Overall Cost Systems Of Martin And Mccolls Accounting Essay

This assignment is explicating an analysis of Absorption and Marginal Costing, strengths and failings with particular mention to pricing determinations and the importance of cost behavior in determinations and the importance of cost behavior in determination devising and readying of a flexible budget of the company through analysis of the internal, external factors within the competitory state of affairs of the bing planetary competitory market. To see the Absorption and fringy costing of the company an analysis of types of budget scene with respects the behavioral facets of engagement, and Responsibility Accounting in budget scene is the most critical factors now a twenty-four hours. In the competitory concern state of affairs assorted factors are present of which a comparative analysis between the traditional methods of allotment ( OAR ) and Activity-Based Costing ( ABC ) , used in ciphering costs and pricing policy and a appraisal of value technology, Entire Quality Management ( TQM ) and Standard Costing used for cost control methods are needed to be done really intensively. These factors are ever impacting the company like Martin Mccoll ‘s concern strategic position every minute. So in the assignment the effectivity of cost control techniques and determination devising procedure in making value to this administration has been analysed in a competitory market by utilizing different tools. In the decision hereafter cost control methods and its advantages and disadvantages has advised for the company.

Company name: Martin Mccoll ‘s supermarket Ltd.

Absorption and Marginal bing Analysis of the Martin Mccoll ‘s:

Martin Mccoll ‘s sometimes conversationally known besides as M & A ; M is a British retail merchant, with 1060 shops in more than 10 states around the universe. It is one of the most iconic and widely recognized concatenation shops in the UK with 80 shops as of March 2008 and is the largest food market retail merchant in the UK, every bit good as being a multi-billion lb nutrient retail merchant. Most of its stores sell both of these classs. It besides has a 3rd line of concern merchandising place wares such as bed linen, but this is far smaller than the other two.

In 1990 it became in the top 10 British retail merchant list to do a net income before revenue enhancement of over ?1 billion, though a few old ages subsequently it plunged into a crisis which lasted for several old ages. As of 2007, it is turning once more and quickly increasing profitableness, but it is now less than one one-fourth of the size of the UK ‘s largest and most profitable retail merchant.

Figure: M & A ; M Investing money in different subdivisions

M & A ; M chief cardinal strength is ownership. Today they have 70 % owned and 30 % leased belongings.

Martin Mccoll ‘s supermarket Ltd. has a strategic place in the retail market in the UK. Cost control methods of the company are playing a critical function behind this accomplishment. Pull offing finance for strategic direction degrees is responsible to set up the company s place strong.

Over the 1060 shops of Martin Mccoll ‘s supermarket Ltd all over the UK have been raising with successfully for its effectual usage of cost control method. The soaking up and fringy costing of the company with particular mention to pricing determinations and the importance of cost behavior in determination devising is need to be considered by this respects. So these factors are analysed as follows:

Analysis OF ABSORPTION Costing:


Absorption costing is a system that attempts to find a full cost for each unit of end product. This is a method, which is used to absorb operating expenses into the cost units produced in the production cost Centres.

Strengths of soaking up costing: A

Absorption costing is widely used and it contributes a important value to the company of M & A ; M.A

Defenders of theA soaking up rule point out that:

1. It is necessary to include fixed operating expense in stock values for fiscal statements ; A routine costA accounting utilizing soaking up bing green goodss stock values which include a portion ofA fixedA operating expense: A

2. For little concern, utilizing occupation bing overhead allocation is the lone operable wayA of obtainingA occupation costs for gauging and net income analysis ; A

analysis of under/over absorbed operating expense is utile to place inefficient utilizationA of productionA resources.A

So from the above treatment it is really clear that by presenting soaking up bing in the pricing determinations M & A ; M create value to the organisation.

Failings of soaking up costing:

The Criticisms of soaking up costing can measure as follows:

1. Net income per unit is a deceptive figure: in the illustration the operating border of ?2A per unit arisesA because fixed overhead per unit is based on 5,000 units. If another footing was used, A border perA unit would differ even though fixed operating expense was the same sum in total.A

2. Build-up or creaky of stocks of finished goods can falsify comparing of periodA operatingA statements and befog the consequence of increasing or diminishing sales.A

Though the above Criticisms of soaking up bing exist still it is preferred for M & A ; M.


Definition of Marginal costing:

Fringy costing is the accounting system in which variable costs are charged toA costA units and fixed costs of the period are written off in full against the aggregateA part. Its particular value is in acknowledging cost behaviour and hence assistingA inA decision-making.A

Martin Mccoll ‘s used fringy costing in its cost control method.


The comparative analysis of soaking up costing and fringy costing can be executed as follows:

Under soaking up costing ( besides called full soaking up bing or entire absorptionA costing ) A fixed operating expenses are absorbed into cost units on the footing of

a pre-determined absorptionA rate.A

Absorption costing is a method of bing that, in add-on to direct costs, assignsA all, A or a proportion of, production operating expense costs to be units by agencies of one or aA figure of overhead soaking up rates.A

Under fringy bing merely variable costs are charged to be units ; fixed costsA for a period are fullyA written off in the net income and loss history of the period in which they are incurred.A

Importance of cost behaviour:

For the alteration of societal environment it is really of import for the company to carefully see the importance of cost behaviour in there cost control system.

Except other rivals, M & A ; M will be influenced by societal environment. Since the societal environment alterations at any clip, the client ‘s gustatory sensations are besides changed. M & A ; M can set its merchandises to fulfill different demands.

Associating to the pricing determination and cost behaviour analysis, Porter identified three ‘generic schemes for competitory advantage, this can stand for a typical strength of a company.

These are shown in the diagram below:





In the center


Beginning: Porter, M.E ( 1980 ) Dibb, S & A ; Simkin, L ( 2001 ) . P. 239

A cost leading scheme means that the merchandise is sold at the lowest monetary value compared to similar merchandises in the same market section. The distinction scheme is based on making a merchandise that stands out from the other merchandises in the section in some relevant facets. In the focal point scheme, the company focuses on a little market section, which it aims to function peculiarly good. Porter argues that companies, which do n’t follow one of these three schemes are ‘stuck in the center ‘ which works to the disadvantage of the company. This happened to quite a few large companies, such as Phillips or Olivetti in the yesteryear ( Kotler, 1996 ) and the same seems to use to M & A ; M. They are functioning rather a large market section, nevertheless they are surely non following the cost leading scheme and their merchandises do n’t look to greatly distinguish themselves in a relevant manner from similar merchandises of their competition.

This might hold been true old ages ago, when Martin Mccoll ‘s were supposed to sell outstanding quality merchandises, but in recent old ages they lost this image, which is another of import ground for their current state of affairs.

Definition of flexible budgeting:




The traditional attack is to establish the budget on the current twelvemonth ‘s consequences plus an excess sum for estimated growing or rising prices next twelvemonth. This attack is known as incremental budgeting since it is concerned chiefly with the increases in costs and grosss, which will happen in the approaching period.

Incremental budgeting is a sensible process if current operations are as effectual, efficient and economical as they can be.

It is besides appropriate for budgeting for costs such as staff wages, which may be estimated on the footing of current wages plus an increase for rising prices and are therefore administratively reasonably easy to fix.

In general, nevertheless, it is an inefficient signifier of budgeting as it encourages slack and uneconomical disbursement to crawl into budgets. Past inefficiencies are perpetuated since the relationship between costs, benefits and aims are seldom subjected to shut examination.

Justification for the incremental attack

( a ) Easy to utilize and put up.

( B ) Managers understand it.

( degree Celsius ) Results in less alteration -less risky and has less cultural jobs and struggle.

( vitamin D ) Less dearly-won to run.

( vitamin E ) Can be used in a peal budget system.

( degree Fahrenheit ) Activities may be compulsory.

( g ) Past experience built into the budget.

Easy to measure thoughts and agree marks.

An analysis of types of budget scene:

Analysis of types of budget puting include two of import phenomenon. One is the behaviourial facet of engagement and the another is the duty accounting in budget settin. both are infuencded by some factors which are known as porter five forces.

The Porter Five Forces Analysis helps the seller to contrast a competitory environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to concentrate on the individual, stand entirely, concern or SBU ( Strategic Business Unit ) instead than a individual merchandise or scope of merchandises.

Figure: Porter Five Forces

Beginnings: M. E. Porter, Competitive Strategy, Free imperativeness, 1980.

Five forces analysis looks at five cardinal countries viz. the menace of entrants, the power of purchasers, the power of providers, the menace of replacements, and competitory competition.

The menace of entry: The menace of entry looks out in footings of distinction for M & A ; M to the clients ‘ trueness that can deter possible entrants. M & A ; M has a long clip developed focal point that has served as an entry barrier. As such, it is improbable for M & A ; M to hold new entrant in its country. M & A ; M is an expert in this field.

The power of purchasers: Martin Mccoll ‘s showed and practiced penchant in utilizing British providers entirely. M & A ; M became dependent on its providers. It experienced less power to negociate because of few close options.

The power of providers: M & A ; M backing of British providers made them reliant over giving adequate power of the providers over M & A ; M.

The menace of replacements: Substitution can cut down demand for a peculiar ‘class ‘ of merchandises when clients switch to the options. The options came from Tesco and Sainsbury as they acted on supplying added value nutrients. These options provided menace to M & A ; M.

Competitive Competition: Under competitory competition, M & A ; M truly faced menace as other companies entered the industry with the same quality goods but with low-cost monetary value and up-todate manner. This is the country where M & A ; M failed the most.


( a ) Past budgets may incorporate inaccuracies and prejudice.

( B ) Creativity and attempt merely focused on ‘marginal facets.

( degree Celsius ) Encourages doctrine of, “ 1f we do n’t pass it we do n’t acquire it! ”

( vitamin D ) Not nonsubjective orientated. ..

( vitamin E ) May non optimize resources.

( degree Fahrenheit ) Does non see operational precedences.

( g ) Maintains position quo.

( H ) Managers may decline to have the budget -not made up of their thoughts

( I ) Short termism

To guarantee that inefficiencies are non concealed, alternate attacks to budgeting hold been developed. One such attack is zero base budgeting.

1. Strategic direction degree

2. Tactical direction degree

3. Operational direction degree

1. Strategic direction degree:

At this phase high degree directors are here. They decide the aims and when to accomplish the aims for the administration and explicate how they will be achieved to the mid degree directors. Management degree of the Martin Mccoll ‘s Supermarket Ltd face the high grade of uncertainness and hazard. The direction trades with complex issues of the internal and external state of affairs.

2. Tactical direction degree:

The shop directors of Martin Mccoll ‘s supermarket Ltd are categorised within this degree. This is long scope be aftering degree of the company. Budgetary control, hard currency flow, net income consequence, labour bend over and so on are the duty under such director. In the Martin Mccoll ‘s supermarket Ltd satisfaction of the employees are turning twenty-four hours by twenty-four hours.

This drives the net income border to the company. As a consequence the rate of labour bend over is diminishing now.

3. Operational direction degree:

They carry on the specific undertaking undertakings efficaciously and expeditiously. The line directors, displacement

Directors, squad leader and supervisor are moving at this degree in the Martin Mccoll ‘s supermarket Ltd. Any types of operation in this phase they performed successfully. They assure the clients satisfaction straight in the shop.

Zero based budgets

This is a recent phenomenon. Martin mccolls

Definition of ZBB

A method of budgeting whereby all activities are re-evaluated each clip a Budge is formulated.

Each functional budget starts with the premises that the map does non be, and is zero cost.

Increases of costs are compared with increases of benefits climaxing in the planned upper limit benefit for a given budgeted cost.

The advantages of implementing ZBB

The advantages of zero base budgeting are as follows

It is possible to place and take inefficient or disused operations, B )

It forces employees to avoid uneconomical outgo

It can increase motive

It responds to alterations in the concern environment ;

‘obsolescent ‘ points of outgo are identified and removed

The certification required makes a co-ordinated, in-depth cognition of an administration ‘s operations available to all direction.

It challenges the position quo.

In drumhead, ZBB should ensue in a more efficient allotment of resources to activities and sections of the administration.

The disadvantages of ZBB

The volume of excess paperwork

Short-run benefits might be emphasised to the hurt of long-run benefits.

Management must be able to run into unanticipated chances and menaces at all times, nevertheless, and must non experience restricted from transporting out new thoughts merely because they were non approved by a determination bundle, cost benefit analysis and superior procedure.

It may name for direction accomplishments in determination analysis which the administration does non possess

The superior procedure can be hard.

Directors face three common jobs.

A big figure of bundles may hold to be ranked.

It can be hard to rank bundles which directors regard as being every bit critical for legal or operational grounds,

It is hard to rank activities which have qualitative instead than quantitative benefits – such as disbursement on staff public assistance and working conditions.


The processs of zero base budgeting do non impart themselves easy to direct fabrication costs where standard costing, work survey and the techniques of direction planning and control have long been established as a agency of budgeting outgo.

ZBB is best applied to back up disbursals, that is expenditure incurred in sections which exist to back up the indispensable production map.

These support countries include selling, finance, quality control, fixs and care, production planning, research and development, technology design, forces, informations processing, gross revenues and distribution.

In many administrations, these disbursals make up a big proportion of the entire outgo. These activities are less easy quantifiable by conventional methods and are more discretional in nature.

ZBB can besides be successfully applied to service industries and nonprofit administrations such as local and cardinal authorities sections, educational constitutions, infirmaries and so on, and in any administration where alternate degrees of proviso for each activity are possible and where the costs and benefits are individually identifiable.

Plague Analysis

For the external analysis of Martin Mccoll ‘s we can discourse the PEST analysis. This analysis is a helpful tool to take a closer expression at the general environment. Although the PEST analyses rely on past events and experience, it can be used as a prognosis of the hereafter ( Wilson and Gilligan, 1998 ) .

Political factors:

The political environment is stable and dependable, even if Britain fails to accomplish entire understanding with some EU policies from clip to clip. At the present no EU directives are known which will hold a direct consequence on the UK vesture retail. Industryinthenearfuture

Due to the EU rank a tendency can be seen towards stricter environmental protection statute law. This may hold a direct or indirect consequence on Martin Mccoll ‘s or his providers.

Economic factors:

Looking at the economic environment, it is instead slippery since on the one manus there is the strong sterling compared to the Euro. EU encourages imports and activities to keep domestic monetary values at an attractive degree. But on the other manus it is hard for the UK to be competitory outside its boundaries because of the high lb greatest exchange rate against the Euro. As M & A ; M is a UK prima company and it sells most of the merchandise in the UK market place, this may presently merely have a limited consequence, but could be more of import in the hereafter when believing globally.

Another issue is the falling unemployment rate. For the UK population this is good intelligence but for companies like M & A ; M, this has different deductions. For M & A ; M it means higher outgo on rewards, every bit good as greater troubles in enrolling good employees.

Social factors:

Nowadays life manner is altering. Average on the job hours per hebdomad have decreased and people get more trim clip. This means they have clip to compare monetary values in the High Street and the quality of goods and services from the retail merchants.

At present people are more witting about the production procedure. They wants to cognize the mills are environmentally friendly or non, where the merchandise was build. Child labor may be the one job in the vesture retail sector. There are a batch of company who rely on it in order to be competitory in their domestic market. But one time the clients become cognizant of such patterns, companies get into existent problem if they do non react instantly.

Technological factors:

Another issue is the velocity of technological transportations which besides has an impact on the industry – it is non comparable with the fast growing cyberspace concern, nevertheless it is of import. New engineering allows new merchandises to be developed. Existing stuffs can be produced quicker and cheaper. Adopting these engineerings can be a decisive factor as to whether a company is in front of his rivals or whether it lags behind.

For external analysis of Martin Mccoll ‘s supermarket Ltd. we can besides utilize BCG Model which will assist us to happen out which strategic concern unit is provide important grosss or losingss now and expected to go on to make so in the hereafter. A concern within a corporation is by and large termed a strategic concern unit ( SBU ) . A SBU may be defined as a unit that has a typical concern mission, offers a good defined market and able to pull off its scheme in a mode that is independent of other concerns. So BCG theoretical account can be executed as following mode:


Is a method of budgeting based on an activity model and utilizing cost driver

informations in the budget scene and discrepancy feedback processes.

At its simplest, activity based budgeting ( ABB ) is simply the usage of costs determinedA utilizing ABC as a footing for fixing budgets.

Implementing ABC leads to the realisationA that the concern as a whole demands to be managed with far more mention to the behaviourA that the concern as a activities and cost drivers identified.

For illustration, traditional budgeting mayA makeA directors ‘responsible ‘ for activities which are driven by factors beyond their control: A theA cost of setting-up new forces records and of initiation preparation would traditionallyA beA the duty of the forces director even though such costs are driven byA theA figure of new employees required by directors other than the forces manager.A

More officially, hence, ABB involves specifying the activities that underlie theA financialA figures in each map and utilizing the degree of activity to make up one’s mind how much resourceA shouldA be allocated, how good it is being managed and to explicate discrepancies from budget.

Claimed consequences of utilizing ABC:

Different activity degrees will supply a foundation for the base bundle and incrementalA bundles of ZBBA

The organisation ‘s overall scheme and any existent or likely alterations in that strategyA willA be taken into history because ABB efforts to pull off the concern as the amount of itsA interrelated parts.A

Critical success factors ( an activity in which a concern must execute good ifA it is toA win ) will be identified and public presentation steps devised to supervise progressA towards them

The focal point is on the whole of an activity, non merely its separate parts, and soA there is moreA likeliness of acquiring it right first clip. For illustration, what is the usage of beingA able toA produce goods in clip for their dispatch day of the month if the budget provides insufficientA resources for the distribution director who has to present them.

An Evaluation of the options:

To measure the options and happen out the best 1 we need to see two things. which are:

1: Feasibility

2: Acceptability

.1.Feasibility: Feasibility means financially feasible Internet Explorer capable of being done or carried out the undertaking successfully. It depends on the Martin Mccoll ‘s direction determination. if they find that they have adequate fund to run the apparels project so they can put in the apparels undertaking.

2.Acceptability: Acceptability means the determination that made by direction is accepted by stockholder. Stockholders are the chief proprietor of the concern. they are accepted the undertaking when they think that the undertaking will profitable in the close hereafter. So Martin Mccoll ‘s Shareholders think apparels undertaking will be attractive for the immature childs and will do more money for company so they will besides accept it.

Several internal and external strategic options are used analyzing the company successfully. Among these options SWOT analysis and BCG Model provides future strategic tracts to the company. Through the SWOT analysis The Martin Mccoll ‘s supermarket Ltd can measure its internal analysis that it can mensurate the internal strength and failing. The bing company be witting to set up its strength

In inside and get the better of the failing that can be attack by the rivals. On the other manus external factors are chances and menaces. The direction has to follow the external chances and see the possible menaces. New merchandises, new rivals are the chief menaces to the company. So The Martin Mccoll ‘s supermarket Ltd takes the factors earnestly to understate the grade of menace effectively.BCG Model is another best option for the direction. It provides company to measure its strategic place, Growth portion, gross position, fring merchandises and new competitory merchandises in the market. So this two strategic options are available to applied for Martin Mccoll ‘s supermarket Ltd concern.

To my point of position I strongly believe that The Boston Consulting Group ( BCG ) Model can be the best pick for external analysis for Martin Mccoll ‘s supermarket Ltd because it provides the company a figure of of import issues to measure the hazard profile of the merchandises / concerns, the hard currency demands of the merchandises / concerns, the development rhythm of the merchandises, Resource allotment and divestment determinations.

Execution of the scheme:

To implement the scheme Martin Mccoll ‘s supermarket Ltd demand to see two things which are as follows:

1: Change of direction.

2: Change of construction.

1: Change of direction: For implementing the selected scheme of apparels undertaking

if they think that they need to do some alterations in the direction degree and that will be effectual for this new undertaking so they can make it.

2: Change of construction: Some clip alteration of construction besides needed for implementing the selected scheme. The Martin Mccoll ‘s direction may be believe to alter the construction of the administration, or may believe to spread out the construction of the concern in Asia or Africa depending on the state of affairs


For the future strategic development of the Martin Mccoll ‘s supermarket Ltd company, Internal and external analysis with BCG matrix and PEST analysis will be effective.M & A ; M is a successful transnational corporation. Depending on its high quality, good service, comfy shopping environment and convenient entree, M & A ; M has won a big sum of loyal consumers. There are a few issues Martin Mccoll ‘s supermarket Ltd might turn to in order to better their public presentation and recover their image as an outstanding company.

First of all, they should do a strong determination on what they perceive to be their mark group for the vesture section. Quite clearly, the nucleus clients shopping for apparels at Martin Mccoll ‘s supermarket Ltd are middle-aged work forces and, in peculiar, adult females. Puting it more by and large, the vesture at Martin Mccoll ‘s supermarket Ltd with its current manner and design certainly tends to appeal more to an older age group, which every bit good is happy to shop at Martin Mccoll ‘s supermarket Ltd due to its traditional repute.

However, that makes it even more of import to guarantee that the nucleus client base is suitably catered for, and the event of an senior lady stating a preponderantly male board that she could n’t happen anything she was looking for at Martin Mccoll ‘s supermarket Ltd does n’t do for good promotion, particularly amongst adult females. In this respect, it might be a good thought to transport out a small spot more research on clients ‘ wants and needs through questionnaires and looking at market tendencies.

On the other manus, sing the vesture section, Martin Mccoll ‘s supermarket Ltd late tried to increase their entreaty to a younger age group, e.g. through the reasonably new ‘PerUna ‘ scope. However, it is rather obvious that peculiarly the age group between

14-19 is greatly loath to even shop at Martin Mccoll ‘s supermarket Ltd and comprehend the company on a whole to be unstylish and ‘un-trendy ‘ .

Therefore, it is rather problematic whether Martin Mccoll ‘s supermarket Ltd will rapidly be able to acquire rid of this negative image among childs and derive a considerable market portion within this age group.

Therefore, if the company decided to prosecute the attack of appealing to younger clients, it would in any instance be extremely of import to clearly detach these new scopes from the nucleus M & A ; M trade name, both in footings of the location ( e.g. presenting separate shops ) and the existent merchandise ( different design, separate trade name label etc. ) .

Alternatively, particularly sing the measure and quality of the well-established competition in this market ( Gap, Topshop, Warehouse, Zara etc. ) ; Martin Mccoll ‘s supermarket Ltd could alternatively of focal point on their other concerns, which are more likely to convey them success. They have a profit-making nutrient sector and a loyal client base in the older age group, who are happy to purchase apparels at M & A ; M if suitably catered for.

Sing that the demographical tendency goes towards an ageing UK population with a high disposable income, this might be peculiarly valuable to concentrate on.

Finally, the fiscal services offered can turn out to be profitable, if Martin Mccoll ‘s ace market Ltd understands to utilize their well-known and extremely sure trade name name to advance these. So eventually this is my best recommendation to Martin Mccoll ‘s supermarket Ltd for future strategic development to follow internal and external analysis.