A study of management accounting within McDonalds Corporations

McDonalds is the biggest food service retailers around the globe, operating in 117 countries , and serving over 60 million people and was home to more than 32,000 locations across the globe. Mc Donald operates its business in one of three categories: Franchisee, Affiliate, or as a Corporation.

Company was established in the year 1940 by Richard Morris McDon and Richard Morris Mc Donald as a single restaurant in California in 1940. They quickly adopted the fast food at around the time of their death in 1948. The company quickly expanded their range of products and began making a wide range of foods. By the year 1958 they had opened 34 restaurants. Interestingly, it was opened 67 new establishments in the year 1959. This was eventually able to count it as 101 restaurants.

The company soon began to experience the process of advertising and rapidly expanded its business by investing in advertisementsin the 1960’s and into the 1970’s. In the late 1970s, the company had opened 1000 restaurants. It also introduced the concept of social service through the establishment of the Home away from Home program for children who are homeless.

At the beginning of the 1980’s, the company was faced with a tough competition from its competition Burger King and Wendy’s and launched aggressive marketing campaigns. the result was known as burger war at the time. It continued to grow its operations despite the tough competition. Mc Donald began its journey in 33 years, opening 10,000 Restaurants , and later it took eight years to hit the 20,000 restaurant mark. By the end 1997, the number of restaurants had reached 23,000 and it continued to open new restaurants every year.

In the beginning of 2000, it began to develop a new image for the company, in order to get over the negatives and debts incurred by the company in the 1990’s.

McDonald’s Model of Business Model for McDonald’s:

Mc Donald’s earns revenues in numerous ways such as investing, as an owner of franchises and as an operator of Restaurants. The majority of its profits come direct from the company’s operations , and the other revenue is earned from franchisees rent, rental, marketing expenses for sales, and other similar to that. The franchisee’s fees and other earnings vary based on areas and the countries. It also offered a variety of packages that differ from counterparts.

Mc Donald’s Products Mc Donald’s:

These are the food items which are constantly changing and the food items currently that are sold by Mc Donald’s mentioned below

Hamburgers

Chicken

French Fries

Soft Drinks

Coffee

Shakes of milk

Salads

Deserts and Breakfasts

Mc Donald’s currently operating more than 110 countries, catering millions of customers and also facing fierce competition from competitors such as Starbucks Corporation, Wendy’s, Taco Bell, KFC restaurants as well as Burger King. Mc Donald’s main principles Mc Donald’s are Quality Value and Cleanliness. They focus on the safety of the food and they were aware that their name was is largely based on the safety procedures they employ to assure the hygiene of their customers.

The Review of Management Accounting:

Management accounting is “the process of identifying of, measuring and analysis of the accumulation of data, the preparation, interpretation, and dissemination of data used by the management team to manage, analyze and monitor the operations of an entity and ensure the proper usage and accountability of its resources. Management accounting also includes creating financial statements for non-management entities like creditors, shareholders as well as regulatory agencies and tax authorities”

Chartered Institute of Management Accountancy (CIMA)

Management Accounting is a way of keeping track of the financial results of the managers . It also serves mostly as a historic score keeper function. Additionally, it is attempting to analyze the results and results of particular time periods and their reasons for taking place. On a smaller scale, it also attempts to predict the results of future implementations and the effects for a longer period. Unfortunately, nobody can forecast the future, so its purpose is limited to studying historical data and perhaps revealing the reasons for the events.

The importance in Management Accounting:

To determine the current position of business by analyzing the previous financial data Management Accounting tries to identify the present position of different sectors of the business and their performance.

To understand the possible new sources: Management Accounting tires to determine if there are available resources for your company and to assess its financial viability.

Identifying the Internally Available Resources: Management Accounting tries to tries to find the resources that are available, if they exist, and the possibility of employing them.

Finding Business Options Available It also tries to determine the most viable options for the current business and evaluate the profit to lower the risk associated with investment

Working with the current external environments Management of the external environment Management Accounting is not only using accounting information but also understanding the reasons why the company has failed or failed, and how it earned profit, in the event that it did.

Future-looking changes to the environment The Management Accounting tries to anticipate the future, even though nobody is able to predict it accurately and it attempts to lower the possibility of future risk.

Key Accounting Concepts in Management:

Management Accounting methods and their applications differ from company to the next and need to be tailored to the needs of the business. Here are a few of the accounting practices to follow by the business.

Every country has its individual accounting standards to be followed. UK is influenced by the standards of the Accounting Standard Board (ASB) and has issued a number of guidelines for statements in the Standard Accounting Practice (SSAP).

The Consistency of the interpretation and presentation of probable things must be done in a consistent manner throughout the accounting period as well as between each accounting period and the next. In order to meet the requirements of each decision maker Accounting management must in charge of preparing reports that meet their needs and eliminate non-essential information . it is not true of internal accountants that internal account and reports must be combined for the sake of tidyness, so that they can give an overall all.

The main concern is measuring the balance sheet information like inward and external details of the business and determining their value in the future and forming the future internal assessment of the business.

Accruals/Matching is to establish the relationship between expenses incurred in the current financial statement and the value to be expected of it. This means that you can calculate an estimate of the amount of investment into the future. This is accomplished by subtracting all costs from the sales revenues generated by the resource as it is used instead of when it’s bought.

Prudence: It outlines the expected revenue, and consequently the profits.

Key Accounting Techniques:

Analysis Techniques

Stock Valuation

The determination of Quantity of the Economic Order Quantity

Price and valuation of stocks

CVP analysis

Planning Techniques

Payback

Discounted cash flow(DCF)

Internal Rate of Return(IRR)

Capital budgeting

Weighted Cost of Capital

Controlling Techniques

Investment Centres

Profit and Contribution Centres

Revenue Centres

Cost or expense center

Recommendations to the business:

Cost of Valuation for Stock: in cost analysis, stock valuation is an crucial concepts, because Mc Donald is a food retail-based company The food that is shipped in and the consumption of it is significant and should be assessed regularly, and it is important to do this in a way to prevent the high costs. This can be done using the following methods

LIFO Method, FIFO method, Average cost Replacement Cost method

Economic Order Quantity (EOQ) is crucial to know, particularly when the cost involved in the product are significant or if they require specific storage capacity, such as freezing conditions. To calculate the EOQ for a product, we can apply the following formula

Q = d for period*Cost per order/Holding cost per unit

Q =

CVP analysis: CVP analysis is used to calculate the profits in relation to the use and utilization of the stock in order to aid in the long-term planning required to focus on variable costs. The calculation can be done using the following method

Profit = Revenue + expenses

Profit = Revenue + (Fixed Costs- Variable Costs)

The business will then begin to realize profits above the point of operation at which revenues equal expenses, referred to as the breakeven point

Because it is the case that Mc Donald has operations in several countries, it must examine the results of each region and country in order to understand the range of its profits and to plan for the future.

IRR: To compare the financial performance in two identical projects as well as their profit, it is necessary to determine the IRR, also known as the Internal Ratio of Return. This is done through NPV, and if the NPV is zero, then the cash flow will be equal to the present cash flow. This is also known as the Internal Rate of return (also known as Internal Yield) of the venture.

Capital budgeting: Maximizing the value over time of a company is the principal goal in Capital Investment Budgeting (CIB). To plan the investment on the different projects owned by the company , it must be the right method of distributing among the projects managed by the company since the resources available to the business are not unlimited. This is illustrated in the following example.

Project NVPs @20% Ranking on NVP

PS 10m 1 PS 10m 1

B PS5m 2

C PS4m 3

D PS3m 4

The PI for projects will be between 20 and 25 percent, 22.2%, and 25%. The budgeting process for these projects is able to be completed according to their PI and after that the investment made by the company can be considered profitable. This is done applying the IRR method for allocating money to each project. The funds can be accessed by the company

A Weighted Average Cost for Capital Capital costs are the amount of return that the company is required to pay to various financiers of the funds within the business. The most common sources include debt and equity. This can be determined by using the following calculations.

The cost of debt

Cost of Equity

WACC: Weighted average cost of capital (WACC) This WACC is the minimum return required in order for the company to meet the expectations of its source of capital such as equity holders and creditors of the business.

The strengths and weaknesses of the analysis:

The report is based solely on the financial reports for the period in question and they are based upon data strictly. External factors such as social and others cannot be taken into consideration at all times.

For a better execution of outcomes, managers need to mindful of other elements as well.

The time period for accounts that are included within the document is shorter than the brief period and for quick assessment, which means it is possible that the influence of many factors from the past might not be included in the report.

The actual values of time are more varied and intricate in nature and this is why it’s possible to look at the greater number of numbers and a more detailed analysis.

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