ASSIGNMENT 01 FRONT SHEET

Qualification BTEC Level 4 HND Diploma in Business

Unit number and title Unit 5: Management Accounting

Submission date 12 April, 2021 Date received (1st Submission)

Re-submission date 22 April, 2021 Date received (2nd Submission)

Student Name Phan Phu Truong Student ID GBS200816

Class No. GBS0901 Assessor Name Nguyen Thi Ngoc Quynh

Student declaration
I certify that the assignment submission is entirely my own work and I fully understand the consequences of plagiarism.
I understand that making a false declaration is a form of malpractice.
Student Signature

Grading grid

P1 P2 P5 M1 M4 D1 D3

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Contents
Introduction .................................................................................................................. 3
LO1 Demontrate an understanding of management accounting systems .............. 3
P1 Explain management accounting and give the essential requirements of
different types of management accounting systems. ............................................. 3
P2 Explain different methods used for management accounting reporting. ...... 7
LO4 Compare ways in which organisations could use management accounting to
respond to financial problems................................................................................... 10
P5 Compare how organisations are adapting management accounting systems
to respond to financial problems .......................................................................... 10
Conclusion .................................................................................................................. 15

Introduction
This report is intended to report on the development and application of the management
accounting information system to improve efficiency and solve the financial problems
of the Adidas group. The report will include theories about systems of management
accounting, Comparison of ways organizations can use management accounting to
solve financial problems. Besides, the report also gives examples to make it easier to
understand.

LO1 Demontrate an understanding of management accounting

systems
P1 Explain management accounting and give the essential requirements of
different types of management accounting systems.
❖ Introduction to management accounting:
According to Investopedia “Accounting is the process of recording the
company's financial transactions. This process covers activities such as making
a summary, analyzing, and reporting these transactions to agencies in charge of
supervision, regulators, and entities in charge of tax collection. A financial
statement is a brief summary of a company's performance, financial position,
and cash flows for an accounting period”.

Financial accounting is a specific accounting branch that relates to recording,

aggregating and reporting a multitude of transactions arising from business
activities over a period of time. In the preparation of financial statements, all
business transaction results are summarized. The balance sheet, income

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 statement, and cash flow statement are all financial statements that record the
operating performance of the business over a specific time period.

Managerial accounting is concerned with identifying, measuring, analyzing,

interpreting, and communicating financial information to internal people in
order to pursuit goals of the organization. It differs from financial accounting in
that the goal of managerial accounting is to help users within the organization
make well-informed business decisions.

The distinction between management and financial accounting.

(https://www.graduatetutor.com/)

❖ Different types of management accounting systems:

Management accounting systems are internal systems that are used to supply
important information to management for operational business decision-
making.

Cost accounting systems are accounting systems designed for manufacturers

to capture a company's total production costs by calculating both the variable
and fixed costs of each production step. The two common types of costing
systems are Process Costing and Job Order Costing.

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 • The Process Costing is a method for collecting and assigning
production costs to production units. A handling cost system is used
when nearly identical units are mass-produced.

• Job Order Costing is a method that tracks direct costs and allocates
indirect costs to specific jobs. It is suitable for businesses that offer
heterogeneous customized products and services.

Application of Adidas
Adidas applies Process Costs to each of its product lines, For example:
Adidas uses the weighted-average method in its process costing system.
This is reported by the production division of the Adidas Ultra Boost for
April.
Percent Completed
Units Materials Conversion
Work in process, April 20 200 30% 10%
Units started into production in April 5,000
Units completed and transferred out 4,500
Of Department A during April

Work in progress, April 20 700 50% 20%

Materials Conversion
Units comple and transferred out of 4,500 4,500
Department A in April

Work in process, April 20:

700 units x 50% 350

________ ________
Equivalent units of Production in 4,850__ ________
The Department during June

Materials Conversion
Units comple and transferred out of 4,500 4,500
Department A in April

Work in process, April 20:

700 units x 50% 350
700 units x 20% 140

Equivalent units of Production in 4,850 4,640

The Department during June

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Compute and Apply Costs
Beginning Work in Process Inventory: 200 units
Materials: 30% complete $ 5,123
Conversion: 10% complete $ 1,920
Production started during April 5,000 units
Production completed during April 4,500 units

Costs added to production in April

Materials cost $ 101,487
Conversion cost $ 95,520
Ending Work in Process Inventory: 700 units
Materials 50% complete
Conversation 20% complete

Here is a schedule with the cost and equivalent unit information

Total cost Materials Conversion
Cost to be accounted for:
Work in process, April 20 $ 7.133 $ 5,213 $ 1,920
Cost added in Assembly 198,927 101,487 95,520
Total cost $ 206,060 $ 106,700 $ 97,440
Equivalent units 4,850 4,640
Cost per equivalent unit $ 43.00 $ 22.00 $ 21.00

Inventory management systems refers to the process of tracking an business's

goods throughout the supply chain, from purchasing to production to end sales.
Three methods of Inventory management systems to calculate the inventory
and costs of a business, namely FIFO (First In, First Out), LIFO (Back In, First
Out), and Weighted Average.

Example
FIFO method

Date Purchases Sales Balance

August 2 200 @ $ 22 = $ $ 4,400
4,400
August 5 150 @ $ 21 = $ $ 7,550
3,150
August 10 200 @ $22 = $ $ 210
4,400

140 @ $21= $
2,940
August 20 250 @ $ 20 = $ 5210
5,000
September 1 10 @ $21 = $100
$210

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 245 @ $20=
$4900

The Price optimization system is an accounting system that involves

calculating changes in needs at various prices, then combining that information
with cost and inventory informations to offer a price that increases profits.

The benefits of types accounting systems

The accounting management systems benefit the business by making it easier
and more reasonable to manage its money. It enables managers to manage the
internal working capital of their departments with ease. From there, it accurately
determines the cost of production, the pricing of the company's products, or uses
funds for marketing to improve the image of the business, such as payments for
community campaigns, product launch events, and event activities. Besides, it
also manages capital and debt to forecast the business's ability to pay debts and
handle the tax. Furthermore, these systems can be used to promote sustainable
development by decreasing unnecessary costs and effectively improving the
image of the business in the eyes of its customers.

P2 Explain different methods used for management accounting reporting.

❖ Presenting financial information:
Why information should be relevant to the user, reliable, up to date and
accurate?

Relevance
Collected data must be suitable for the intended use. This will require a periodic
review of requirements to reflect changing needs.

Reliable
Data should be consistent and stable across collection points and over time.
Progress toward performance goals should reflect real changes rather than
changes in data collection methods or approaches.

Up to date
The information provided should be the most recent information at the
appropriate time. To improve the accuracy of financial analysis of business
activity, the data used must be from the past three or five years.

Acurracy

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 The financial reports' accuracy level should be between 80% and 90% so that
the user can control and capture the business's operational capability. It must be
free of errors, such as entering the incorrect number into financial data.

Why the way in which the information is presented must be understandable ?

Information must be easy to understand so that the user can read and know it.
This gives the business the ability to plan, control and organize for decision
making. Understandable information is data explained briefly, completely, and
clearly in the report. Users need information about the relationship in order to
understand financial statements.

Different types of managerial accounting reports

Managerial accounting reports are used to help business owners and managers
keep track of their company's performance and are prepared as needed
throughout accounting periods. Quarterly, monthly, weekly, or even daily
reports may be required by an owner or manager, depending on the nature of
the project and how time-sensitive the information is.

Budget report
The budget report assists small business owners in analyzing performance of
their business. For large business, it assists managers in analyzing departmental
performance and controlling costs. The period's estimated budget is typically
based on previous years' actual expenses. If the business or the department had
significantly exceeded its budget in the previous year and could not find
solutions to cut costs, the future budgets may need to be raised to a more precise
level. Budget reports can also be used by owners and managers to provide
incentives to their employees. In this case, some of the budgeted funds may be
used as bonuses to employees who meet certain financial targets.

Accounts Receivable Aging Reports

The accounts receivable aging report is an important tool for businesses that
extend credit to their customers in order to manage cash flow. This report
analyzes customers' balances over the time they are owed. Most aging reports
have distinct columns for invoices that are 30 days, 60 days, or 90 days late or
more. The aging report can be used by a manager to identify issues with the
collection process of the business. If a large number of customers are unable to
make payments on their balance, the company's credit policies may need to be

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tightened. The collections department is also kept from overlooking old debts
by analyzing the accounts receivable aging on a regular basis.

Job Cost Reports

Job cost reports detail the costs associated with a particular project. They are
typically accompanied by a revenue estimate, allowing the company to assess
the profitability of job. This assists the business to identify and focus efforts on
higher-earning areas rather than squandering time and resources on low-profit-
margin jobs. Job cost reports are also used for cost analysis while the project is
being worked on so that the manager can fix the wasted areas before the costs
goes up.

Inventory and Manufacturing Reports

Managerial accounting reports can help business with physical inventory
improve the efficiency of production processes. Items like inventory waste,
hourly labor costs, and per-unit overhead costs are commonly included in these
reports. Thereby, the manager is able to compare the business's various
assembly lines to determine where one can improve or to reward the
departments that perform well.

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LO4 Compare ways in which organisations could use
management accounting to respond to financial problems

P5 Compare how organisations are adapting management accounting systems

to respond to financial problems
❖ Identifying financial problems:
Benchmarking refers to the process of comparing the performance of one
business' product, service, or process to that of another that is regarded as the
best in the industry or called "best in class". Benchmarking is used to determine
internal changes for improvement. Businesses can improve performance by
studying other businesses that outperform, analyzing what makes that business
superior, the business can then compare it with its own to find out the flaws and
take corrective action.

The nine basic types of benchmarks are:

- Process benchmarking

- Financial benchmarking

- Benchmarking from an investor perspective

- Performance benchmarking

- Product benchmarking

- Strategic benchmarking

- Functional benchmarking

- Best-in-class benchmarking

- Operational benchmarking

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Practice
Adidas is known as the second-largest sportswear company in the world. Adidas
was originally founded by brothers Rudolph and Adi Dassler in 1920. The
company's first product was slippers, which they then moved to produce sports
shoes. This was so successful that they opened their own shoe factory in 1926.
And today, Adidas has become one of the most successful companies in the
sportswear industry. Although Adidas has become a large and successful
company, it still has to compete fiercely with other brands in the market, and
one of the biggest competitors in the sportswear industry is Nike. Following is
the benchmarking between Adidas and Nike.

Adidas Nike
- Adidas' primary target audience is - In contrast, Nike's target audience is
consumers aged 12-34 who very specific, It primarily targets
specifically engage in sports. Adidas males and females between the ages
targets a variety of sports, including of 18 and 35. Like Adidas, Nike
NBA players, football players, so on, targets football players as part of its
as well as young people who want to target audience.
live a sporty lifestyle.

- Adidas uses a number of different - Compared to Adidas, the price of

pricing strategies depending on the Nike products is quite high. Nike
product. However, it generally employs a pricing strategy that
employs a Market skimming different and more competitive than
strategy, which means that the price Adidas. This strategy is based on the
of the product is determined by its basis of the high-end segment as the
color. For instance, white Adidas target customer. Because Nike is a
shoes are more expensive than other high-end brand, the prices of its
colors. products are higher than those of
Adidas.

- Adidas's most fundamental - On the other hand, Nike's strategy

distribution strategy is to focus was to explore existing markets while
resources on areas with the most also developing new ones, which is
profitable customer segments. why its stores can be found in nearly
Therefore, it opened stores all over 200 countries. Nike products are sold
the world for this purpose. It also to independent distributors,
concentrates on providing total subsidiaries, and licensees, just like
customer service at the point of sale Adidas. Besides, Nike also has an
for its products. in addition to in- online store too.
store purchases, Adidas also offers
online purchasing.

- Adidas positions its own unique - Nike, on the other hand, has a
brand in the minds of its customers. reputation for being an innovative
One of Adidas's images, for example, company that concentrates on
is that those looking for light shoes creating innovations and designing

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 should choose Adidas rather than new shoes with new styles. As one of
other brands. Another image of Nike's primary target audiences is
Adidas that comes to mind for football players, the company's key
customers is basketball shoes, which positioning in the minds of customers
are popular among basketball players is to supply a competitive advantage;
due to their unique design and to assist athletes in performing well.
lightweight. Nike recently signed an
approximately $1 billion deal with
the National Football League to
improve its brand positioning. All on-
field uniforms, as well as game
uniforms and other sidelines personal
apparel and fan gear, will be
produced by Nike.

Through the comparison table above, it can be seen that the problem of Adidas
is that the target audience is not specific, the price strategy lacks competition,
only focuses on profit, lacks the discovery and development of new markets,
brand positioning is still fuzzy if compared to Nike. This resulted in Adidas
losing to Nike in some aspects. In terms of Brand Value, Nike's value in 2010-
2020 is greater than that of Adidas. Nike's brand value growth since 2010 has
been much faster than Adidas. In 2015 was the year Adidas began to reform &
change its strategy a lot to explode in 2016 and 2017. With a Nike brand value
of $ 34,388 million, while Adidas is $ 12,070 million. Nike's brand value is 2.85
times that of Adidas. In terms of Global Sales, Nike is also better than Adidas
in the period of 2017 – 2020. Adidas achieved very good growth in 2015-2017.
However, Nike then got very strong from 2018 - 2019. Nike grosses 35.13
billion euros globally and Adidas's 23.64 billion euros. Nike has about 1.48
times more revenue than Adidas.

❖ Financial governance:
Financial management is the research, selection, and making decisions about
financial relationships (including the capital, assets, and arising financial
relationships such as accounts receivable - accounts payable) that arise from the
production and business process of an enterprise or organization. Based on this
decision, businesses will proceed to achieve business goals, maximize profits
and increase business value and competitiveness in the market.

In 2006, Adidas officially bought Reebok for 3.8 billion USD, with the ambition
to expand its market share in North America, competing directly with Nike. But
it can be said that this is an Adidas wrong deal when Reebok continues to fall
into a losing business, leading to the decline of the Adidas apparatus. In 2007,
Reebok generated nearly a quarter of all Adidas sales, but in the first nine
months of 2020, that figure dropped to just 6.9%. Reebok's net sales fell 7% in
the third quarter of 2020 to € 403 million ($ 489.40 million), after falling 44%,

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 or $ 250 million, in the previous quarter. After many years of losses, Adidas is
announcing that it is selling Reebok.. According to the CEO of Adidas, Kasper
Rorsted "to get Reebok only need to pay 2.4 billion dollars or even less"

❖ Management accounting skill sets:

• Planning & Reporting
The skills needed to plan for the future, assess performance and report
financial results.

• Decision Making
The skills needed to make decisions, manage risks, and create an ethical
environment.

• Technology
The skills needed to manage information systems and technology in
order to run a business efficiently.

• Operations
The skills needed to contribute as a multifunctional business partner in
the transformation of a company's operations.

• Leadership
The skills needed to work with others and motivate teams to accomplish
organizational objectives.

Characteristic of an effective management accountant

• Capability
Maintain a suitable professional expertise level by constantly expanding
knowledge and skills.

Carry out professional responsibilities in accordance with applicable

regulations, laws, and technical standards

Supplying accurate, concise, clear, and timely decision-supporting

information and recommendations.

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 Recognizing and communicating professional limitations or other
constraints that would prevent making sound decisions or performing an
activity successfully.

• Confidentiality
Maintain the confidentiality of information unless disclosure is legally
authorized or required.

Notify all relevant parties about using confidential information in the

appropriate way. To ensure compliance, keep a close eye on
subordinates' activities.

Do not use confidential information for unethical or illegal benefits.

• Integrity
Reduce the likelihood of actual conflicts of interest, exchange
information with business partners on a regular basis in order to avoid
obvious conflicts of interest.

Avoid participating in any behavior that would suffer the ability to

perform duties ethically.

Do not participate in or support any activity that would discredit a

profession

• Credibility
Fair and objective communication of information.

Declare all relevant information reasonably expected for the user to

understand the reports, recommendations, and analysis.

Declare any delays or information, processing, and timeliness

deficiencies.

Internal controls that are in accordance with the policy of the

organizational and applicable law

How can these skills be used to prevent and/or deal with financial problems?

Find a Replacement for One Large Expense in Monthly Budget

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It is easier to cut an expense or change a habit if you find another replacement for it.
For example, If you are someone who likes to drink coffee and you want to stop
spending money on expensive coffee on the way to the workplace, think about how you
can replace it with a new habit. You can buy yourself a new travel mug and buy some
coffee you like to drink, and then you can make and enjoy it at home. This change in
your habits keeps you from being tempted to stop and spend your money on expensive
roadside coffee.

For businesses, finding an alternative to a really big budget expenditure is one of the
ways to solve financial problems. Helping businesses to cut down an expense that is no
small.

Determine which expenses you can decrease.

Determine what expenses can decrease and then make a plan to change them. For
instance, determine unnecessary services or products, but you are still paying for them.
Some people let their bundled offerings renew every month, even as their demands have
changed. This could be because they are too busy to carefully examine their bills. By
spending the time to go over your bills line by line and contacting the switchboard to
request changes to service plans, or completely discontinue services, you can avoid
paying for some unwanted cost.

As another example, many businesses have determined that they can reduce warehouse
costs by applying just in time to manage their inventories. This means that their
inventories are almost zero and raw materials are provided on time by the suppliers,
and the number of the company's products will be produced to order.

Create a Spending Plan or a Budget to Solve and Prevent Financial Problems

Planning a monthly budget is one of the most intelligent things you can do for your
finances. However, this solution is often overlooked by many people. A spending plan
or budget makes your life a lot easier because you already have the guideline for
deciding the way to spend your money.

For businesses, a spending plan can help businesses evaluate the financial situation of
the business and make the right decision. Besides, it identifies areas in which to reduce
spending or increase revenue and thereby bring profits to businesses

Conclusion
This report shows the importance of management accounting in an organization. it
helps the organization solve its financial problems and at the same time improves its
performance. The organization needs to pay more attention to management accounting
to be able to make the right plans and decisions.

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