Everything about Management of Accounts in Big Super Market Chains

Question: Discuss aout the Management Accounting for Supermarket Chains. Answer: A: Pharmaguard Ltd, 2015 General supermarket chains Pharmacy chains Pharmacist-owned single stores Pharmaguard Ltd Revenues 3,708,000 3,150,000 1,980,000 8,838,000 Cost of goods sold 3,600,000 3,000,000 1,800,000 8,400,000 Gross margin 108,000 150,000 180,000 438,000 Gross Margin % 2.9% 4.8% 9.1% 5.0% B: Activity-based cost data Activity level Pharmacare 2015 General supermarket chains Pharmacy chains Pharmacist-owned single stores Total Activity Level Total cost of activity in 2015 Cost Driver Rates Activity Orders processed (number) 140 360 1500 2000 $80,000 40 Line-items ordered (number) 1960 4320 15000 21280 63840 3 Store deliveries made (number) 120 360 1000 1480 71000 48 Cartons shipped to stores (number) 36000 24000 16000 76000 76000 1 Shelf-stocking (hours) 360 180 100 640 10240 16 $301,080 The above table shows the cost drivers for different activities. This is based on total cost for each activity and total activity level for different types of stores.The following are the rates Orders processed $40 per activity Line Items ordered $3 per activity Store Deliveries $48 per activity Cartons shipped to stores $1 per activity Shelf stocking $16 per activity C: Pharmaguard Ltd, 2015 General supermarket chains Pharmacy chains Pharmacist-owned single stores Pharmaguard Ltd Revenues 3,708,000 3,150,000 1,980,000 8,838,000 Cost - of - goods - sold 3,600,000 3,000,000 1,800,000 8,400,000 Gross - margin 108,000 150,000 180,000 438,000 Orders - processed - (number) 5,600 14,400 60,000 80,000 Line-items - ordered - (number) 5,880 12,960 45,000 63,840 Store - deliveries - made - (number) 5,757 17,270 47,973 71,000 Cartons - shipped - to - stores - (number) 36,000 24,000 16,000 76,000 Shelf-stocking - (hours) 5,760 2,880 1,600 10,240 Net - Margin 49,003 78,490 9,427 136,920 Net - Margin - % 1.3% 2.5% 0.5% 1.5% Above table shows the analysis after allocating the operating cost of $301,080.After allocation, it can be seen that pharmacist owned stores consumes lot of the operating expenses as their activity is quite high. Its gross margin has decreased from 9.1% to 0.5%. There has also been fall in margin for other divisions as now more expenses is being considered, but the fall in owned single store is maximum. D: Pharmacare - 2015 General - supermarket - chains Pharmacy - chains Pharmacist-owned - single - stores Orders - processed - (number) 5,600 14,400 60,000 Line-items - ordered - (number) 5,880 12,960 45,000 Store - deliveries - made - (number) 5,757 17,270 47,973 Cartons - shipped - to - stores - (number) 36,000 24,000 16,000 Shelf-stocking - (hours) 5,760 2,880 1,600 Total - Operating - Cost 58,997 71,510 170,573 E: The management should try to implement ABC costing in its retail operations, manufacturing and medical operations as this will let them understand what kind of activity consumes how much cost and this will further show the margins level more accurately. However, the company will need to take certain precautions as ABC system doesnt capture non-monetary benefits. The company should rate different items according to the importance of the item like from A to C. F: There are lot of advantages and disadvantages of implementing ABC analysis at Pharmaguard Some of the advantages are In helps in better decision making for the company and let the management choose in which division should they continue to invest. It also helps to choose where the company can generate benefit by taking advantage of economies of scale. As there are scientific measures of controlling inventories, it helps to maintain stock turnover at optimum rate. It also helps in maintenance of safety stock for C category of itemsFew of the disadvantages of ABC analysis are - Proper system codification has to be there for successful implementation of the same. This becomes relevant only if there is proper standardization of materials, Only monetary value item is given importance and not any other factors. Executive Summary Given the above analysis, the most profitable type of store is pharmacist owned single stores which gives a gross margin of 9% and the least profitable one is the general supermarket store. If we look at the overall company level, the company is able to generate gross margin of 5%. Introduction As far as ABC analysis is concerned, it manages the control over expensive line items. It clearly distinguishes the items which are costly and allocates cost accordingly. It is a way of controlling inventories by scientific method. It also helps in reducing clerical costs as stock is valued properly.In the given case study, After allocation, it can be seen that pharmacist owned stores consumes lot of the operating expenses as their activity is quite high. Its gross margin has decreased from 9.1% to 0.5%. There has also been fall in margin for other divisions as now more expenses is being considered, but the fall in owned single store is maximum. Body Given the above analysis, it is clearly evident that Pharmacist owned single stores are incurring maximum cost as their activities are higher. The implementation of ABC costing gives us more clear picture about what kind of store is incurring more expense. The above analysis shows that more than 50% of the expense is incurred because of pharmacist owned stores. However, the above picture where cost are allocated equally, it was showing that these kind of pharmacist owned store are the most profitable one, which is not true. The classification of the items are like Items A are the goods for whom the annual consumption value is the Value wise this consist of 70-80% which is around 15-20% inventory wise. Items B are those who have a medium consumption value, like they account for 15-25% value wise and this consist of 30% of total inventory quantity Items C are those which have the lowest consumption value wise but are around 50% of the inventory quantity Similarly control over types of Item A should be highest as they form the major part of the cost and also better sales forecasting should be chosen. Re-ordering items of type C is made less frequently as the orders are made in bulk quantity. This also doesnt affect the profit and loss account much as the holding costs are less. Conclusion The whole purpose of implementing ABC analysis is to find out the cost for what kind of item. 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