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management accounting case study

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Introduction

NOZMUL HUSSAIN STUDENT NUMBER: 2489340 PROFESSIONAL ACCA ACCOUNTING COURSE YEAR 1 MANAGEMENT ACCOUNTING 1 SUMMER RESIT COURSEWORK (2005/06) UNIT LEADER: JONATHAN ROOKE Management Accounting Essay Q1: Discuss the management accounting issues that affect the business concerned in relation to the news paper article. (www.butlersinthebuff.co.uk) From reading the article it's quite clear that the business has developed very rapidly over a very few years are on a successful businenss idea but as any business grows in size operations become more complicated, no longer is just having a good idea enough to progress and protect what has been achieved. Good management and skilled labour are necessary to be able to grow. For managers to be able to make good decisions they require up to date financial information which is related to the issue they are examining, this is the role of management accountants to provide relevant financial data to managers. From reading the article entitled: 'Starting Out' 1 and looking at the business's website2 I've got a good understanding of the nature of the business and its history. There was very little financial data provided in the article and website so I am not able to give much direct management accounting advice but I will discuss various management accounting issues that I think the directors of the business should consider for continued success in the future. Firstly, I would like to discuss contribution analysis and how it can help the company directors make decisions for the future. ...read more.

Middle

Moving into events organising and PR for customers seems like a natural business to move into, providing these services will not only generate new profit in their own right but also strengthen the existing business as stronger relations are built with clients. Q2: Discuss the management accounting issues that affect the business concerned in relation to the news paper article. (Cusquena premium beer) From reading the article it seems that the company is doing well and has a lot of potential but it has a major problem that could do it a lot of harm in the future. It is currently operating on very tight margins due to the cost of marketing, and what small gross profit after marketing costs of around 5% being made is being given to charity as their net margins are nil. This poses a major cash flow risk as there is no retained profit being reinvested. If there was a sudden need for cash due to some unforeseeable reason such as if there was a fault with a large batch of bottles and they had to do a product recall this would probably put them out of business unless they raised cash from outside the business as internally the cash just isn't there as they are operating at nil profit. Simply for the company to get into a more comfortable position they need to sell there way out of trouble, if demand increases which it looks like it will due to their investment in marketing and the fact that the major supermarkets have started stocking it. ...read more.

Conclusion

Given the long lead time at 8 weeks required to get a bottle from the brewery to the customer, it is essential that effective production and sales budgets are produced, to make sure that enough is in stock to fulfil demand as well as reduce possible over ordering considering the extra cost of storage and logistics of unneeded stock and especially given the existing cash flow constraints. Given that contribution analysis, sales and production budgets are being used it is necessary to do variance analysis to find out the state of affairs by finding how much budgeted and true figures at the end of the financial year compare. This information will help them to plan in the future as they will have a better idea of what types of variance will occur in different parts of the business and be able to make educated predictions on how much the variance will be or within what expected range. This information will help them to make better budgets in the future as they have a better idea of what to expect. As a final advice on a non-accounting issue I think they should really push the message that this beer is; 'the only beer that doesn't cause a hangover' as strongly as the charitable aspect and the history of the beers origins in the marketing campaign, as I'm sure that will be a strong advertising point to the British public who are known for their heavy drinking compared to other European countries. Although I myself am a Muslim and do not drink yet this marketing opportunity seems obvious to me. ...read more.

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