Management Accounting Techniques and Decision Making in Adelaide Food Group Ltd and The Restaurant Group Plc

Learner Name				ID
Programme Name	Pearson BTEC Higher National Diploma in Business Management
Unit Number and Title	Unit 15 – Financial Management
Credit Value	15	Unit Level	5
Academic Year	2020-21	Cohort	April 2019
Assessor	Mohammad Islam
Assignment Title	Principles of Financial Management (Part 1) Analysis of Financial Statements for Decision Making (Part 2)
Issue Date	18/01/2021
Submission Deadline	Sunday 16 May 2021 at 23:59
IV Name	Kashif Khan
IV Date	4 January 2021
Statement of Authenticity: I certify that the work submitted for this unit is my own and the research sources are fully acknowledged. Learner Name: Date:

Table of Content

Assessment Part 1

1.0 Introduction p

2.1 A critical evaluation of a range of approaches, techniques and factors which contribute to effective decision making in an organization p

2.1 How the management accounting function will support organisational decision making p

3.0 Evaluate the principles which guide effective and efficient financial strategies to maximize shareholder value and meet stakeholder needs p

4.0 Critically evaluate the role and function of the management accountant especially in regard to financial control and monitoring p

5.0 Techniques for fraud detection and prevention and approaches to ethical decision making p

5. Recommendations on how management accountants can improve financial decision making p

References p

Conclusion p

1.0 Introduction

Ans: This report concentrates on the effective decision making in the Adelaide Food Group Ltd, which helps to improve the company’s value. This report shows the different approaches, techniques as well as factors that help to make the effective financial decisions for the company such as knowledge based approach, formal, approach, marginal analysis, cost/ benefit analysis, and may or buy decisions and shows the role of the shareholder in the decision making. This report also focuses on the functions of management accounting, role and functions of management accountant.

2.1 A critical evaluation of a range of approaches, techniques and factors which contribute to effective decision making in an organization

Ans: There are the approaches and techniques which contribute to effective decision making in the business organization. These are as follows:

(1) Knowledge- based approach: This approach is concentrates on the objectives, factual, and quantitative information of data to inform the decision making. It also helps for providing support of decision to the Adelaide Food Group Ltd. It also ensures and measures the optimal outcome for the time period. The knowledge- based approach is used to make the strategic as well as effective decisions by establishing the thought procedure and reasoning behind the decisions. (Abu Amuna Al Shobaki and Abu-Naser 2017) By more efficient problem solving and decision- making knowledge management can also help individuals in the companies do their work better as well as save the time.

(2) Formal vs informal approaches:

• Decision making helps to making or creating the choices by collecting data, resolutions of assessing alternative, and identifying the decisions. Using the process of step- by- step decision making can also helps to make better decisions by the defining alternatives and organizing the related data. The formal decisions are made using the three types of techniques such as structures, processes and systems. (Corradini et al, 2018) The formal approach attempts to integrate the organization’s objective of formal with the individual goals working in the Adelaide Food Company.

• The approach of informal decision making differs from the approach of formal decision making. In this there is the decisions are not only based using the framework, processes or systems but via unwritten regulations, networks and relationships.

Techniques:

(1) Marginal analysis: One of the most effective marginal analysis techniques for the decision making trying to address resources, informational obligations into account, and preferences, hence the managers can make more effective decisions based on the all information. (Vagif 2018)

(2) Decision matrix: When the business organizations are dealing with various variables and choices, the decision matrix can convey the clarity to the disorder. It made the more effective decisions in the Adelaide Food Company to determine the important factor in the company.

(3) Cost/ benefit analysis: The technique of cost/ benefit analysis is simply for making the decisions of the nature of finance. It also is used to attain any financial information to might use as the part of other technique of decision making.

Role of shareholders in decision making: The shareholders play an important role in the process of decision making in the business organization. The stakeholders value can be implemented in the process of decision- making, it is also important for the organization’s top manager to decide that what value are implemented of shareholders in the process. There are two types of shareholders; internal shareholders and external shareholders. It helps in the business organization to support the effective decision- making as well as achieve the business goal. The organization needs to have the growing and stable sales, and these are the conclusion of satisfied clients as well as motivated employees. (Basu 2019)

Factors:

(1) ‘Make or buy’ decisions: The decision of ‘make or buy’ indicates to the act of using the cost- advantage to make the choice of strategic between the goods in- house or buying from the external supplier. The business organization use the cost of transaction collected in developing goods to reach the decision of ‘make- or- buy’.

(Bragg and Bragg 2020)

(2) Identify limiting factors: The organization chooses the best option and makes the decision that each manager of organization needs to have the resources such as supplies, personnel, time, equipment, and information.

2.1 How the management accounting function will support organisational decision making

Ans: The important management accounting objective is to help the organization’s management to take the quality decisions for maintaining as well as controlling the organizations activities effectively. The management accounting function also support the decision making of the Adelaide Food Group Company. The function of management accounting is as follows:

• Forecasting: Forecasting is important part of the any business organization. It helps to achieve the objectives of the business for the long term as well as short term. The accountant of the food company also provides the important data and information for forecasting. (Ugoani 2020)

• Help in organizing: Organizing implies to organization’s allocation resources to different areas as well as duties assignment to staff at different management levels.

• Planning: The budgeting, marginal costing, cash- flow statement, standard costing, fund- flow statement, and capital budgeting, are used for the purpose of planning. This is the main function of management accounting to support decision making.

• Decision making: Modified information, interpreted and analyzed data are highly beneficial to the management for policy formulation and taking quality decision in the system of management accounting. The decision making process is the important function of the management accounting.

3.0 Evaluate the principles which guide effective and efficient financial strategies to maximize shareholder value and meet stakeholder needs

Ans: There are the principles help in efficient as well as effective financial strategies to increase the value of stakeholders and meet shareholder needs. These are as follows:

• Setting objectives to achieve financial goals: The main aim of any food company is to set the objective as well as achieve the business objectives of the business organization. It is the part of the financial strategies to increase the value of shareholder. It also helps to set the long term, medium as well as short term objectives and also helps to determine that financial data aspect is used to make objectives. (Hone Macinko and Millett 2018)

• Ethical financial management: To maximize the stakeholder value it is important to increasing the products and goods & services price. In this, to decrease unit cost will helps to increase the value of stakeholder. This requirements help to maximized to making ethical decisions in the business organization.

• Maximizing shareholder wealth: In the organization, the stakeholders always expect the return on the investment and it the strategic objective of the financial plan. Shareholder wealth maximizing includes investment, dividend, return, financing, and risk. Profit maximization used to be the important business aim as well as financial management until the wealth maximization concept came into being. (Khan and Hussanie 2018)

• Delivering sustainable long term growth: In this it is important to use the financial information to inform decisions which will guide to, and long term growth, support, and sustainable. The sustainability growth is the biggest challenges which the Food Company leader faces. Without innovative distribution channels, products that develop, and models of operating that remain in permanent touch with the achieving the growth of long term, consumer change in the fast- paced digital world is extremely difficulty.

4.0 Critically evaluate the role and function of the management accountant especially in regard to financial control and monitoring

Ans: Management accountant: The management accountant of the any business organization designs the financial format as well as reports of cost control. These statements are showed before every management level with the most useful information at the most suitable time. The management accountant educates management executives of the organization as the way of using statements. The management accountant is asked to the work directly in under the Chief Executive Officer or Managing Director. The management accountant role collaboration of accounting, management as well as finance helps to make the internal accounting statements. (Lepistö and Ihantola 2018) The management accountant also uses the non- financial and financial data to create a whole view of the Adelaide Food Group company. There are the roles of management accountant. These are as follows:

• The management accountant should be the company’s executive officer at the level of policy making responsibly directly to the officer of chief executive of the concern. The management accountant removal or appointment should require the board of directors approval,

• The management accountant should be required by the company’s board of directors the current periodical statements covering the financial situation as well as operating results of the organization together with other data as it may require, (Zarzycka 2017)

• It is the member of board of directors and help to take the decisions for the company’s profitability. The management accountant make the financial report of the organization such as cash flow statement, income report as well balance sheet.

• The management accountant of the company designs the cost framework as well as financial accounts, and prepares the statements for the routine operational and financial decision making. It also provides the important information to the management of the company to making the financial decisions to increase the productivity as well as profitability.

Functions of management accountant: There are the functions of management accountant:

• Planning of accounting function: The system of accounting is maintained as well as controlled in the food company which should covers the profit planning, capital budgeting, long term and short term financial planning, production planning, sales forecast, and costs standards. The management accountant also prepares the important process to complete the plan effectively. (Zarzycka 2017)

• Reporting: The top management of the food company requests to the management accountant to prepare the statement for the root created for the operations or an unfavorable event. In the Adelaide Food Group Ltd. the accountant can check and clear out the real reasons and the people who are responsible.

• Controlling: The management accountant of the company measure the performance of actual to compare with the performance of standard. Based on the comparison in between actual and standard, the management accountant has to search the differences as well as analyze the operation results and submit similar to the all management levels. (Sadok and Welch 2019)

• Evaluation: The management accountant estimates the effectiveness of procedures, structure of organization, and policies for attaining the goals. For which, the accountant has to consult similar with top executives and functional managers.

5.0 Techniques for fraud detection and prevention and approaches to ethical decision making

Ans: The Company also concentrates to find out the error or fraud. There are the techniques for fraud detection and prevention and approaches to ethical decision making. These are as follows:

(1) Build the potential profile frauds: The Company has to develop the profiles of fraud risk as the part of the risk assessment as well as involve important decisions makers and shareholders. The company has to build the potential profile to find out the errors or frauds. (Byrne et al, 2019) If the company finds out any fraud then the company can achieve the objectives as soon as possible. It is important in the any company to make a god profile for the future as well. The manager should take the decisions regarding the company’s profit for the future.

(2) Improve controls by executing continuous monitoring and auditing: It is also the part of the techniques of the fraud detection, which helps to clear the errors in the business organization or in the company. If the company controls by implementing the auditing as well as monitoring to validate as well as test the controls effectiveness. The company should analyze the fraud detection to improve the value of the business.

(3) Provide management with instant notification: The management of the company should take the decisions for providing the instant notification when things are not going well in the Adelaide Food Group Ltd. It is better to raise the problems regarding the company to solve the issue. (MILLAR 2018)

(4) Expand the scope and repeat: The company should re- estimate the error profile, taking into the account both the common schemes of fraud and those that relevant the particularly to the risks which is unique to the business organisation or a company.

5. Recommendations on how management accountants can improve financial decision making

Ans: The department of management accountant plays an important role in the company or business organization. It includes make or buy estimations, controlling, relevant costs analysis, planning, and define budgets. The accountants of the company can improve the financial decision making with the help of company and their employees. The involvement of accountant in the process of strategic management depends on the organizational position as well as the accountant capabilities both interpersonal and technical and, desire to contribute to the strategy development. The management accountants should be capable to calculate the accurate financial reports as well as making the correct decisions because it helps to increase the profitability of the company. The management accountant motivates their employees to increase the business growth. The management accounting also important for decision making because it helps to increases the product production in the company. (Grohmann Klühs and Menkhoff 2018) The responsibility of management accountant is to collect the data to make the financial or accounting reports as well as to record the all information of the company. The accountant should prepare the accurate reports, and budgets as well as managing and developing the financial policies or systems of the company; it helps to improve the financial decision making.

6.0 Conclusion

Ans: The above report is about the effective decision making in the Adelaide Food Group Company. This report included the different approaches such as knowledge based approach, formal approach, and informal approach, which helps to make the correct decisions regarding the company’s profitability. The shareholder plays an important role in the decision making; it helps to make the decisions about the exceptional matters like removing directors, and appointing directors. In this report showed the techniques and factors which helps to make the effective decisions as well as included the functions and roles of management accountant in the business organization or in a company. In the company management accountant is the important key who collecting and recording the all information and making the decision as well as prepare the financial statements. The management accountant can improve the financial decision making through prepare financial reports, planning, and analyze the past reports of the company.

References

• Abu Amuna, Y.M., Al Shobaki, M.J. and Abu-Naser, S.S., 2017. The Role of Knowledge-Based Computerized Management Information Systems in the Administrative Decision-Making Process.

• Basu, C., 2019. The Importance of Shareholders in Business. [online] Small Business - Chron.com. Available at: <https://smallbusiness.chron.com/importance-shareholders-business-20844.html> [Accessed 11 February 2021].

• Bragg, S. and Bragg, S., 2020. Make or buy analysis — AccountingTools. [online] AccountingTools. Available at: <https://www.accountingtools.com/articles/make-or-buy-analysis.html> [Accessed 11 February 2021].

• Byrne, J.A., Grima, N., Capes-Davis, A. and Labbé, C., 2019. The possibility of systematic research fraud targeting Under-Studied human genes: causes, consequences, and potential solutions. Biomarker insights, 14, p.1177271919829162.

• Corradini, F., Fornari, F., Polini, A., Re, B. and Tiezzi, F., 2018. A formal approach to modeling and verification of business process collaborations. Science of Computer Programming, 166, pp.35-70.

• Grohmann, A., Klühs, T. and Menkhoff, L., 2018. Does financial literacy improve financial inclusion? Cross country evidence. World Development, 111, pp.84-96.

• Hone, T., Macinko, J. and Millett, C., 2018. Revisiting Alma-Ata: what is the role of primary health care in achieving the Sustainable Development Goals?. The Lancet, 392(10156), pp.1461-1472.

• Khan, Z.A. and Hussanie, I., 2018. Shareholders wealth maximization: Objective of financial management revisited. International Journal of Enhanced Research in Management & Computer Applications, 7(3), pp.739-741.

• Lepistö, L. and Ihantola, E.M., 2018. Understanding the recruitment and selection processes of management accountants. Qualitative Research in Accounting & Management.

• MILLAR, P., 2018. Tips and Techniques for Detecting and Preventing Fraud. [online] Corporate Compliance Insights. Available at: <https://www.corporatecomplianceinsights.com/7-steps-preventing-detecting-fraud/> [Accessed 11 February 2021].

• Sadok, M. and Welch, C.E., 2019. Achieving sustainable business systems through sociotechnical perspectives.

• Ugoani, J., 2020. Accounting Function as Management Performance Tool in Organizations. Business, Management and Economics Research, 6(6), pp.67-74.

• Vagif, L.M., 2018, November. FEATURES OF MARGINAL ANALYSIS IN ADMINISTRATION OF MANAGEMENT DECISIONS. In Economic and Social Development (Book of Proceedings Vol. 2/4), 55th International Scientific Conference on Economic and Social (p. 377).

• Zarzycka, E., 2017. The role of management accountant in enterprises operating in Poland. Zeszyty Teoretyczne Rachunkowo?ci, (93), pp.235-252.

• Zarzycka, E., 2017. The role of management accountant in enterprises operating in Poland. Zeszyty Teoretyczne Rachunkowo?ci, (93), pp.235-252.

Table of Content

Assessment Part 2

1. Introduction p

2.0 A critical evaluation of the business using appropriate ratios p

3. Explanation and justification for how data obtained might help to inform operational and strategic decisions p

4. Compare and contrast three investment appraisal techniques and how these can assist in maximizing return on investment (ROI) p

5. The role of cash flow statements and break-even analysis in informing financial decision making p

6. A critical evaluation, including recommendations, of how management accounting techniques can be used to support good decision making and ensure long term financial stability of the organization p

3. Conclusion p

References p

1.0 Introduction

Ans: This report focuses on the accounting ratios of the Restaurant Group Plc. as well as difference between the three investment appraisals a technique that helps to increase the return on investment. This report shows the role of cash flow statement as well as break- even analysis and the techniques of the management accounting such as margin analysis, capital budgeting, trend analysis and forecasting for the long term financial stability of the company.

2.0 A critical evaluation of the business using appropriate ratios

Ans: Financial ratios of The Restaurant Group Plc:

(a) Gross profit ratio: The gross profit ratio is important to examine the financial performance as well as profitability of the company.

Formula: Gross profit ratio = Gross profit/ revenue* 100

Gross profit margin
	2018	2019
Gross profit	58,718	24,592
Sales	6,86,047	10,73,052
Gross profit margin	8.56	2.29

Interpretation: The above calculation shows the financial ratios of the Restaurant Group Plc. In 2018, the gross profit ratio of the food company was 8.56 % and in 2019, it was decreased to 2.29 %.

(b) Net profit ratio: The net profit ratio helps to compare profit to the sales as well as tells the company that how well the business is handling their finances overall. (AMADEO 2020)

Formula: Net profit ratio = Net profit/ revenue* 100

Net profit ratio
	2018	2019
Net profit	6,882	-40,406
Sales	6,86,047	10,73,052
Net profit ratio	1.00	-3.77

Interpretation: The above table shows the net profit ratio of the Restaurant Group Company which helps to presents the financial health of the company. In 2018, the net profit ratio of the company was 1 % and in 2019, it was decreased to (3.77).

(c) Operating ratio: The operating ratio helps to measures the efficiency of the company or the business.

Formula: Operating ratio = Operating profit/ net sales* 100

Operating ratio
	2018	2019
Operating profit	55,402	91,093
Net sales	6,86,047	10,73,052
Operating ratio	8.08	8.49

Interpretation: The above table shows the operating ratio calculation of the Restaurant Group Company. In 2018, the operating ratio of the company was 8.08 and in 2019, it was increased to 8.49.

(d) Current ratio: The current ratio helps to present the difference in between current assets and current liabilities, which is the important part of the any business organization or a company.

Formula: Current ratio = current asset/ current liability

Current ratio
	2018	2019
Current asset	1,28,589	1,11,123
Current liability	-2,26,197	-2,23,077
Current ratio	-0.57	-0.50

Interpretation: According the result of current ratio, in 2018, the current ratio of the Restaurant Company was (0.57) and in 2019, it was increased to (0.50) compared to the last year.

(e) Quick ratio: The quick ratio indicates the short term liquidity position of the company as well as examines the capability to meet their short term responsibilities of the company.

Formula: Quick ratio = current asset-inventory/current liability

Quick ratio
	2018	2019
Current asset	1,28,589	1,11,123
Inventory	8,678	9,274
Current liability	-2,26,197	-2,23,077
Quick ratio	-0.53	-0.46

Interpretation: The above shows the result of quick ratio of the Restaurant Group Plc. In 2018, the quick ratio of the company was (0.53) and in 2019, it was increased to (0.46). (Annual report 2019)

3.0 Explanation and justification for how data obtained might help to inform operational and strategic decisions

Ans: The data information of the any business organization plays a very important role in the business because it helps to prepare the financial reports of the business such as income statement, balance sheet, cash flows statement, and financial ratios. These statements present the financial performance of the company. There are the few points who justify that how the data help to inform operational and strategic decisions:

• Planning is the important part of the company. It helps to inform operational as well as strategic decisions in the company. The strategic decision making is significant complicated by the limited sources, which is given by the company’s organizational structure. (Markgraf 2019)

• Return on investment also helps to inform the strategic and operational decisions. It helps to the management to collect the information and prepare financial reports to analyze the financial situation.

4. Compare and contrast three investment appraisal techniques and how these can assist in maximizing return on investment (ROI)

Ans:

Series	Pay-back period	Net present value	Accounting rate of return
1.	The pay-back period computed the yearly cash flows. (Abuseif and Gou 2018)	NPV examines the all cash flows of the future, which generates by the projects or investments.	The ARR calculated the return on investments considering the changes to net earnings.
2.	Pay-back period is easy to understand as well as easy to calculate.	The NPV of 0 means the all inflows similar the outflows. (Creemers 2018)	The ARR usually uses the accrual accounting method.
3.	Pay-back period helps to increase the return on investment in the business organization. If the revenue maximize without increasing the cost then it helps to increment the ROI.	By considering the value of time money, NPV allows to thinks that the capital cost and ROI is increases.	The companies use the techniques when the decisions on capital budgeting as well as new project often come down to the investment ROI.

4. The role of cash flow statements and break-even analysis in informing financial decision making

Ans: Role of cash flow statements: There is the role of the cash flow statements:

• The cash flow statements is unique in that is the one of the part of financial reports which will present what has happened to the business’s money during the period of accounting.

• It has usually three major parts that are reported on the cash flows statement like operating activities, investing activities, and financing activities.

• It is important metric for the business owners and investors. It easy to calculate. (Khansalar and Namazi 2017)

Role of break- even analysis:

• With the help of break- even point, the business comes to know that how much the units need to be sold to recover the all cost.

• It can be affected by the variable cost as well as fixed cost; hence, with the analysis of break-even, the management of the company can execute the high business decision.

4. A critical evaluation, including recommendations, of how management accounting techniques can be used to support good decision making and ensure long term financial stability of the organization

Ans: There are different types of management accounting techniques such as capital budgeting, margin analysis, product costing, constraint analysis, trend analysis and forecasting, who support the good decision making as well as assure the long term financial stability of the company. These are as follows:

• Margin analysis: It is primarily concerned with the incremental optimizing production benefits. The margin analysis used to support the good decisions regarding the company’s profitability.

• Capital budgeting: Capital budgeting is used to ensure the long term financial stability of the company. It is important to the company to makes more profits.

• Trend analysis and forecasting: The forecasting and trend analysis concerned with the patterns identification and product costs trends, and with unusual variances recognition. It used for the long term forecasting. (Orong Sison and Hernandez 2018)

4. Conclusion

Ans: Above report included the financial ratios of the Restaurant Group Plc, which helps to presents the financial health of the company. In 2019, the financial performance of the company is better than the last year. This report also showed the difference between pay- back period, NPV and ARR, which helps to maximize the ROI and role of the cash flows statement and break- even point. It included the management accounting techniques that used in decision making process.

References

• Abuseif, M. and Gou, Z., 2018. A review of roofing methods: Construction features, heat reduction, payback period and climatic responsiveness. Energies, 11(11), p.3196.

• AMADEO, K., 2020. The 3 Types of Profit Margins and What They Tell You. [online] The Balance. Available at: <https://www.thebalance.com/profit-margin-types-calculation-3305879> [Accessed 12 February 2021].

• Annual report, 2019. Annual report The Resturant Group Plc. [online] Available at: https://www.annualreports.com/HostedData/AnnualReports/PDF/LSE_RTN_2019.pdf [Accessed on: 12/02/2021]

• Creemers, S., 2018. Maximizing the expected net present value of a project with phase-type distributed activity durations: An efficient globally optimal solution procedure. European Journal of Operational Research, 267(1), pp.16-22.

• Khansalar, E. and Namazi, M., 2017. Cash flow disaggregation and prediction of cash flow. Journal of Applied Accounting Research.

• Markgraf, B., 2019. The Role of Management Information Systems in Decision-Making. [online] Small Business - Chron.com. Available at: <https://smallbusiness.chron.com/role-management-information-systems-decisionmaking-63454.html> [Accessed 12 February 2021].

• Orong, M.Y., Sison, A.M. and Hernandez, A.A., 2018, May. Mitigating vulnerabilities through forecasting and crime trend analysis. In 2018 5th International Conference on Business and Industrial Research (ICBIR) (pp. 57-62). IEEE.

Appendix 1.0

Figure 1: Calculation of gross profit ratio:

Gross profit margin
	2018	2019
Gross profit	58,718	24,592
Sales	6,86,047	10,73,052
Gross profit margin	8.56	2.29

Figure 2: Calculation of net profit ratio:

Net profit ratio
	2018	2019
Net profit	6,882	-40,406
Sales	6,86,047	10,73,052
Net profit ratio	1.00	-3.77
Figure 3: Calculation of operating ratio:
Operating ratio
	2018	2019
Operating profit	55,402	91,093
Net sales	6,86,047	10,73,052
Operating ratio	8.08	8.49
Figure 4: Calculation of current ratio:
Current ratio
	2018	2019
Current asset	1,28,589	1,11,123
Current liability	-2,26,197	-2,23,077
Current ratio	-0.57	-0.50
Figure 5: calculation of quick ratio:
Quick ratio
	2018	2019
Current asset	1,28,589	1,11,123
Inventory	8,678	9,274
Current liability	-2,26,197	-2,23,077
Quick ratio	-0.53	-0.46