Management accounting system | Assignment

Management accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1.................................................................................................................................................3
P2.................................................................................................................................................4
M1................................................................................................................................................4
D1.................................................................................................................................................5
TASK 2............................................................................................................................................5
P3.................................................................................................................................................5
M2................................................................................................................................................9
D2.................................................................................................................................................9
TASK 3............................................................................................................................................9
P4.................................................................................................................................................9
M3..............................................................................................................................................13
TASK 4..........................................................................................................................................13
P5...............................................................................................................................................13
M4..............................................................................................................................................15
D3. .............................................................................................................................................15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting (MA) is defined as the particular process which includes the
certain process such as identifying, analysing, processing, measuring the financial data and
information in order to make the futuristic decision by the management of the business
organisation. It manages the financial performance of the by setting up new objects and plan in
the business. For the better understanding of this particular topic company continental clothing
Ltd. is selected that is engaged in fabrication of the clothing at the various location of UK. The
reports content the various topic such as management accounting system (MAS), reporting,
different problem established in the business, various budgeting techniques and control that used
by business as planning tools (Schaltegger, Burritt, and Petersen, 2017).
TASK 1.
P1
Management accounting includes the different kind of accounting tools that devising the
plan and object of the business in respect to providing the expertise in the financial statement and
reporting and assist the manager regarding formulation the business strategies and objectives and
implement it into business for earn more profit in future. Here, the different kind of management
accounting are mentioned as under:
Stock management system: It is also called inventory method that related with the
handle the overall cost of the product at processing unit of business. It manages the inflow and
outflow of the stock at warehouses. The company continental clothing Ltd is using this method
to ensure the stock at the warehouse.
Cost accounting system: This is the system that is defined as the overall cost that incur
at the different level of the manufacturing the goods. It consists the the total cost from stage of
raw material to finished goods. Continental clothing uses this method in the business to know the
overall cost at the time of manufacture.
Price optimisation system (POS)- In the method, business sets the price to its products
at the certain level. It is totally based on the cost of production and the review of the customers.
In respect to selected company, management are applying particular system to set the amount to
its products.

Job costing system- This is the method that is defined as the transfer the cost to its
particular products and job. It measure the cost incurred from direct material, labour and
overhead. Company is using this tool to make effective decision in the business regarding
allocation of the cost to its projects and job.
P2
These reports are the basic statement of the business that represent the monetary item in
the statement to its management of the company. The main object behind it to provides all the
detail regarding the business to make the internal planning and policy. The different kind of
reports are as follows:
Budget reports: This is the reports that is defined as the statements of the future income
and expenditure at the different level of manufacturing. This report play a major role in analysing
the standard data with actual performance. Continental clothing company is using this tool of
MAR in the business to identify the cost at various level of the production (Santini, 2013).
Account receivable ageing report- In this report, it show the total amount due with the
debtors. This reports is only for those business which deal in the credit to its customers. The
management creates this reports to know the balance amount with the customers. In the company
continental clothing business uses this reports to know the credit business transaction with
customer.
Cost accounting report- This is the report that is accompanying the information
regarding the overall cost of the manufacturing the goods and product. It covers the various cost
of production such as direct material, certain overhead like fix and variable cost. The company,
continental clothing Ltd is making this particular reports in the business to measure the
incurring in their operation.
Performance report- This reports is all about the measuring the specified business
activities and operation in concern with the business performance and employee contribution
towards the business organisation. Company is using this report to make analysation in the
business regards the whole performance of the business.
M1
Every management system have its own role and function in the business that play a
major role in handling the business activities. Here, some of the benefit are as under :

Management accounting
system
Benefits
Inventory management
system
It is connected with the decent direction of amount of raw
material at warehouse. Company can trash the record of their
stock list.
Price optimisation system It will help in distribution the price to its products of clothing. In
the particular company. They sets the prices on the ground of
client response.
Cost accounting system According to this system analysis the cost of products.
Job costing system It is crucial for furnish data about calculation the cost on task or
job.
D1
MAS is interrelated with the business process. In the particular company, continental
clothing Ltd is uses the accounting system in the business operation. It gives the better control
and smoothness to the business function. As a cost accounting system help in allocating the
financial resources to the unit so it can manage in available sources (Nørreklit, 2017) .
TASK 2
P3
Absorption costing: this is the method to prepare the financial statements by using all the
cost information related to production. All the variable cost and fix cost are included in the
manufacturing cost to ascertain the cost of the product.
Marginal costing: In this particular method, only variable cost are covered in the
manufacturing cost to ascertain the price of the product. Whereas the fix cost are charged to
periodical cost.
Performance report-

(a) Preparation of cost card:
Cost card (Marginal costing method)
£/unit
Direct material 50
Direct labour 15
Variable overhead 9
Marginal cost 74
Selling price 150
Marginal cost 74
Contribution 76
(b)
Profit and loss statement for month of January:
Particulars DR CR
Sales revenue (12000 * 150) 1800000
Direct material (15000*50) 750000
Direct labour (15000*15) 225000
Variable cost (15000*9) 135000
Fixed production overhead 30000
Less : Closing stock (3000*74) 222000
Less: Cost of sales 918000
Profit 882000
Profit and loss statement for month of February

Particulars DR CR
Sales revenue (14000 * 150) 2100000
Direct material (12000*50) 600000
Direct labour (12000*15) 180000
Variable cost (12000*9) 108000
Add : Opening stock (3000*74) 222000
Fixed production overhead 24000
Less- Closing stock (1000*74) 74000
Less: Cost of sales 1282000
Profit 818000
Profit and loss statement for month of March
Particulars DR CR
Sales revenue (11000 * 150) 1650000
Direct material (10000*50) 500000
Direct labour (10000*15) 150000
Variable cost (10000*9) 90000
Add : Opening stock (1000*74) 74000
Fixed production overhead 20000
Less: Cost of sales 834000
Profit 816000

Case 2
(a) Cost card for January
Cost card (Absorption costing)
£/unit
Direct material (50*15000) 750000
Direct labour (15*15000) 225000are 10
Production overhead (fixed + variable) [7*15000] 105000
Total cost 1080000
Absorption cost of product 1080000 / 15000= 72
Selling price 150
Less- Total cost 72
Profit 78
(b) Profit and loss account for month of January:
Particulars DR CR
Sales revenue (12000*150) 1800000
Variable cost:
Direct material (15000*50) 750000
Direct labour (15000*15) 225000
Less- Closing stock (3000*74) 222000
Fixed production cost (30000+3000) 33000

Less: cost of sales 786000
Profit 1014000
Profit and loss account for month of February
Particulars DR CR
Sales revenue (14000*150) 2100000
Variable cost:
Direct material (12000*50) 600000
Direct labour (12000*15) 180000
Add- Opening stock (3000*74) 222000
Less- Closing stock (1000*74) 74000
Fixed production cost (24000+3000) 27000
Less: cost of sales 955000
Profit 1145000
Profit and loss account for month of March
Particulars DR CR
Sales revenue (11000*150) 1650000
Variable cost:
Direct material (10000*50) 500000
Direct labour (10000*15) 150000
Add- Opening stock (1000*74) 74000
Fixed production cost (20000+3000) 23000

Less: cost of sales 747000
Profit 903000
M2.
To conduct several management techniques it is required to apply costing techniques in
the context of MAS -
 Historical technique – These techniques apply by the company to conduct business
activities in positive manner.
 Modern techniques – These types of techniques apply when company have not any
option to sort out the problem.
D2
From the above table it is analysed that in order to prepare the income statement as per
the marginal costing the profit is around 800000 in respective month. And the absorption costing,
the profit are around 1100000 in the particular month. So it is recommanded to adopt absorption
method of costing.
TASK 3.
P4.
There are different type of planning tools that used in the business. The various type of
budgetary control like cash budget, production budget., sales budget, fix budget, flexible budget
helping in determine the estimated income and expenditure. Here some budget are explained as
under:
Cash budget- cash budget is the statements that shows the inflow and outflow of the
cash for the particular time of period. This budget is prepared to know the cash balances is
enough to operate the business activities. In the company, continental clothing the management
are prepared this report to maintain the minimum balance to operate the organisational function
(Abdelmoneim Mohamed and Jones, 2014).
Advantage:
It maintain the control over the processing unit by allocating the required cash balance.
And expenses are categorized as per the object of expenses.

Disadvantage:
It limits the disbursement power of the business. It is totally based on forecasting that
may true or not.
Master budget- This is the budget that is defined as consist the all budget that are
prepared by the business entity. This is the strategies plan for future that comprises of the
different budget like sales budget, production budget, manufacturing budget at the certain level
the production and sales.
Advantage:
It provides effective planning in the business unit by assembling all the budget formate
and identify the the particular function.
Disadvantage:
It is difficult to read and understand as it increases the complexity.
Case 3
(a) Sales budget (in quantity)
Products Units
Sofas 50
Beds 40
Chairs 100
Total 190
Sales budget (in value)
Products Amount
Sofas 7500
Beds 5200
Chairs 10000
Total 22700

(b) Production budget in units:
Products
Particulars Sofas Beds Chairs
Budgeted sales 50 40 100
Add- Desired closing stock 600 1000 800
Total needs 650 1040 900
Less- Opening stock 500 800 700
Required production 150 240 200
(c) Material purchase budget
Particulars Wood Varnish
Raw material 12000 5280
Less : Opening stock 11000 10000
Add- Closing stock 8000 9000
Material usage 9000 4280
(D) Material usage budget
Particulars Wood Varnish
Product:
Sofa 4800 2400
Beds 3200 2080
Chair 4000 800
Case 4
preparation of estimation of cash position from 1st April 2017.

Case 5
Particular Output 10000 units Output 8000 unit
Variable cost
Material 70 700000 70 560000
Labour 25 250000 25 200000
Direct variable
expenditure
5 50000 5 40000
Factory OH
Variable 20 200000 20 160000
Fixed 10 100000 12.5 100000
Selling OH
Fixed 1.3 13000 1.62 13000
Variable expenses 11.7 117000 11.7 93600

Distribution
expenses
Fixed 1.4 14000 1.75 14000
Variable expenses 5.6 56000 5.6 44800
Administration
expenses (fixed)
5 50000 6.25 50000
Total cost of sales 155 1550000 159.42 1275400
(b) Calculate the variances between actual and flexible budget:
The difference between actual and flexible budget is as follows
Difference= 1550000- 1275400
= 274600
M3.
Budgetary control contains assorted kind of planning tools that are advantageous for
formulation and forecasting of the budgets. As respective company, continental clothing limited
they are using some planning tools such as production budget, master budget and capital budget.
TASK 4.
P5.
This is the mandatory section where the problem of the business needs to settle in
specific time. In the competitive world, there are huge problem and crises presence in the
business that may harm the business activities. In this concern, it is required to resolve or address
in the short period of time otherwise it may create financial crises in the business. here, some of
the business problem that presence in the business (Chenhall, 2012).
Increasing in the functional cost: This is the main problem that occur in an
organisation. As per this problem it increase the cost of production level of the production. The
revenue from the sales is decreasing and become the issue in the business. The main reason

behind it, ineffective management by the managers. This issue needs to be address soon in the
business to enhance the sales.
Lower sales: This is the another financial issue that taken place in the business. The
sales of the company is lower year by year due to higher cost of production. This financial issue
can be raise due to higher cost of the production needs to control over the business activities to
raise sales and decrease the cost. The continental clothing company is facing the same issue in
the business (Budding,, Grossi and Tagesson, 2014).
Method to detect the issue:
Ratio analysis: this is the systematic approach to measure the financial data from the
financial statement of the company. It includes the various type of ratios such as profitability
ratio, efficiency ratio an many more. By calculating these ratios companies get to know about
what is the main issue. For example in above company, they are facing the issue of higher
functional cost and it is being identified by help of calculating sales turn over ratio. Thus it can
be said that this technique is useful in order to find out the actual issue (Youssef, 2013).
Benchmarking- It may be defined as a kind of technique which is related with process of
comparing a company's financial performance, growth, plans and policies with rest of other
competitive companies. With the help of this, issue facing company can find out the actual issue.
Hence, it can be said that this technique is useful in order to assessing actual level of issue and on
the basis of it plan can be made.
Comparison
Basis Continental clothing limited Alpha clothing manufacturers
Financial issue This company is facing the issue of
higher functional cost. Due to this
their other expenses are also
increasing which is leading to cost of
production.
On the other hand this company is
facing the issue of low sales. Due to
this their profitability is decreasing as
well as they do not have enough funds
to operate their other activities.
Management
accounting
This company is using cost
accounting system in order to solve
While this company is using price
optimisation system to sort out from

system the issue. It is so because by
implementation of this accounting
system they get able to know which
activities are resulting as higher cost.
Thus, they control their expenses and
solve the issue (Edwards, 2013).
issue. It is a kind of system which is
linked with setting prices on the basis
of customers reactions. The above
company is setting their prices on
basis of demand in market and their
sell is increasing. Thus, their issue is
resolved.
M4
Different types of system as MAS are very essential in resolving the financial problems
of company. This is so because types of management accounting have important effect on on
financial issues of the business. As instance in the continental clothing company, they are facing
the difficulty of higher functional cost and this cognitive content is resolved by applying the
inventory management system.
D3.
The planning tools are really helpful in react towards the commercial enterprise issues
same as the MAS. The planning tools include necessary financial data and information about the
companies. It becomes facilitative to the institution to re-coking the nature of financial problem.
As well as the preparation of planning tools act as a monitoring strategy in respect to resolve
the important financial issues.
CONCLUSION
The accounting of management is too crucial for companies. In the project report various
kind of accounting system such as cost accounting system, price optimisation system etc. are
concluded as well as accounting reports are also included. In further part of project report,
different calculation is done as per the given data and planning tools of budgetary control is also
included. In the end part of project report, comparison between two organisations is done as per
the help of management accounting techniques.