This is the following question that I have to answer in managerial accounting: P

Question

This is the following question that I have to answer in managerial accounting:

Prepare a report for management incorporating your critical analysis with recommendations on a way forward.

I am having a very hard time with this question not because I don't know how to answer it but how to prepare a report. The following was my answer:

I purpose that we allow the individual stores be granted more responsibility in regards to purchasing of goods and financial reports. Each individual store is located in different geographic locations. Therefore, the customers that shop at a particular store have different needs and wants. Some goods that might sell really well in an upper class geographic region will not sell as well in a lower class region. By giving the store manager the responsibility of the inventory in the store, we are able to save money. When the head office has full purchasing power we are just ordering the goods that we would want to see in our store not necessarily the goods that the customers would purchase. Also by having different brands of the same item we are allowing our store managers to evaluate what is the best product for their store. When it comes to preparing financial reports they will be more specific for the stores, then the head office can compare the different regions to see if there needs to be changes or if the region is thriving and is a good area to add another location.

My teacher said that this is incorrect and I need to have a report and when I asked her what exactly she wanted she said it could be a "memo" to the managers but I thought that is what I did. PLEASE HELP!!!

Explanation / Answer

Dear Team

As a Manager of mangement accounting system I am providing the following observations and suggessions for your attention.

The Contribution margin ratio is 30 % is less than industrial average of 32%. The variable cost associated with selling is the major reason for variance. The sales promotion activities in the form of discount coupons to be eliminated. The market study analysis shows that the total sales increase due to discount is less than 5%. The 50 % of amount saved can be utilised for massive advertisement through visual medeas that will definitly increase sales by 5 to 6 %. It will helps to save 50 % of sales promotion cost with out any decline in sales. Another reason for decrease in contribution is increased storage cost of inventory. We have to adopt JIT system Initial expenditure to shift to JIT is very norminal. It will helps to increase our contribution margin by 2%. By adopting the above we can easily attain our trageted ratio of 32%.

The Net profit is showing a decreasing trend. It is due to high interest cost. The Average after tax cost of finance is 12 %. We have to reduce it. The company should seek some alternative source of finance. We are mainly depends on financila institutions. Since the Company has well accepted in Public it can raise fund from public. The market rate of public finance is 8 %. It is the risk free rate. We can raise fund at 10 % cost. We have to go for public issue and bond. It will helps to reduce interest cost and risk.

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