing process of Unilever”, Available at: https://www.unileverfoodsolutions.com.ph/our-brands.html. [Accessed on: 11-07- 22]
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