The Benefit Of Using Balanced Scorecard Analysis Accounting Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Morrison is one of the largest retail companies in the UK let alone its one of the top four successful retail companies, but behind all the success that they have these days there is a history background which takes you all the way back to 1899 in Bradford, a man by the name of William Morrison formed a company as an egg and butter trader. Years later in 1998 Morrison expanded to the south of the country, where they built a new warehouse and a new distribution centre. That's where the idea of going national came where In 2000 Morrison opened their first store in Wales, to follow with Scotland in 2004. In the same year Safeway supermarkets became part of the Morrison family and it was a very wise move on the business side, the expansion didn't stop there they also introduced the UK's first Bio Ethanol E85 filling pump in 2006 and became the UK's 4th biggest supermarket chain.

Morrison played a big part in helping farmers in 2007 by selecting 100% British quality meets to their stores, which made them favourites between the completion, At the moment Morrison holds a very y good position competing with another three supermarket companies TESCO, ASDA and SAINSBURY. They have managed to make a name for themselves.

Managing stock well is essential for any business, in view of the fact that without sufficient stock, production and sales will go down the scale. Stock control involves vigilant planning to make sure that the business has plenty of stock of the right quality accessible at the right time. Using programs such as data base and pda`s and equipping business mangers with the hardware and the software helps keep track of the stock, pda's can be used by store managers to scan gaps on the shelf's where the data can be sent back to the stock data base, and it would automatically order the needed product, also keeping track of how much of that product sells in the store helps what quantity should be ordered.

Costumer service is another way to improve your business, most supermarkets carry out a (mystery shopper scheme), to test the employees on how they treat costumers, mangers should carry out tanning methods to fix or improve customers service skills, Think side the box scheme helps mangers to set targets and try to keep situations under control by thinking inside the box keeping their temper and coping with the work pressure.

Supermarkets struggle when it comes to waste, with a lot of products such as produce and milk that has an end date to it. Mangers can check the dates and scan them with the pda and it should inform them on either to reduce it or leave it to sell the next day. Price reductions are very helpful for supermarkets where it would reduce the amount of waste. Doing price runs can assure that the prices on the shelf s are the correct ones, also the ones that are set from head office.

The accounting return on investment is a measure used to divide the cost of the investment for example the manager of Morrison's may control stocks, debtor and expenditure on fixtures and fittings, then the decision to build a store will be unlikely influenced by the manager, therefore its value does form part of his controllable investment.

Process Costing

Costing is an essential process that many retailer companies hold in to keep track of where their money is being spent in the production and distribution process, it is very important that companies choose the suitable type of costing process for their products type. Process costing averages the costs over all units to come to the per unit cost. To compare this with other types of costing systems, such as job-order costing that is used for products that are in differentiated batches. Unlike job-order costing, process costing is tracked using a work-in-process account for each department, rather than through subsidiary ledgers. This allows the team in Morrison's supermarket to examine each cost incurred, finding out why it happened, and determine how it can be controlled better in the future, thereby contributing to better ongoing levels of profitability.

Variance analysis

Variance analysis is explaining the variance between actual cost and standard cost or actual cost and budget cost, for example the difference in materials cost can be divided into a materials price variance and a materials usage variance. The difference in manufacturing overhead can be divided into spending, efficiency, and volume variances. Variance analysis helps management to understand the present costs and then to control future costs. Variance analysis will help and enable mangers in Morrison's to identify problems which need further investigation with a view to implementing remedial action also the values of variance lies in mangers being able to isolate where increased cost are actually occurring and take remedial action in that specific area.

Cost volume profit

Cost volume profit examining the relationship between the variable and fixed costs. CVP analysis is on of the most powerful tools that managers have at their command, it helps them to understand the interrelationship between cost, volume and profits in the business by focusing on interaction among price products, level of activity, variable cost per unit, total fixed cost and mix product sold. For example mangers at Morrison's need to estimate future revenues, cost and profits to help them plan and monitor operations, Using CVP analysis will help Morrison's to identify the levels of operating activity needed to keep away from losses and reach targeted profits, plan future operations and monitor the business performance. Using this method will help mangers in Morrison's to know what the most profitable products are and if you lower your prices in order to sell more how much more they will have to sell to make profit on the products that been lowered.

Balanced scorecard analysis

Balanced scorecard analysis monitors the performance management of all part of the organisation, sometimes including customer perspective, internal-business processes, learning and growth and financials, to monitor progress toward organization's strategic goals. By using this method Morrison's will have the total picture of overall performance highlighting activities that need to be improved and also have a way to communicate their strategies to all the employees and motivate them by giving them measurable goal.

The benefit of using balanced scorecard analysis (BSCA)

The benefits that can be obtained from a balanced scorecard depend on what is used for and how it applied. The main benefits of using the balanced scorecard in Morrison's will

Help the company focuses on a few key things needed in order to create an advance performance. A balanced scorecard might show a few weak errors in some areas of the business but these errors are impeding its overall success. By doing this everyone in the business on improving those errors, overall performance will gets better

improve the business alignment, improve internal and external communications

Helps break down strategic measures to lower level of the business, so that managers and employees both can see what is required to achieve excellent overall performance. Morrison's might have overall goals to increase their productivity, as part of a balanced scorecard every member of the business will have clear targets that support the business overall goal.

The benefit of using variance analysis (VA)

Variance analysis helps management to evaluate performance, so the opportunity for taking action is maximised. The benefit for Morrison of using variance analysis will helps them to justify the business expenditures and allocation of their resources to improve profitability and over come problems also helps focus management attention on the opportunity and problem areas of the operation that are not necessarily the most visible, but that have the biggest impact on profit. Variance analysis can lead to the identification of certain types of task that frequently overrun their budget whilst other tasks may be seen to regularly come in under their budget.

The benefits of cost volume profit (CVP)

The benefit for Morrison when using this method it can tell them the most profitable products or services they offer, which products or services should be emphasized, also this can show the business the sales volume they need to meet in order for the business to stay profitable, sales goals will help them to cover any increase in fixed costs for example the rent might increase.

The limitation of cost volume profit

Sale price and variable cost per unit do not change with volume but in real life they might change due to economy of scale, total fixed cost do not change it can only change in the short run, productivity is constant but in fat it might change due to economy of scale, the analysis assumes that fixed and variable costs can be accurately identified. the output is the only factor affecting costs there maybe others including inflation, efficiency and economic, the stock level do not change, the time values of money is ignored and there is a single product the business usually provide more than one product and sales mix is not constant but continually changes due to changes in demand

The limitation of variance analysis

Limitation of variance analysis tells you where the variance occurred but it does not tell you why it is occurred, future effects of variance not known, performance evaluation is difficult. Also information might be misinterpreted if the data is aggregated and significance of variance is not determined. The major problem with a variance analysis approach to project monitoring is the amount of time it takes to establish actual costs. On the majority of large projects, supported by a typical accounts department, there will be a time lag of around 6 weeks before spend information can be accurately reported.

Limitations of balanced scorecard analysis

Selecting many measures can cause a Balance Scorecard project to fail.  Defining the business measures is a very difficult task. There is much room for error as in many cases the measures chosen are subjective and difficult to track.  The business must remember to choose measures that can be linked to defined outcomes. A Balanced Scorecard must be balanced. If it doesn't include both financial goals as well as non-financial goals, it will lose its utility. So if correct measures are not included in a Balanced Scorecard, the business will find it difficult to deploy it into action. In case, a Balanced Scorecard becomes too functionally oriented, then too many measures and too many numbers will come into the picture and therefore, the effectiveness of the tool will be lost. Another main limitation of Balanced Scorecard is that it does not help the management in improving the important drivers that affect the success of a company.