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ACKNOWLEDGEMENT
I would like to extend my gratitude towards everyone who helped me in completing this report
which is a part in HND in business management at ESOFT Metro Campus.
First and foremost, I would like to express my heart full of thanks to my parents who gave this
opportunity to start my higher education at ESOFT Metro Campus.
I would also like to give my heart full of thanks to my lecturer Miss Ruwani Ekanayake, who
supervised me in completing this report as she deserves the word of appreciation.
Thank you …
Sathsarani Gunasekara
I would like to extend my gratitude towards everyone who helped me in completing this report
which is a part in HND in business management at ESOFT Metro Campus.
First and foremost, I would like to express my heart full of thanks to my parents who gave this
opportunity to start my higher education at ESOFT Metro Campus.
I would also like to give my heart full of thanks to my lecturer Miss Ruwani Ekanayake, who
supervised me in completing this report as she deserves the word of appreciation.
Thank you …
Sathsarani Gunasekara
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Activity 01
Introduction to the penguin’s sportswear (pct.) Ltd
Penguin sportswear is a Sri Lankan exporter of quality products to the global market registered
with the Sri Lankan Export Development Board and it was founded in 1989. Penguin
sportswear is among Srilanka’s leading apparel manufacturers and caters to reputed retailers
across UK and Europe. In penguin sportswear they continuously strive to create value in their
business while constantly innovating their products and services. The pension sportswear is a
medium sized E-turf that manufactures sportswear. It has been registered as a private limited
company in 2010. It manufactures and sells its own brand of sportswear under 3 main
categories namely,
Premium – High end brand for quality conscious customers
Vantage –good quality brands with the medium price range
Regular –Average quality brand with low price range
Apart from the head office, the company has three branches in key locations to manage all the
activities. The main competitor is the Lanka Sportswear.
Vision
“We CREATE value in our business
We make every attempt to INNOVATE our products and services
We strive to EXCEL with our people and processes
With the aspiration to DELIGHT our customers in every way”
Mission
“A great place to work that achieves operational excellence
while ensuring a high degree of social and environmental responsibility”
(Lanka, 2021)
Management Accounting
What is management accounting?
Introduction to the penguin’s sportswear (pct.) Ltd
Penguin sportswear is a Sri Lankan exporter of quality products to the global market registered
with the Sri Lankan Export Development Board and it was founded in 1989. Penguin
sportswear is among Srilanka’s leading apparel manufacturers and caters to reputed retailers
across UK and Europe. In penguin sportswear they continuously strive to create value in their
business while constantly innovating their products and services. The pension sportswear is a
medium sized E-turf that manufactures sportswear. It has been registered as a private limited
company in 2010. It manufactures and sells its own brand of sportswear under 3 main
categories namely,
Premium – High end brand for quality conscious customers
Vantage –good quality brands with the medium price range
Regular –Average quality brand with low price range
Apart from the head office, the company has three branches in key locations to manage all the
activities. The main competitor is the Lanka Sportswear.
Vision
“We CREATE value in our business
We make every attempt to INNOVATE our products and services
We strive to EXCEL with our people and processes
With the aspiration to DELIGHT our customers in every way”
Mission
“A great place to work that achieves operational excellence
while ensuring a high degree of social and environmental responsibility”
(Lanka, 2021)
Management Accounting
What is management accounting?
Management accounting is also known as managerial accounting and can be defined as a
process of providing information and financial resources to managers in making decisions.
Management accounting is only used by the organization's internal team, and this is the only
thing that differentiates it from financial accounting. (Topper-2021) In this process, the
financial information and reports, such as the invoice, the financial balance statement, is shared
by the financial administration with the company's management team. The goal of management
accounting is to use this statistical data and make a better and accurate decision, controlling the
company, business activities and development.
Management accountants work for public companies, private businesses, and government
agencies. Their duties include recording and beating numbers, selecting and managing
company investments, risk management, budgeting, planning, strategizing and decision
making.
Financial Accounting
Financial accounting is a specific branch of accounting that involves a process of recording,
summarizing, and reporting the large number of transactions resulting from business operations
over a period of time. (Will Kenton-2020) These transactions are summarized in the
preparation of financial statements, including the balance sheet, the income statement and the
cash flow statement, which record the operating performance of the company during a specified
period.
(Kenton, 2020)
The advantages and disadvantages of management accounting is explained below in
detailed;
Advantages
1. Better decision making: The management accounting helps in effective decision making for
an organization. It supplies all the required information in the form of charts and forecasts
to the management team. All this information enables managers in performing detailed
analysis and taking correct decisions.
2. Increase efficiency: The management accounting increases the efficiency of operation of the
company. Everything is done in management accounting with a scientific system for
evaluating and comparing the performance with this we find deviations, take promotional
process of providing information and financial resources to managers in making decisions.
Management accounting is only used by the organization's internal team, and this is the only
thing that differentiates it from financial accounting. (Topper-2021) In this process, the
financial information and reports, such as the invoice, the financial balance statement, is shared
by the financial administration with the company's management team. The goal of management
accounting is to use this statistical data and make a better and accurate decision, controlling the
company, business activities and development.
Management accountants work for public companies, private businesses, and government
agencies. Their duties include recording and beating numbers, selecting and managing
company investments, risk management, budgeting, planning, strategizing and decision
making.
Financial Accounting
Financial accounting is a specific branch of accounting that involves a process of recording,
summarizing, and reporting the large number of transactions resulting from business operations
over a period of time. (Will Kenton-2020) These transactions are summarized in the
preparation of financial statements, including the balance sheet, the income statement and the
cash flow statement, which record the operating performance of the company during a specified
period.
(Kenton, 2020)
The advantages and disadvantages of management accounting is explained below in
detailed;
Advantages
1. Better decision making: The management accounting helps in effective decision making for
an organization. It supplies all the required information in the form of charts and forecasts
to the management team. All this information enables managers in performing detailed
analysis and taking correct decisions.
2. Increase efficiency: The management accounting increases the efficiency of operation of the
company. Everything is done in management accounting with a scientific system for
evaluating and comparing the performance with this we find deviations, take promotional
decisions on this basis. Other employees will also be motivated with this because if their
performance will be favorable, they get reward of this. Thus, management accounting
increases the efficiency.
3. Maximizing the profitability: using the management accounting’s budgetary control and
capital budgeting tool, the company can easily succeed to reduce both the operating and
capital expenditures. After this, company can reduce its price and then company will
receive super profits.
4. Control business cash flow: it is one of the advantage of the management accounting that it
can be used for controlling of the business’s cash flow. We all know that cash in hand is
better than in fixed properties if there is any emergency to pay the loan or debt so, the
management accountant deeply studies from where the money is coming and where it is
going. To check on the misuse of money will surely control of the business cash flow.
The disadvantages
1. Personal bias: the accounting branch is subject to the personal bias and prejudices by the
management. The effectiveness of the management accounting may be affected by the
interpretation and analysis capability of individuals.
2. Lack of specific procedure: Management accounting does not have any specific rules and
principles to follow. In the absence of any guidelines, this branch of accounting may
provide inaccurate data.
3. Costly: the installation of a management accounting system requires huge expenses as they
need to hire a management accountant. such high costs cannot be bear by the small business
organization.
4. Provides only data : It only supplies data to the management but does not provide any plan
of action or decision .Management accounting cannot substitute the role of management and
can only help them in their role by providing the required data . (GOOGLE , n.d.)
performance will be favorable, they get reward of this. Thus, management accounting
increases the efficiency.
3. Maximizing the profitability: using the management accounting’s budgetary control and
capital budgeting tool, the company can easily succeed to reduce both the operating and
capital expenditures. After this, company can reduce its price and then company will
receive super profits.
4. Control business cash flow: it is one of the advantage of the management accounting that it
can be used for controlling of the business’s cash flow. We all know that cash in hand is
better than in fixed properties if there is any emergency to pay the loan or debt so, the
management accountant deeply studies from where the money is coming and where it is
going. To check on the misuse of money will surely control of the business cash flow.
The disadvantages
1. Personal bias: the accounting branch is subject to the personal bias and prejudices by the
management. The effectiveness of the management accounting may be affected by the
interpretation and analysis capability of individuals.
2. Lack of specific procedure: Management accounting does not have any specific rules and
principles to follow. In the absence of any guidelines, this branch of accounting may
provide inaccurate data.
3. Costly: the installation of a management accounting system requires huge expenses as they
need to hire a management accountant. such high costs cannot be bear by the small business
organization.
4. Provides only data : It only supplies data to the management but does not provide any plan
of action or decision .Management accounting cannot substitute the role of management and
can only help them in their role by providing the required data . (GOOGLE , n.d.)
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How the management accounting process is working in
penguin sportswear?
The manufacturing set up was started in January 2011 with a small manufacturing plant but, the
production is multiplied over the years. There is no proper management accounting system in
penguin’s sportswear. The production Manager in charge of the accounting division of the
production unit is Mr. Roy Pereira. He has no background in management accounting and
complies all the management accounting records on MS EXCEL. The reports which has been
prepared do not reflect the exact cost of the manufactured products as they change significantly
every year.
The principles of management accounting
The principles of Management accounting are as follows;
Communication provides insight that is influential
Objective: To drive better decisions about strategy and its execution at all levels
Management accounting begins and ends with conversation, which enhances decision
making ability .Good communication of critical information facilitates cross silos to
management accounting and facilitates integrated thinking .The consequences of actions
in one aspect of the business can be better understood in another area .The most relevant
information can be obtained and analyzed by discussing the requirements of the
decision makers .This means that the recommendations are useful to the decision
makers and can have an impact .When the right people have the right information at the
right time ,it takes a better place to get what they want which will drive long term value
generation .This is how the management accounting influences information based on
decision making. (ESOFT METRO CAMPUS , 2021)
Information is relevant
Objective: to help the organization plan and source the information needed for creating strategy
and tactics for execution
penguin sportswear?
The manufacturing set up was started in January 2011 with a small manufacturing plant but, the
production is multiplied over the years. There is no proper management accounting system in
penguin’s sportswear. The production Manager in charge of the accounting division of the
production unit is Mr. Roy Pereira. He has no background in management accounting and
complies all the management accounting records on MS EXCEL. The reports which has been
prepared do not reflect the exact cost of the manufactured products as they change significantly
every year.
The principles of management accounting
The principles of Management accounting are as follows;
Communication provides insight that is influential
Objective: To drive better decisions about strategy and its execution at all levels
Management accounting begins and ends with conversation, which enhances decision
making ability .Good communication of critical information facilitates cross silos to
management accounting and facilitates integrated thinking .The consequences of actions
in one aspect of the business can be better understood in another area .The most relevant
information can be obtained and analyzed by discussing the requirements of the
decision makers .This means that the recommendations are useful to the decision
makers and can have an impact .When the right people have the right information at the
right time ,it takes a better place to get what they want which will drive long term value
generation .This is how the management accounting influences information based on
decision making. (ESOFT METRO CAMPUS , 2021)
Information is relevant
Objective: to help the organization plan and source the information needed for creating strategy
and tactics for execution
The main role of management accounting is to make relevant information available to the
decision makers on a timely basis. Following communication principle, the decision at hand
and needs of the decision makers are known and understood. This principle therefore involves
in the identification, collection, validation etc. .as it requires achieving an appropriate balance
between the past, present and future related information’s.
Stewardship builds and trust
Objective: To actively manage relationships and sources so that the financial and non-
financial assets, reputation, and value of the organization are protected.
As mentioned before, an effective management accounting function is one where
competent people apply the principles to their practice areas. people who consistently
adhere to good values and best practices become trusted guardians of an organizations
value.
Impact on value is analyzed
Objective: To stimulate different scenarios that demonstrate the cause and effect relationships
between inputs and outputs.
The focus of the principle is on the interaction between management accounting and the
business model by modelling the impact of risks and opportunities, the effect on strategic
outcomes is quantified. This principle requires a thorough understanding of the business model
and the wider macro-economic environment .It involves in analyzing information along the
value generation path ,focus on the risks etc. (ESOFT METRO CAMPUS , 2021)
Different types of Management accounting systems
There are many types of management accounting systems namely,
Cost Accounting systems
decision makers on a timely basis. Following communication principle, the decision at hand
and needs of the decision makers are known and understood. This principle therefore involves
in the identification, collection, validation etc. .as it requires achieving an appropriate balance
between the past, present and future related information’s.
Stewardship builds and trust
Objective: To actively manage relationships and sources so that the financial and non-
financial assets, reputation, and value of the organization are protected.
As mentioned before, an effective management accounting function is one where
competent people apply the principles to their practice areas. people who consistently
adhere to good values and best practices become trusted guardians of an organizations
value.
Impact on value is analyzed
Objective: To stimulate different scenarios that demonstrate the cause and effect relationships
between inputs and outputs.
The focus of the principle is on the interaction between management accounting and the
business model by modelling the impact of risks and opportunities, the effect on strategic
outcomes is quantified. This principle requires a thorough understanding of the business model
and the wider macro-economic environment .It involves in analyzing information along the
value generation path ,focus on the risks etc. (ESOFT METRO CAMPUS , 2021)
Different types of Management accounting systems
There are many types of management accounting systems namely,
Cost Accounting systems
Cost accounting is concern with recording, classifying and summarizing costs for the
determination of costs of products or services, planning, controlling and reducing such costs
and furnishing of information to management for decision making. This method helps to
estimate and also takes into account the organization’s probability, inventory and cost control
process.
The objectives of cost accounting are cost reduction, estimation of costs, cost control and
providing basis for operating policy.
The benefits of cost accounting systems are as follows;
1. Classification and sub division controls
2. Control of materials, labor and overhead costs
3. Budgeting
4. Best use of limited resources
5. Expansion (ESOFT METRO CAMPUS , 2021)
Job costing systems
This method assists in assigning production costs to each product in the business, thereby
enabling ordering costs. Job costing is a production cost method adopted by an enterprise that
offers a limited range of unique products. The benefits of job costing systems are as follows;
1. Profitability : The job costing systems allows you to assign costs separately to individual
operations and calculate the profit margin you ‘ll be getting on each job (ESOFT METRO
CAMPUS , 2021) .
2. Performance: a job order costing system also enables you to access the performance of
your employees, job costing provides sufficient information to help you to evaluate
individual performance data in terms of productivity, efficiency and cost control. With the
help of these tools you can identify the employees who fail to meet performance
expectations . (ESOFT METRO CAMPUS , 2021)
3. Accessibility : the system provides access to the expenses incurred on each job ,even during
the manufacturing process .This gives you the opportunity to check the costs one by one ,
identify all the items included ,and understand why they happened .based on your
determination of costs of products or services, planning, controlling and reducing such costs
and furnishing of information to management for decision making. This method helps to
estimate and also takes into account the organization’s probability, inventory and cost control
process.
The objectives of cost accounting are cost reduction, estimation of costs, cost control and
providing basis for operating policy.
The benefits of cost accounting systems are as follows;
1. Classification and sub division controls
2. Control of materials, labor and overhead costs
3. Budgeting
4. Best use of limited resources
5. Expansion (ESOFT METRO CAMPUS , 2021)
Job costing systems
This method assists in assigning production costs to each product in the business, thereby
enabling ordering costs. Job costing is a production cost method adopted by an enterprise that
offers a limited range of unique products. The benefits of job costing systems are as follows;
1. Profitability : The job costing systems allows you to assign costs separately to individual
operations and calculate the profit margin you ‘ll be getting on each job (ESOFT METRO
CAMPUS , 2021) .
2. Performance: a job order costing system also enables you to access the performance of
your employees, job costing provides sufficient information to help you to evaluate
individual performance data in terms of productivity, efficiency and cost control. With the
help of these tools you can identify the employees who fail to meet performance
expectations . (ESOFT METRO CAMPUS , 2021)
3. Accessibility : the system provides access to the expenses incurred on each job ,even during
the manufacturing process .This gives you the opportunity to check the costs one by one ,
identify all the items included ,and understand why they happened .based on your
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findings ,you can develop specific strategies to control the costs better in future. (ESOFT
METRO CAMPUS , 2021)
4. Continue monitoring : job order costing allows you to monitor the production process
continuously ,giving you the enough time to identify the potential issues and making
corrections to avoid catastrophic situations, such as producing defective items or going
over budget even before the manufacturing process ends . (ESOFT METRO CAMPUS ,
2021)
Inventory Management system
An inventory system is the combination of technology and processes and procedures
that oversee the monitoring and maintenance of stock, whether those products are raw
materials, company assets or finished products ready to be sent to vendors or end
consumers. The objectives of inventory management system are minimizing inventory
investment, provide an acceptable level of customer service and allow cost efficient
operations. The benefits of inventory management systems are as follows;
1. Schedule maintenance
2. Cut costs and increase profits
3. Keep order accurate planning
4. Know thyself (ESOFT METRO CAMPUS , 2021)
Price optimizing systems
This system helps in controlling the price of the resources reeled to the company. This system
helps in making decisions in regard to the prices of different products at the same time. It will
also help in determine the levels of demand of products at changing the levels of prices. Hence,
this helps determining the structures of pricing in order to undertake the promotion pricing and
discounted pricing. The benefits of price optimizing systems are as follows;
1. Automation benefits
2. Speed of decision making
3. Direct financial benefits
METRO CAMPUS , 2021)
4. Continue monitoring : job order costing allows you to monitor the production process
continuously ,giving you the enough time to identify the potential issues and making
corrections to avoid catastrophic situations, such as producing defective items or going
over budget even before the manufacturing process ends . (ESOFT METRO CAMPUS ,
2021)
Inventory Management system
An inventory system is the combination of technology and processes and procedures
that oversee the monitoring and maintenance of stock, whether those products are raw
materials, company assets or finished products ready to be sent to vendors or end
consumers. The objectives of inventory management system are minimizing inventory
investment, provide an acceptable level of customer service and allow cost efficient
operations. The benefits of inventory management systems are as follows;
1. Schedule maintenance
2. Cut costs and increase profits
3. Keep order accurate planning
4. Know thyself (ESOFT METRO CAMPUS , 2021)
Price optimizing systems
This system helps in controlling the price of the resources reeled to the company. This system
helps in making decisions in regard to the prices of different products at the same time. It will
also help in determine the levels of demand of products at changing the levels of prices. Hence,
this helps determining the structures of pricing in order to undertake the promotion pricing and
discounted pricing. The benefits of price optimizing systems are as follows;
1. Automation benefits
2. Speed of decision making
3. Direct financial benefits
4. Ensuring consistency (ESOFT METRO CAMPUS , 2021)
Different management accounting reports
Management accounting reports are also known as cost accounting reports. The purpose of the
management accounting reports is to help in planning, monitoring and determining decisions on
the way forward. The different types of accounting reports are mentioned below;
1. Cost reports : Managerial accounting calculates the costs of items produced .This is done
by taking all the raw products costs ,overhead ,labor and any additional costs into
consideration .The totals are divided by the amounts of the products which are
produced .All of this information’s are summarized in a cost report .This reports helps in
proper identification of the costs ,profits and the expenses in relation to Penguins
sportswear .Thus it provides indication of the aspect of the earnings in penguins sportswear
that is related with one particular product.
2. Order information report:
This provides the information in regard to the operations of penguin’s sportswear thus, it helps
in managing the operations of the company in order to reduce the ordering cost of the products.
3. Budgets: budgets are typically created by using the prior year’s budgets and adjusting to
future projections. A company’s budget list all the sources of revenue and expenses. It helps
in making plans for the company which is the penguins sportswear in order to analyze the
performance of the company and also helps in evaluating the performance of the
departments and cost controlling.
4. Performance report: this report helps in comparison of the actual performance with the
budgeted performance.
Different management accounting reports
Management accounting reports are also known as cost accounting reports. The purpose of the
management accounting reports is to help in planning, monitoring and determining decisions on
the way forward. The different types of accounting reports are mentioned below;
1. Cost reports : Managerial accounting calculates the costs of items produced .This is done
by taking all the raw products costs ,overhead ,labor and any additional costs into
consideration .The totals are divided by the amounts of the products which are
produced .All of this information’s are summarized in a cost report .This reports helps in
proper identification of the costs ,profits and the expenses in relation to Penguins
sportswear .Thus it provides indication of the aspect of the earnings in penguins sportswear
that is related with one particular product.
2. Order information report:
This provides the information in regard to the operations of penguin’s sportswear thus, it helps
in managing the operations of the company in order to reduce the ordering cost of the products.
3. Budgets: budgets are typically created by using the prior year’s budgets and adjusting to
future projections. A company’s budget list all the sources of revenue and expenses. It helps
in making plans for the company which is the penguins sportswear in order to analyze the
performance of the company and also helps in evaluating the performance of the
departments and cost controlling.
4. Performance report: this report helps in comparison of the actual performance with the
budgeted performance.
Activity 02
Apply a range of management accounting techniques and
produce appropriate financial reporting documents
Cost is the expenditure in monetary cost of purchasing various factors of production. The costs
can be classified based on the nature, based on the control and based on the they are as follows;
The costs which can be classified Based on the nature are as follows;
1. Fixed cost: This is the cost which does not change with the level of production.
2. Variable cost: This is the cost which changes with every level of production.
3. Overhead cost: This is a cost which is incurred for another expense of production.
4. marginal cost: This is a cost which is incurred by using one unit of production.
5. material cost: This is a cost which is incurred for the purchase of raw materials.
6. labor cost: This is the amount paid to the workers.
The costs which can be classified based on the basis of control
1. controllable costs
2. uncontrollable costs
The costs which can be classified based on the relevance to decision making
1. opportunity costs
2. real costs
3. sunk costs
4. imputed costs
5. conversion costs
calculate the costs using appropriate techniques of cost
analysis to prepare an income statement using marginal
and absorption costs
PENQUINS SPORTS WEAR LIMITED
Apply a range of management accounting techniques and
produce appropriate financial reporting documents
Cost is the expenditure in monetary cost of purchasing various factors of production. The costs
can be classified based on the nature, based on the control and based on the they are as follows;
The costs which can be classified Based on the nature are as follows;
1. Fixed cost: This is the cost which does not change with the level of production.
2. Variable cost: This is the cost which changes with every level of production.
3. Overhead cost: This is a cost which is incurred for another expense of production.
4. marginal cost: This is a cost which is incurred by using one unit of production.
5. material cost: This is a cost which is incurred for the purchase of raw materials.
6. labor cost: This is the amount paid to the workers.
The costs which can be classified based on the basis of control
1. controllable costs
2. uncontrollable costs
The costs which can be classified based on the relevance to decision making
1. opportunity costs
2. real costs
3. sunk costs
4. imputed costs
5. conversion costs
calculate the costs using appropriate techniques of cost
analysis to prepare an income statement using marginal
and absorption costs
PENQUINS SPORTS WEAR LIMITED
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INCOME STATEMENT
FOR THE SECOND MONTH
Sales (60,000 x 10)
(-) full production cost
Opening inventory (10000 x 7)
Direct material (2 x 50,000)
Direct labor (1.6 x 50,000)
Variable production overhead
(0.4 x 50,000)
Fixed production overhead (3 x
50,000)
(-) closing inventory
Gross profit
(-) non production overhead (1.5
x 60,000)
Fixed non production overhead
Net profit
70,000
100,000
80,000
20,000
150,000
(0)
90,000
40,000
600,000
(130,000)
50,000
0AR -, 150,000
50,000
= 3
Full production cost
Direct material - 2
Direct labor - 1.6
FOR THE SECOND MONTH
Sales (60,000 x 10)
(-) full production cost
Opening inventory (10000 x 7)
Direct material (2 x 50,000)
Direct labor (1.6 x 50,000)
Variable production overhead
(0.4 x 50,000)
Fixed production overhead (3 x
50,000)
(-) closing inventory
Gross profit
(-) non production overhead (1.5
x 60,000)
Fixed non production overhead
Net profit
70,000
100,000
80,000
20,000
150,000
(0)
90,000
40,000
600,000
(130,000)
50,000
0AR -, 150,000
50,000
= 3
Full production cost
Direct material - 2
Direct labor - 1.6
Variable production overhead - 0.4
Fixed production overhead - 3
7
MARGINAL COSTING SYSTEM
PENQUIN SPORTS WEAR LTD
INCOME STATEMENT
FOR THE SECOND MONTH
Sales (60,000 x 10)
(-) variable production cost
Opening inventory (10,000 x 4)
Direct material (50,000 x 2)
Direct labor (50,000 x 1.6)
Variable production overhead (0.4 x 5,000)
(-) closing inventory
Gross contribution
(-) variable non production overhead (1.5 x 60000)
Net contribution
(-) fixed cost
Fixed production overhead
Fixed non production overhead
40,000
100,000
80,000
20,000
(0)
(90,000)
150,000
40,000
600,000
(240,000)
360,000
(90,000)
270 ,000
(190,000)
Fixed production overhead - 3
7
MARGINAL COSTING SYSTEM
PENQUIN SPORTS WEAR LTD
INCOME STATEMENT
FOR THE SECOND MONTH
Sales (60,000 x 10)
(-) variable production cost
Opening inventory (10,000 x 4)
Direct material (50,000 x 2)
Direct labor (50,000 x 1.6)
Variable production overhead (0.4 x 5,000)
(-) closing inventory
Gross contribution
(-) variable non production overhead (1.5 x 60000)
Net contribution
(-) fixed cost
Fixed production overhead
Fixed non production overhead
40,000
100,000
80,000
20,000
(0)
(90,000)
150,000
40,000
600,000
(240,000)
360,000
(90,000)
270 ,000
(190,000)
Net profit 80,000
Direct material - 2
Direct labor -1.6
Variable production overhead - 0.4
Variable non production overhead -1.5
4.0
Fixed cost
Fixed manufacturing expenditure 150,000
Fixed selling and administrative expenditure 40,000
PENQUIN SPORTS WEAR LTD
RECONCILATION STATEMENT
FOR THE 1st MONTH OF 01st QUARTER
Profit of the 01st month in absorption method 20,000
(+) fixed manufacturing expenditure of open inventory -
20,000
(-) fixed manufacturing expenditures of closing inventory No 01 (30,000)
Loss of the 01st month in marginal method (10,000)
PENQUINS SPORTS WEAR LTD
RECONCILLATION STATEMENT
FOR THE 02nd Month of 01st QUARTERLY
Profit of the 2nd month using absorption costing 50,000
(-) fixed manufacturing overhead in closing inventory
Direct material - 2
Direct labor -1.6
Variable production overhead - 0.4
Variable non production overhead -1.5
4.0
Fixed cost
Fixed manufacturing expenditure 150,000
Fixed selling and administrative expenditure 40,000
PENQUIN SPORTS WEAR LTD
RECONCILATION STATEMENT
FOR THE 1st MONTH OF 01st QUARTER
Profit of the 01st month in absorption method 20,000
(+) fixed manufacturing expenditure of open inventory -
20,000
(-) fixed manufacturing expenditures of closing inventory No 01 (30,000)
Loss of the 01st month in marginal method (10,000)
PENQUINS SPORTS WEAR LTD
RECONCILLATION STATEMENT
FOR THE 02nd Month of 01st QUARTERLY
Profit of the 2nd month using absorption costing 50,000
(-) fixed manufacturing overhead in closing inventory
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50,000
(+) fixed manufacturing overhead in opening inventory No 2 30,000
Profit using marginal costing 80,000
Activity 03
What is budgetary control and budgeting?
Budgetary control is the process by which budgets are prepared for the future period and
compared with the actual performance for finding out variances.
Budgeting is the process of creating a plan to spend your money. this spending plan is called a
budget.
Advantages and disadvantages of budgetary control
Advantages
1. It defines the goals, plans and policies of the enterprise. If there is no definite aim, then the
efforts will be wasted in achieving some other aims
2. It secures better coordination among various departments.
3. It helps in reducing the cost of production by eliminating the wasteful expenditure.
4. Budgetary control facilitates centralized control with decentralized activity.
Disadvantages
1. Budget involves a heavy expenditure which the small business concerns cannot afford.
2. The success of budgetary control depends upon the support of the top management. If there
is lack of support from the top management, then this will fail.
3. It is really difficult to prepare the budgets accurately under the inflationary condition.
(+) fixed manufacturing overhead in opening inventory No 2 30,000
Profit using marginal costing 80,000
Activity 03
What is budgetary control and budgeting?
Budgetary control is the process by which budgets are prepared for the future period and
compared with the actual performance for finding out variances.
Budgeting is the process of creating a plan to spend your money. this spending plan is called a
budget.
Advantages and disadvantages of budgetary control
Advantages
1. It defines the goals, plans and policies of the enterprise. If there is no definite aim, then the
efforts will be wasted in achieving some other aims
2. It secures better coordination among various departments.
3. It helps in reducing the cost of production by eliminating the wasteful expenditure.
4. Budgetary control facilitates centralized control with decentralized activity.
Disadvantages
1. Budget involves a heavy expenditure which the small business concerns cannot afford.
2. The success of budgetary control depends upon the support of the top management. If there
is lack of support from the top management, then this will fail.
3. It is really difficult to prepare the budgets accurately under the inflationary condition.
Budgetary control process
The establishment of budgets relating the responsibilities of executives to the requirements of a
policy and a continuous comparison of actual with budgeted results, either to secure by the
individual action the objective of that policy, or to provide a basis for its revision [CIMA UK]
The Types of budgets
There are different types of budgets namely;
1. Master budgets
Desired state budget
Measurement
Actual state Corrective
action
Evaluation
The establishment of budgets relating the responsibilities of executives to the requirements of a
policy and a continuous comparison of actual with budgeted results, either to secure by the
individual action the objective of that policy, or to provide a basis for its revision [CIMA UK]
The Types of budgets
There are different types of budgets namely;
1. Master budgets
Desired state budget
Measurement
Actual state Corrective
action
Evaluation
The master budget is the sum of all other budgets produced by the company’s various
functional areas, including a budgeted financial statement and financing plan. The master
budget is usually presented on monthly or a quarterly basis and usually covers the entire
financial year of a company .an explanatory text can be included with the master budget, which
explains the company’s strategic direction.
2. Cash budget
A cash budget is a budget or plan of expected cash receipts and disbursements during the
period.
3. Revenue budget
Revenue budget are the forecasts of a company’s sales revenue and expenditures, including
capital related expenditures. This budget helps the businesses to predict the amount they will
earn when they sell their products and services.
4. Production budget
This budget calculates the units of production to be produced and is derived from the
collection of sales forecasts and planned amount of finished goods to have on hand.
(ESOFT METRO CAMPUS , 2021)
Analysis the use of different planning tools and their
application for preparing and forecasting budgets
The different planning tools are used in different ways in preparation and forecasting of the
budgets of the business. they are as follows;
01.PESTLE
All the organizations need to identify the external factors within their environment that could
have an impact on their operations. A popular tool for identifying these external factors is the
PESTEL analysis, which can be used to help to consider Political, Economic, social,
technological, legal and environmental issues.
The advantages and disadvantages of PESTLE analysis
Advantages
functional areas, including a budgeted financial statement and financing plan. The master
budget is usually presented on monthly or a quarterly basis and usually covers the entire
financial year of a company .an explanatory text can be included with the master budget, which
explains the company’s strategic direction.
2. Cash budget
A cash budget is a budget or plan of expected cash receipts and disbursements during the
period.
3. Revenue budget
Revenue budget are the forecasts of a company’s sales revenue and expenditures, including
capital related expenditures. This budget helps the businesses to predict the amount they will
earn when they sell their products and services.
4. Production budget
This budget calculates the units of production to be produced and is derived from the
collection of sales forecasts and planned amount of finished goods to have on hand.
(ESOFT METRO CAMPUS , 2021)
Analysis the use of different planning tools and their
application for preparing and forecasting budgets
The different planning tools are used in different ways in preparation and forecasting of the
budgets of the business. they are as follows;
01.PESTLE
All the organizations need to identify the external factors within their environment that could
have an impact on their operations. A popular tool for identifying these external factors is the
PESTEL analysis, which can be used to help to consider Political, Economic, social,
technological, legal and environmental issues.
The advantages and disadvantages of PESTLE analysis
Advantages
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1. Alertness development: PESTLE analysis is a broad term which can be narrowed down
and used for analyzing specific products, marketing plans, and customer relationships.
PESTLE analysis increase the awareness in case of new developments. It raises
awareness about the potential threats in an external operating environment in an
organization. PESTLE analysis allows you to thoroughly examine the changes to develop
a plan which can increase the profit.
2. Exploit opportunities : PESTLE analysis is the analysis of the external environment .It
includes the assessment of assessment of external threats and opportunities .PESTLE help
the organizations to understand the external trends for instance ,through this analysis you
see how the target market is moving towards a particular social media channel .Investing
in that particular channel is an opportunity to build a strong marketing campaign .A
robust outreach approach regarding marketing on that particular channel will help to
increase the customer base.
Disadvantages
As a theoretical tool of strategic management PESTLE analysis inevitably possess some
significant limitations,
1. Technology and our society are evolving at a rapid place. Such changes have made it difficult
for the management to anticipate the developments that can affect the growth prospects of an
organization in the long term.
2.The most significant disadvantage of the model is that PESTLE analysis is only based on an
assessment of the external environment .so, the results obtained from this model are not useful or
complete . (GOOGLE , n.d.)
02.SWOT
A Swat is a planning tool used to understand the strengths, weaknesses, opportunities and
threats involved in a project or in a business.
The Advantages and disadvantages of SWOT are as follows;
Advantages
1.data integration: SWOT analysis requires to the combination of quantitative and qualitative
information from a number of sources. Assessing a range of data from multiple sources
and used for analyzing specific products, marketing plans, and customer relationships.
PESTLE analysis increase the awareness in case of new developments. It raises
awareness about the potential threats in an external operating environment in an
organization. PESTLE analysis allows you to thoroughly examine the changes to develop
a plan which can increase the profit.
2. Exploit opportunities : PESTLE analysis is the analysis of the external environment .It
includes the assessment of assessment of external threats and opportunities .PESTLE help
the organizations to understand the external trends for instance ,through this analysis you
see how the target market is moving towards a particular social media channel .Investing
in that particular channel is an opportunity to build a strong marketing campaign .A
robust outreach approach regarding marketing on that particular channel will help to
increase the customer base.
Disadvantages
As a theoretical tool of strategic management PESTLE analysis inevitably possess some
significant limitations,
1. Technology and our society are evolving at a rapid place. Such changes have made it difficult
for the management to anticipate the developments that can affect the growth prospects of an
organization in the long term.
2.The most significant disadvantage of the model is that PESTLE analysis is only based on an
assessment of the external environment .so, the results obtained from this model are not useful or
complete . (GOOGLE , n.d.)
02.SWOT
A Swat is a planning tool used to understand the strengths, weaknesses, opportunities and
threats involved in a project or in a business.
The Advantages and disadvantages of SWOT are as follows;
Advantages
1.data integration: SWOT analysis requires to the combination of quantitative and qualitative
information from a number of sources. Assessing a range of data from multiple sources
improves the enterprise level planning and policy making, improves decision making, enhances
communication and helps to coordinate operations.
2. cost: SWOT analysis requires neither technical skills or training, a company can select a
staff member to conduct the analysis rattan than hiring an external consultant. In addition,
SWOT is a somewhat simple method that can be performed in a fairly short time.
Disadvantages
1.Over simplification encouragement: Too much implication is not a bad thing but, it
encourages more people to look at and understand certain things. However, if you get into the
habit of it, then you will find something extremely important to you, simplification at the
highest level. If that happens, it will become an impossible task to solve some problems.
2. lack of objectivity : analysis have some bias and tendencies that arise whether you want to
or not Moreover ,if there are personal interests ,it is difficult to expect great realism when your
brand is connected make sure they do not exists. (GOOGLE, n.d.)
03.BALANCED SCORE CARD
A balanced score card is a performance metric used to identify, improve and control a
business’s various functions and resulting outcomes.
The advantages and disadvantages of balanced score card are as follows;
Advantages
1. It aligns your departments and divisions
When implemented correctly, all the departments should be aligned with a common strategy
and a balanced scorecard facilitates this process. with a BSC structure, your critical goals can
be linked to the goals of a parent company or business. In addition, you can see how your steps
move up to enterprise level projects and much more. When sharing the large projects across the
multiple quotas, the required structure is provided by the BSC.
2. It helps your employees see their individual goals link to the organizational strategy
The BSC allows the individuals to sets their goals through the organization, for example, an
employee who sets the regular performance goals for an annual personal review may link their
objectives to their department. Thus, the BSC allows all your employees to connect what they
do to the team and the company as a whole.
communication and helps to coordinate operations.
2. cost: SWOT analysis requires neither technical skills or training, a company can select a
staff member to conduct the analysis rattan than hiring an external consultant. In addition,
SWOT is a somewhat simple method that can be performed in a fairly short time.
Disadvantages
1.Over simplification encouragement: Too much implication is not a bad thing but, it
encourages more people to look at and understand certain things. However, if you get into the
habit of it, then you will find something extremely important to you, simplification at the
highest level. If that happens, it will become an impossible task to solve some problems.
2. lack of objectivity : analysis have some bias and tendencies that arise whether you want to
or not Moreover ,if there are personal interests ,it is difficult to expect great realism when your
brand is connected make sure they do not exists. (GOOGLE, n.d.)
03.BALANCED SCORE CARD
A balanced score card is a performance metric used to identify, improve and control a
business’s various functions and resulting outcomes.
The advantages and disadvantages of balanced score card are as follows;
Advantages
1. It aligns your departments and divisions
When implemented correctly, all the departments should be aligned with a common strategy
and a balanced scorecard facilitates this process. with a BSC structure, your critical goals can
be linked to the goals of a parent company or business. In addition, you can see how your steps
move up to enterprise level projects and much more. When sharing the large projects across the
multiple quotas, the required structure is provided by the BSC.
2. It helps your employees see their individual goals link to the organizational strategy
The BSC allows the individuals to sets their goals through the organization, for example, an
employee who sets the regular performance goals for an annual personal review may link their
objectives to their department. Thus, the BSC allows all your employees to connect what they
do to the team and the company as a whole.
Disadvantages
1. It can’t be copied precisely from examples
By following what you have just read, your strategy and examples you read will change
dramatically. you may be tempted to copy an example map, but remember that your strategy is
completely unique to your BSC. we strongly suggest using templates to get feedback on what
other organizations that use it have done, but then step out and build something unique for
yourself.
2. It requires the strong leadership to be successful
You may have a problem with your score card because ,BSC is not convinced that the new
leadership is a variable alternative or your existing leadership dislikes or does not understand
the structure .It is important to remember that the BSC needs to complete overhaul of the way
you manage It is not a project with a definite deadline .If you are asked to make a scorecard
and return to business as usual ,warn that your scorecard process will not be successful.
(GOOGLE, n.d.)
04.Porters five forces
Porters five forces framework is a method for analyzing competition for a business.
The advantages and Disadvantages of porter’s five forces are as follows ‘
Advantages
1. The porters five forces help to identify where power lies in a business situation. This is
useful both in understanding the strength of an organization and the strength of a position
that an organization may look to move into.
2. Helps in gauging competition: one of the advantages of porter’s model is that it helps the
company to measure the existing competition in the industry in which it operates. This is
because of the company has a low level of competiveness in the industry, it may have a
price force and the result will be that the company makes good profits. Simply put, a
company’s pricing power is inversely proportional to the competition in the industry.
Competiveness reduces the pricing power and vice versa.
Disadvantages
1. No industry will be perfect fit
1. It can’t be copied precisely from examples
By following what you have just read, your strategy and examples you read will change
dramatically. you may be tempted to copy an example map, but remember that your strategy is
completely unique to your BSC. we strongly suggest using templates to get feedback on what
other organizations that use it have done, but then step out and build something unique for
yourself.
2. It requires the strong leadership to be successful
You may have a problem with your score card because ,BSC is not convinced that the new
leadership is a variable alternative or your existing leadership dislikes or does not understand
the structure .It is important to remember that the BSC needs to complete overhaul of the way
you manage It is not a project with a definite deadline .If you are asked to make a scorecard
and return to business as usual ,warn that your scorecard process will not be successful.
(GOOGLE, n.d.)
04.Porters five forces
Porters five forces framework is a method for analyzing competition for a business.
The advantages and Disadvantages of porter’s five forces are as follows ‘
Advantages
1. The porters five forces help to identify where power lies in a business situation. This is
useful both in understanding the strength of an organization and the strength of a position
that an organization may look to move into.
2. Helps in gauging competition: one of the advantages of porter’s model is that it helps the
company to measure the existing competition in the industry in which it operates. This is
because of the company has a low level of competiveness in the industry, it may have a
price force and the result will be that the company makes good profits. Simply put, a
company’s pricing power is inversely proportional to the competition in the industry.
Competiveness reduces the pricing power and vice versa.
Disadvantages
1. No industry will be perfect fit
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Another problem with the porters five forces is that no industry is a perfect fit in the sense that
one industry can expect all the positives and the company is concerned that if it goas through
the porter’s analysis to find the perfect industry. It will not be able to do the business.
2. Ignore other factors
The biggest disadvantage of the porter’s five forces model is that it takes into account the above
factors and ignores the other factors that affect the environment in which the company operates.
(GOOGLE , n.d.)
Analyze of how, in responding to financial problems,
management accounting can lead organization to
sustainable success
There are different ways by which the management accounting can lead the organization to
sustainable success and the different ways are mentioned below;
The different management accounting tools and techniques like break even analysis and
standard costing are used in a way which makes the decision making process and
planning more effectively and efficiently as it takes into account different constrains and
requirements of the business before formulating a plan for its future period.
It helps the business to develop financially effective and financial control of the
business.
It helps the business to consider different market information before making a decision
for the business, thus making that decision more sustainable than the business.
It helps the business to formulate the sustainable goals and objectives for the business
future operations.
It helps the business to identify the various issues ,which makes the sustainability of the
business low .Therefore by the help of the management accounting ,those issues are
identified and removed from the business operations. (GOOGLE , n.d.)
one industry can expect all the positives and the company is concerned that if it goas through
the porter’s analysis to find the perfect industry. It will not be able to do the business.
2. Ignore other factors
The biggest disadvantage of the porter’s five forces model is that it takes into account the above
factors and ignores the other factors that affect the environment in which the company operates.
(GOOGLE , n.d.)
Analyze of how, in responding to financial problems,
management accounting can lead organization to
sustainable success
There are different ways by which the management accounting can lead the organization to
sustainable success and the different ways are mentioned below;
The different management accounting tools and techniques like break even analysis and
standard costing are used in a way which makes the decision making process and
planning more effectively and efficiently as it takes into account different constrains and
requirements of the business before formulating a plan for its future period.
It helps the business to develop financially effective and financial control of the
business.
It helps the business to consider different market information before making a decision
for the business, thus making that decision more sustainable than the business.
It helps the business to formulate the sustainable goals and objectives for the business
future operations.
It helps the business to identify the various issues ,which makes the sustainability of the
business low .Therefore by the help of the management accounting ,those issues are
identified and removed from the business operations. (GOOGLE , n.d.)
Evaluate how planning tools for accounting respond
appropriately to solving the financial problems to lead
organizations to sustainable success
The planning tools benefits the organization in solving the problems of the business in various
functions of the business and making these functions of the business more sustainable.
mentioned below are some ways;
Planning: The planning tools help the business in various aspects of the business and
align the future operations of the business with the strategic goals and objectives of the
business through planning tools like budget. This makes the business more sustainable.
Controlling and monitoring: business controlling and monitoring are most efficient,
because the business is able to control and monitor the various costs of the business
through planning tools such as variance analysis.
Competitive advantage: The business sometimes gains a competitive advantage by
effectively managing the various resources of the business with the help of various
business planning tools such as cash flow modelling.
Activity 04
Introduction to the Hidaramani Apparel
Hidaramani is a pioneer global manufacturer which was founded in 1890.They offer integrated
apparel designs, production and supply chain solutions for premium international brands which
are focusing on efficiency, durability and regional activities. Their special ISTS team’s partners
with apparel companies to deliver trend leading products to their customer. Today Hidaramani
is a global enterprise with a diversified network spanning 55000+associates, six countries and
multiple industrial sectors. In Hidaramani they do the right thing. They always have. It’s all
about making good decision today that benefit everyone in the long term. Their future focused
got them where they are today and will ensure that they have an enduring positive impact on
appropriately to solving the financial problems to lead
organizations to sustainable success
The planning tools benefits the organization in solving the problems of the business in various
functions of the business and making these functions of the business more sustainable.
mentioned below are some ways;
Planning: The planning tools help the business in various aspects of the business and
align the future operations of the business with the strategic goals and objectives of the
business through planning tools like budget. This makes the business more sustainable.
Controlling and monitoring: business controlling and monitoring are most efficient,
because the business is able to control and monitor the various costs of the business
through planning tools such as variance analysis.
Competitive advantage: The business sometimes gains a competitive advantage by
effectively managing the various resources of the business with the help of various
business planning tools such as cash flow modelling.
Activity 04
Introduction to the Hidaramani Apparel
Hidaramani is a pioneer global manufacturer which was founded in 1890.They offer integrated
apparel designs, production and supply chain solutions for premium international brands which
are focusing on efficiency, durability and regional activities. Their special ISTS team’s partners
with apparel companies to deliver trend leading products to their customer. Today Hidaramani
is a global enterprise with a diversified network spanning 55000+associates, six countries and
multiple industrial sectors. In Hidaramani they do the right thing. They always have. It’s all
about making good decision today that benefit everyone in the long term. Their future focused
got them where they are today and will ensure that they have an enduring positive impact on
the world. Hidaramani is a sector that operates in apparel and footwear. Hidaramani’s top
competitors are Srilankan Apparel Association, Kash garments and APS knitters.
The hidaramani group was founded in 1890s by the 16 year old Paramanand Hidaramani who
had borrowed some money to open a small shop in the Colombo Commercial
Center ,Srilanka .as the history upto do ,it has come full circle in atleast one way In the early
1900s Pramanand Hidaramani made a name for himself for introducing the concept of day
sewing to short haul passengers in Colombo .Today the Hidaramani group specializes in short
term orders for customers such as Nike, Adidas ,Marks & spencer’s ,Colombia sportswear , Liz
Cliburn ,Polo, Levi and Eddie. (HIDARAMANI APPAREL PRIVATE LIMITED , n.d.)
The reasons for arising financial problems in a company
The most common causes of finance problems in a company are as follows;
1. Lack of cash flow
2. Poor accounting practices
3. Unnecessary expenditures
4. Bootstrapping
5. Excessive AD spending
How to identify the financial problems of the company
/compare penguin sportswear with Hidaramani apparel?
Cash flow
Very few businesses like penguin sportswear and Hidaramani apparel escape cash flow
problems if you are in a business where you bill for services performed or goods sold as
so many businesses do your revenues can look on paper while your bank account looks
terrible.
competitors are Srilankan Apparel Association, Kash garments and APS knitters.
The hidaramani group was founded in 1890s by the 16 year old Paramanand Hidaramani who
had borrowed some money to open a small shop in the Colombo Commercial
Center ,Srilanka .as the history upto do ,it has come full circle in atleast one way In the early
1900s Pramanand Hidaramani made a name for himself for introducing the concept of day
sewing to short haul passengers in Colombo .Today the Hidaramani group specializes in short
term orders for customers such as Nike, Adidas ,Marks & spencer’s ,Colombia sportswear , Liz
Cliburn ,Polo, Levi and Eddie. (HIDARAMANI APPAREL PRIVATE LIMITED , n.d.)
The reasons for arising financial problems in a company
The most common causes of finance problems in a company are as follows;
1. Lack of cash flow
2. Poor accounting practices
3. Unnecessary expenditures
4. Bootstrapping
5. Excessive AD spending
How to identify the financial problems of the company
/compare penguin sportswear with Hidaramani apparel?
Cash flow
Very few businesses like penguin sportswear and Hidaramani apparel escape cash flow
problems if you are in a business where you bill for services performed or goods sold as
so many businesses do your revenues can look on paper while your bank account looks
terrible.
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Promotional deficiency
The cash flow issues can lead to a downward spiral especially it relates to the marketing
efforts .first one of the budgeted companies often cut when cash is tight in
marketing .This means you won’t have as much money to invest in advertising to attract
the customers plus ,if you start offering sales discounts to generate cash and improve the
situation you can effectively demised the customer perception of your brand’s
value .This can have very negative long term impact on the pricing and revenue
potential .
No dividends
Without the cash flow the company cannot payout the dividends to the owners. In a small
business like penguin sportswear and Hidaramani apparel this basically means the people who
have invested money in the companies won’t collect any return on their investment. No
dividends in exchange for growth and investment is often acceptable. However, no dividends
because the company is struggling and cash is tight is cause for concern.
Economic cycle
You can have great management, the right product or service and the best sales and
service methods, and still struggle because of the outside forces. sometimes the
economy or the industry goes through a crisis. Because of the customer choices and
habits, demand for your product can suddenly fall off without warning. one of the
challenges businesses face is to plan for the inevitable periodic downturns so they can
sustain themselves through economic bad weather.
Analyzing tools which are used to identify the financial
problems
Benchmarking
some of the more useful financial benchmarks involve;
1. Sales and profitability trends
2. Revenue per employee
The cash flow issues can lead to a downward spiral especially it relates to the marketing
efforts .first one of the budgeted companies often cut when cash is tight in
marketing .This means you won’t have as much money to invest in advertising to attract
the customers plus ,if you start offering sales discounts to generate cash and improve the
situation you can effectively demised the customer perception of your brand’s
value .This can have very negative long term impact on the pricing and revenue
potential .
No dividends
Without the cash flow the company cannot payout the dividends to the owners. In a small
business like penguin sportswear and Hidaramani apparel this basically means the people who
have invested money in the companies won’t collect any return on their investment. No
dividends in exchange for growth and investment is often acceptable. However, no dividends
because the company is struggling and cash is tight is cause for concern.
Economic cycle
You can have great management, the right product or service and the best sales and
service methods, and still struggle because of the outside forces. sometimes the
economy or the industry goes through a crisis. Because of the customer choices and
habits, demand for your product can suddenly fall off without warning. one of the
challenges businesses face is to plan for the inevitable periodic downturns so they can
sustain themselves through economic bad weather.
Analyzing tools which are used to identify the financial
problems
Benchmarking
some of the more useful financial benchmarks involve;
1. Sales and profitability trends
2. Revenue per employee
3. Cost per employee
4. Salary and compensation data
Financial benchmarking not only serves as a performance metric ,it shines a light into dark
corners and magnifies small issues that could be improved upon or corrected before they snow
ball into big issues . (ESOFT METRO CAMPUS , 2021)
The advantages and disadvantages of Benchmarking are as follows
Advantages Disadvantages
Improves learning methodology Lack of information
Enhances work quality Increases dependency
Increases customer satisfaction Stabilized standards
Help to overcome the weaknesses Lack of customer satisfaction
Financial governance
The financial governance is important for the good governance because the consequences of
failure can be very devastating for a company .no matter how good the rest of a company’s
governance may be; financial failure can ruin everything.
The benefits of financial governance are;
1. Efficiency in financial close and compliance.
2. Effectiveness of operational controls
3. Risk adjusted insight to facilitate risk assessments (ESOFT METRO CAMPUS , 2021)
The advantages and disadvantages of financial governance are as follows;
Advantages Disadvantages
Tracking expense Costly
4. Salary and compensation data
Financial benchmarking not only serves as a performance metric ,it shines a light into dark
corners and magnifies small issues that could be improved upon or corrected before they snow
ball into big issues . (ESOFT METRO CAMPUS , 2021)
The advantages and disadvantages of Benchmarking are as follows
Advantages Disadvantages
Improves learning methodology Lack of information
Enhances work quality Increases dependency
Increases customer satisfaction Stabilized standards
Help to overcome the weaknesses Lack of customer satisfaction
Financial governance
The financial governance is important for the good governance because the consequences of
failure can be very devastating for a company .no matter how good the rest of a company’s
governance may be; financial failure can ruin everything.
The benefits of financial governance are;
1. Efficiency in financial close and compliance.
2. Effectiveness of operational controls
3. Risk adjusted insight to facilitate risk assessments (ESOFT METRO CAMPUS , 2021)
The advantages and disadvantages of financial governance are as follows;
Advantages Disadvantages
Tracking expense Costly
Debt avoidance Determination of standards
Capital proposals
How to evaluate capital proposals?
1. Financial criteria
2. Risk criteria
3. Strategic alignment criteria
Advantages Disadvantages
Budget The cost of capital
No wastage Maximizing values
More stability Efficient capital markets
Key performance indicators [KPI]
KPI’s are typically included in a reporting scorecard or dash board that enables top
management, the board, or other stakeholders to focus on the metrics deemed most
critical to the success of an organization. KPI’s are generally based on the income
statement or balanced sheet components.
The advantages and disadvantages of KPI ‘s are as follows;
KPI’S often follow SMART objectives which means, they must have been specific,
measurable, achievable, relevant to the business and time dependent. some of the
disadvantages of KPI’s includes measurement
Advantages Disadvantages
Agility in decision making Frequency of data collection
Visibility on performance and strategic
goal
Should be measured frequently
Efficient management No connection with the external data base
Compare how organizations are adapting management
accounting systems to respond to financial problems
Different organizations have different goals and objectives. This difference in the business
objectives and objectives of the business differs the financials and other capabilities of the
Capital proposals
How to evaluate capital proposals?
1. Financial criteria
2. Risk criteria
3. Strategic alignment criteria
Advantages Disadvantages
Budget The cost of capital
No wastage Maximizing values
More stability Efficient capital markets
Key performance indicators [KPI]
KPI’s are typically included in a reporting scorecard or dash board that enables top
management, the board, or other stakeholders to focus on the metrics deemed most
critical to the success of an organization. KPI’s are generally based on the income
statement or balanced sheet components.
The advantages and disadvantages of KPI ‘s are as follows;
KPI’S often follow SMART objectives which means, they must have been specific,
measurable, achievable, relevant to the business and time dependent. some of the
disadvantages of KPI’s includes measurement
Advantages Disadvantages
Agility in decision making Frequency of data collection
Visibility on performance and strategic
goal
Should be measured frequently
Efficient management No connection with the external data base
Compare how organizations are adapting management
accounting systems to respond to financial problems
Different organizations have different goals and objectives. This difference in the business
objectives and objectives of the business differs the financials and other capabilities of the
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business, thus re changing the way business management uses accounting to respond to the
financial problems. For example , one organization with a strategic goal of rapidly expanding
the business market will be able to find the most profitable investment project in a new market
using the management accounting which will bring the highest returns to the business through
the cost management cost .on the other hand ,another business that wants to increase its market
share in the existing market will analyze the gap and evaluate all the available options that can
bridge the gap in the business through the cost accounting system .
similarly, an organization with a high cash flow will use the management accounting process
which will find the most profitable and suitable source of funding for the business to eliminate
the monetary deficiency through the management accounting method such as the cash
management system. again, the target customer base of the business optimization system to find
out what is the best pricing strategy for the business. All these are the different ways by which
the organizations are responding to the financial problem by using the different management
accounting systems.
How the skills of management accountant are helping to
solve the financial problems?
Variance analysis involves at the difference between budgeted amounts and the actual
amounts sold or incurred.
Rate and volume analysis involves looking at the rate and volume of the goods and
services being put through the company.
Business metrics development involves looking at the measurements used to gauge a
component of the performance of the company
Price modelling involves looking at the various elements relating to the price including
competition ,geographic and consumer segment differences to determine the optimal
price for the service of the product (ESOFT METRO CAMPUS , 2021)
How management accountants can guide the organization
to the sustainable success
Identify the environmental and social trends that will impact on the company’s ability to
create the value over time.
financial problems. For example , one organization with a strategic goal of rapidly expanding
the business market will be able to find the most profitable investment project in a new market
using the management accounting which will bring the highest returns to the business through
the cost management cost .on the other hand ,another business that wants to increase its market
share in the existing market will analyze the gap and evaluate all the available options that can
bridge the gap in the business through the cost accounting system .
similarly, an organization with a high cash flow will use the management accounting process
which will find the most profitable and suitable source of funding for the business to eliminate
the monetary deficiency through the management accounting method such as the cash
management system. again, the target customer base of the business optimization system to find
out what is the best pricing strategy for the business. All these are the different ways by which
the organizations are responding to the financial problem by using the different management
accounting systems.
How the skills of management accountant are helping to
solve the financial problems?
Variance analysis involves at the difference between budgeted amounts and the actual
amounts sold or incurred.
Rate and volume analysis involves looking at the rate and volume of the goods and
services being put through the company.
Business metrics development involves looking at the measurements used to gauge a
component of the performance of the company
Price modelling involves looking at the various elements relating to the price including
competition ,geographic and consumer segment differences to determine the optimal
price for the service of the product (ESOFT METRO CAMPUS , 2021)
How management accountants can guide the organization
to the sustainable success
Identify the environmental and social trends that will impact on the company’s ability to
create the value over time.
Link sustainable business challenges to the company’s strategy, business model,
performance outlook and license to operate.
Explain the impact of these sustainability issues in robust business terms, including how
and when they could affect the business.
Develop KPI’S that support strategic and sustainable goals.
Apply management accounting tools and techniques, such as scenario planning of
natural resource availability, lifecycle costing, and carbon foot printing, to help integrate
sustainability matters into the decision making process.
Produce reports that include data on sustainability impacts in order to inform budgeting
and pricing decisions, investment appraisals, and strategic planning.
Develop a reporting strategy that integrates sustainability issues to ensure that that
relevant financial and non-financial information is disclosed. The international
integrated reporting framework created by the international integrated reporting council
is one example. (ESOFT METRO CAMPUS , 2021)
References
ESOFT METRO CAMPUS . (2021). MANAGEMENT ACCOUNTING . COLOMBO: ESOFT
METRO CAMPUS .
GOOGLE . (n.d.). GOOGLE. Retrieved from Http://advanatges and disadvantages of porters five
forces .com
GOOGLE . (n.d.). GOOGLE. Retrieved from Http://www.how financial problems,management
accounting can lead to sustainable success.com
performance outlook and license to operate.
Explain the impact of these sustainability issues in robust business terms, including how
and when they could affect the business.
Develop KPI’S that support strategic and sustainable goals.
Apply management accounting tools and techniques, such as scenario planning of
natural resource availability, lifecycle costing, and carbon foot printing, to help integrate
sustainability matters into the decision making process.
Produce reports that include data on sustainability impacts in order to inform budgeting
and pricing decisions, investment appraisals, and strategic planning.
Develop a reporting strategy that integrates sustainability issues to ensure that that
relevant financial and non-financial information is disclosed. The international
integrated reporting framework created by the international integrated reporting council
is one example. (ESOFT METRO CAMPUS , 2021)
References
ESOFT METRO CAMPUS . (2021). MANAGEMENT ACCOUNTING . COLOMBO: ESOFT
METRO CAMPUS .
GOOGLE . (n.d.). GOOGLE. Retrieved from Http://advanatges and disadvantages of porters five
forces .com
GOOGLE . (n.d.). GOOGLE. Retrieved from Http://www.how financial problems,management
accounting can lead to sustainable success.com
GOOGLE . (n.d.). GOOGLE . Retrieved from Http://advantages and disadvantages of
management accounting commercemates.com
GOOGLE . (n.d.). GOOGLE . Retrieved from Http://www.management accounting .com
GOOGLE . (n.d.). GOOGLE . Retrieved from Http://www.advantages and disadvanatges of
PESTLE latest quality .com
GOOGLE. (n.d.). GOOGLE. Retrieved from Http://www. advanatages and disadvanatges of
SWOT business case study .com
GOOGLE. (n.d.). GOOGLE. Retrieved from Http://www.advantages and disadvantages of
Balanced score card.com
HIDARAMANI APPAREL PRIVATE LIMITED . (n.d.). GOOGLE. Retrieved from
Http://HIdaramani apparel pvt LTD.com
management accounting commercemates.com
GOOGLE . (n.d.). GOOGLE . Retrieved from Http://www.management accounting .com
GOOGLE . (n.d.). GOOGLE . Retrieved from Http://www.advantages and disadvanatges of
PESTLE latest quality .com
GOOGLE. (n.d.). GOOGLE. Retrieved from Http://www. advanatages and disadvanatges of
SWOT business case study .com
GOOGLE. (n.d.). GOOGLE. Retrieved from Http://www.advantages and disadvantages of
Balanced score card.com
HIDARAMANI APPAREL PRIVATE LIMITED . (n.d.). GOOGLE. Retrieved from
Http://HIdaramani apparel pvt LTD.com
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