Management Accounting Procedures - Apple Plc

Apple Plc:

Management Accounting Procedures

1 Introduction

Following a discussion with the directors of Apple PLC, the author of this report has been asked to review the current management accounting procedures operated within the business with a view to making recommendations for improvement. As a result of this review a number of key issues within the current strategic management accounting procedures have been identified and it is these specific areas that the content of this report has addressed.

2 Current issues and concerns

Apple PLC manufacturers and distributes a range of confectionary products, using the latest automated processes. Currently, the business is organised as three distinct divisional cost centres, each with its own manager and uses traditional management accounting methods to address the performance of these operations. However, our review of these systems have revealed the following issues

 Strategic Management Accounting methods

It is considered that the current approach to management accounting within the firm is too inward looking. In other words it is focused upon the internal operations of the business rather than taking into account the strategic external objectives of the business, which is to seek competitive advantage and increased market share (Porter 2004).

 Performance measurement

The current performance evaluation and reward system is based upon a flat £100,000 bonus system introduced in stages for every 1% of profit the manager’s division achieves over and above the minimum 25% margin profit requirement. In other words it is being based upon a standard budgeting system. This is causing dissatisfaction amongst managers, which ultimately will be adversely reflected in their performance.

 Costing

The current absorption based costing system is defective in that it does not accurately reflect the costs that are incurred by each of the business divisions. For example, each division is allocated one third of the production costs irrespective of its actual usage of those processes. This situation, because of its costs distortion, not only increases manager’s concerns, which can lead to de-motivation, but also impacts upon the sales price and profitability of the product.

3 The role of strategic management accounting

As is the case with any business Apple’s core objective is to improve its operational and financial performance in an effort to increase profitability which, by definition, will add value for its shareholders (Drury 2005). However, to achieve this position the business needs to be able to deal effectively and efficiently to