Key Techniques Of Management Accounting Accounting Essay


Debenhams is one of the largest retail chain operators in UK in terms of profit and Turnover. In UK it is the number one profit making retailer and having 160 branches across United Kingdom.

The business was formed in 1778, nearly 222 years back in the London city by Messrs Flint and Clark at 44 Wigmore street and initially it was named as Flint and Clark Store and later it was changed as Clark and Debenhams as the William Debenhams joined as the partner in 1813. Later in 1905 the business was integrated as Debenhams limited.

"Debenhams has performed well during the recession, goring profits and market share and restructuring its balance sheet. It has developed its own unique model in a very competitive marketplace."

Nigel Northridge*

Debenhams Plc was the largest retailer and largest in terms of sales and profit making due to its innovative product category and its innovative sales methods. It introduces sales on eBay and Amazon web sites through online and known as the first retailer to sell on both the web sites. It started selling 1000 products on Amazon and 100 products on eBay. It is also selling its products on to the millions of customers around the world.

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The product categories of the Debenhams include men and women wear, kids wear, Gifts& toys, Cosmetics, Home appliances, Furniture, Electricals, Electronics, Wedding specials etc. Debenhams sells its products like Apparels, Jewellery, health and Beauty, cosmetics, sports, vehicle spare parts, mobiles and accessories, and musical instruments on eBay. It also sells its product categories like apparels, home and electrical, gifts, sports and leisure and foot wear items on

Major competitors of Debenhams: Debenhams operating its business in very competitive market that having many players in the market in this category and still stood as number one in terms of profit and turnover. The close competitors of the Debenhams are Harrods limited, Selfridges Retails limited, and T.J.Morris Limited. Apart from this retails chain operators it also face competition from many unorganised retailers and online sellers.

Debenhams is a customer focused business trying to provide the exceptional services to its customers for all those able and disabled persons through arranging good shopping arrangements like designated parking space, details of accessibility entrances, restaurants, toilets, assistance to disabled people to enhance the customer shopping experience.

2 Review of management accounting

Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management groups such as shareholders, creditors, regulatory agencies and tax authorities"

Chartered Institute of Management Accountancy (CIMA)

Though it comprises making financial reports for non-management groups its major objectives is to prepare the needed information to the top management to take the further decisions to evaluate their business and to plan the needed changes for the future.

To be more specific it deals with the following aspects

Identification of needed information: The main objective of the Management accounting is to identifying the needed information to make the report to the management and non management and combining them together and bringing the needed information.

Measurement of the Correctness: Using the appropriate measurements to find out the correctness of the information

Accumulation of Information: making the available information to more specific and more clear to make the precise and clear

Analysis of available information: Making analysis of the data that is available and bringing the useful information out for the further decision making

Preparation of Reports: The Management account main objective is to assist the management to further proceeding for this reason it needed to prepare a report based on the available information and analyse it and make a precise report on the various business aspects for further decision making.

Interpretation of Information: Management need the information in more and more précised format to make the quick decisions on various departments and various projects for the future decisions and investments.

Communication of Information: Management Accounting aims at preparing and communicating the information to the management on various departments and their past performance.

Key Techniques of Management Accounting:

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The following are the few of management accounting techniques that can allows us to be more in depth analysis of accounting information

The make or buy decisions: the decisions that affect the profit or loss of the company in dealing with the production will be critically examined and bringing out the reasons and effects of make or buy a product or its peripherals.

Just in time: the decisions that make on production time and time to delivery are to be measured and informed to the management that there is any changes if needed. The product may sometimes need just in time production or some of its spares to save the costs on the inventory.

Inventory management: this is one of the main activities of the Management accounting and we need to manage the costs and future investments on each project based on the profitability and life cycle of the product. The objective here is to making wise investment for the future.

Variance analysis: the variance analysis is the process of identifying the variance occurred n the budgeted planned and the actual amount sold. Variance can be calculated for both costs incurred in the project and revenues generated.

Activity based Costing: The activity based costing tries to calculate the costs involved in manufacturing a product than traditional based cost accounting. It tries to identify each and every cost incurred in manufacturing the products. That is Special engineering costs, special testing costs or any other machine setup costs involved in the manufacturing of a product.

The Techniques and Recommendations to the Company:

The make or buy Decisions:

Analysis on the previous Decisions:

Company so far making some 100 products, and selling 1000 products out of 900 are non-private brands. The products that are manufacturing are mainly of Apparels and rest of the products are being bought from other manufacturers. The costs involved in the purchasing are very high and profit margins are considerably low.

Tips to Improve:

The Company need to improve the private brand ranges, and for that it need to be concentrate on the backward integrations and takeovers of any windup companies or week companies. This will enable to produce the goods at a competitive rate.

Try to give outsource the areas that are not much profitable to the company, and concentrate more on the core business activities.

Inventory Management Decisions:

Analysis on the previous Decisions:

The company overall Inventory management decisions are very good and are profitable to the company since the previous accounting period, company did very well and above the industry average, and this could be the good sign to the company. The present inventory credit is 4.5 for 5 and this is better value to the company than ever.

Tips to Improve:

It was suggested that try to improve the customer service like improving the billing time and making the sales process more speed and making sales channels expanding and going more online channels if possible is advised.

Increase the inward payment time more to get the better values, and keep the invoice process more updated and more accurate.

Activity Based Costing:

Analysis on the previous Decisions:

The company made good costing decisions in this period comparing with the last accounting period, in the areas like marketing it cut the costs considerably and the results also bit increased. In the last accounting period the costs incurred in marketing is 15% of the turnover and now it was reduced to 13% and the results also good.

The operational costs are being increased 5% and this resulted in increase of price value of goods, there may be other factors like raw material also may be a reason to this but still need to control the operational costs.

It was observed that the wages paid to the labour has increased 10% when compared to the last accounting period; this could be a problem in the long term if that was not being controlled.

Tips to improve the performance:

For effective marketing costing try to use the social network and publicity and try to control the marketing budgets, however it should be remembered that often it should be revised and improved if necessary.

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To control the operational costs try to improve the techniques like Just in time and more mechanization and reduce the manual operations.

The employee ratio is very less when compared to the industry average, it is suggested to increase the employees and make it more effective in terms of productivity.

4 The strengths and weaknesses of your analysis:

The data analysis can be improved more and more if the original data is available

There are some other factors like political, legal, environmental factors can influence the decisions so that was not considered in this report and only the accounting data was considered.