This week you will be starting work on your Final Project for this module.
The purpose of the Final...

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This week you will be starting work on your Final Project for this module. 
The purpose of the Final Project is to apply the concepts and techniques of the 
module to the analysis of real-world situations or problems. Students are 
expected to use diverse sources of information and to carry out an original 
analysis rather than summarise or rehash existing work. Students are encouraged 
to use situations and data from their own experience where possible.
Your task for Week 5 is to prepare and hand in a Project Proposal that 
includes the nature of the project, the sources of information you plan to use, 
and the most important concepts and techniques to be applied. You will receive 
feedback on the proposal from the Instructor in Week 6, which will give you time 
to make adjustments. 
For this module, you are required to complete a course project that reveals 
mastery in application of the management accounting and finance concepts 
emphasised in the course. This involves reporting on a specific organisation 
within an industry and the management accounting and finance practices that 
affect the value of the chosen firm or industry. This project should be a formal 
business report that provides both specific processes and strategies involving 
budgeting, costing, capital decision making, capital acquisition, and cost of 
capital structure of the chosen firm. These processes and strategies are to be 
supported with management accounting concepts. 
For this project, you will select a company that you are familiar with or 
work for. If you have chosen a company to research for a previous module, you 
must inform the Instructor and send him or her the previously submitted work. 
The Instructor will then inform you whether or not you may reuse the same 
company. 
Your tasks are to:

Assess the budgeting process and procedures for the organisation with 
regards to preparation techniques, uses for evaluation, differences between 
business units/divisions, etc. 
Analyse how the organisation collects, stores, and prepares management 
accounting information, particularly the use of a management accounting system 
(MAS) and how information is disseminated throughout the organisation. 
Evaluate the costing process and procedures of the organisation with respect 
to method or approach utilised. 
Assess the capital decision making process within the organisation with 
regards to what methods are utilised, how such methods are chosen, how projects 
are selected and managed, and what measures are employed to evaluate 
performance. 
Evaluate the criteria or mechanisms used by the organisation for deciding 
how best to acquire capital and analyse the capital structure of the company.

Your Final Project should follow the given outline:

Brief description of company (IKEA)
Description of firm's budgeting process 
Management accounting information system 
Costing process 
Capital decisions 
Capital acquisition and structure 
Conclusion
Your Final Project should also include a section on how and where you 
obtained the information sources as well as the methodology used to perform any 
analysis. This project should follow a structured approach and should be 
prepared and presented as a professional business report.

Robert · Accepted Answer

Company description: 
IKEA Group is an international home products retailer that sells furniture, accessories, and 
bathroom and kitchen items. As of August 31, 2011, the group had a total of 287 stores in 26 
countries, most of them located in Europe, North America, Asia and Australia. Ingka Holding 
BV, which is wholly owned by Stichting Ingka Foundation, is the parent company for the IKEA 
group of companies. The foundation is owned by the Kamprad family. IKEA is headquartered in 
Delft, the Netherlands and employs 131,000 people. The group recorded revenues of E25,173 
million (approximately $34,960.3 million) during the financial year ended August 2011 
(FY2011), an increase of 6.9% over FY2010. The operating profit of the group was E3,592 
million (approximately $4,988.6 million) in FY2011, an increase of 12.4% over FY2010. The net 
profit was E2,966 million (approximately $4,119.2 million) in FY2011, an increase of 10.3% 
over FY2010.. The group's key products include the following:
Products: 
Living room furniture 
Bedroom furniture 
Kitchen furniture 
Children's room furniture
Services: 
Restaurants 
Picking and delivery 
Home delivery 
Assembly and installation 
Kitchen planning 
Office planning 
Home furnishing advice
Costing at IKEA 
IKEA provides its customers a large variety of products to choose from. IKEA uses target 
costing which enables it to offer its products at competitive prices. This process makes sure that 
a product starts earning profit as soon as it is introduced. This method works by identifying the 
competitive price for the product in the marketplace, then expected profit is set for the product 
based on the competitive market conditions. Finally, the target cost is computed the target cost of 
the product by subtracting the desired profit from competitive market price.  The main advantage 
of target costing process is that the company is able to design and build its products tailored to 
specific cost goal. The company can afford to focus more on its product’s design and they have 
the flexibility of engineering the target cost into the product before manufacturing begins. Thus 
the company will choose to design a new product only if its projected costs are equal to or lower 
than target costs. It allows them to focus on keeping the costs low while it can focus on planning 
and designing the product, before the costs are actually committed or incurred. In the cost based 
approach, concern about reducing costs begins only after the product has been produced. This 
often leads to random efforts to cut costs, which might result in compromising product quality 
and eventually eroding the customer base.  Under target costing approach, the product is 
expected to produce a profit as soon as it is marketed.  Cost cutting improvements in a product 
can still be made, but profitability is built into selling price from the beginning. IKEA has been 
successfully using this for years and have benefited from increased sales volume each time they 
have cut prices because of production improvements. They have never compromised product 
quality. 
Apart from this cost savings stem from other strategic plans the company uses.  
 The wage system is low, training costs are less and designing and maintenance costs 
are also kept in check.  
 The company uses in-house designers and they are much less pricey than using 
commissioned agents from external sources.  
 Company uses long term contracts with manufacturers and suppliers, which helps in 
reduction of raw materials costs.  
 It has managed its supply chain to make it more efficient and cost less. 
Ikea’s budgeting model 
IKEA abandoned traditional budgeting in 1994. The traditional budgeting was more costly in 
terms of time consumed and the outcome was also not certain.  It now uses beyond budgeting 
approach to overcome the limitations of the budgeting based general management model.

This week you will be starting work on your Final Project for this module. The purpose of the Final Project is to apply the concepts and techniques of the module to the analysis of real-world...

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