Management Accounting: Techniques and Applications for Nasty Gal Vintage

This report discusses the management accounting techniques and applications used by Nasty Gal Vintage. It covers the different types of management accounting systems and reports, cost analysis techniques, and income statement preparation using marginal and absorption cost. It also explores the advantages and disadvantages of budgetary tools for financial planning and control. The report provides insights into how Nasty Gal Vintage is adapting its management accounting systems to respond to financial problems and achieve sustainable success.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Task 1...............................................................................................................................................1
P1. Management accounting and requirement of different types of management accounting
system.....................................................................................................................................1
P2. Methods used for management accounting reporting......................................................3
M1: Benefits and application of management accounting system.........................................4
D1: Evaluation of integration of management accounting reports and system with
organisational processes.........................................................................................................4
Task 2...............................................................................................................................................5
P3. Calculation of cost using cost analysis techniques and preparation of Income statement
using marginal and absorption cost........................................................................................5
Income statement under Absorption costing..........................................................................6
Flexed Budget for the actual activity......................................................................................6
P4. Advantages and disadvantages of different types of planning tools that are used for
budgetary tools.......................................................................................................................7
M3. Analyse the use of different planning tools and their applications for preparing and
forecasting budget..................................................................................................................8
P5. How organisations are adapting management accounting systems to respond to financial
problems.................................................................................................................................9
M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success.....................................................................................10
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success.........................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting refers to the technique used by the organisations for preparing the
reports about the different business operations. This process is conducted to inform the manager
about all the business information so that they can make informed decisions in the conduct of the
business (Burritt and et. al., 2019). This process consists of various stages such as identification,
measurement, analysing, interpretation and communication. This process is generally focused
towards the operations of the company in which the cost of products and services produced by
the organisation are considered. Nasty Gal Vintage is a United States based clothing retail
company, this reports discusses the several aspects of the management accounting by taking in
account of the organisation. This report revolves around the concept of management accounting,
principles and the implications that the business faces in the operations. Further the necessities of
analysing the cost is helpful in preparing the income statement of the company.
MAIN BODY
Task 1
P1. Management accounting and requirement of different types of management accounting
system.
Management accounting is the process of creation of the organisational goals by treating the
financial information of the company in a right manner. This information is further
communicated to the manager and other users of the company. The above practice is performed
by the company to ensure that the internal users of the respective company are making an
informed decision (Rikhardsson and Yigitbasioglu, 2018). They can analyse and use the
information so that they can make the best decision in the company. Different types of reports
are used such as the budgets and the actual performance of the company to so that the managers
can compare the planned performance with the actual performance. Further the organisation uses
other reports such as Return on Investment, payback period and net present value in selecting
between different project alternatives that are available for the organisation. Nasty Gal Vintage
uses several types of tools to plan and make decisions in the organisations which directly impacts
the operations of the business. Few of these management accounting system used in Nasty Gal
Vintage are discussed below:
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 Cost accounting system - This managerial system is use by the organisation to track the
costs such as variable and fixed that have incurred in the production of the company. This
is most basic technique that is used by the organisation in managing the cost of products
and services that the company is currently using in the model. In this technique the input
cost of the variables in the organisation is calculated and further added with the fixed
cost. This addition helps in generation of the total cost of the products that the company is
producing in the current financial year. This total cost of the product is compared with the
returns that the particular project is able to generate for the business. Through this a series
of different types of costs are managed in the system such as the fixed costs, operating
costs, variable costs, direct and the indirect costs (Zakirova and et. al., 2020). This system
is used by Nasty Gal Vintage to manage the different costs that are incurred in business
during the production of the products. Price optimising system- This is one of the mathematical model that is used in the
business to aid in the evaluation and analysis process of the ways in which demand of the
products varies with the level of change in the price of the product or services that Nasty
Gal Vintage is offering in the market. The information and data that is collected by the
system is further combined with the inventory and cost so that the recommendation of the
prices can be made to improve the profitability of the business. Nasty Gal Vintage, they
use this system to understand the market trend and further collection information about
the preference of the customers. The demand of the customers is understood so that they
can well apply the techniques and tactics in the business. This system helps in essentially
generating more sales in the organisation which directly contributes to the profitability of
the business. Job-costing system- This is the technique which helps in assembling the differential
information that is the tracking and analysis of the cost with specific jobs. This system is
based on the various data that is the direct material, cost and the overheads. Nasty Gal
Vintage uses this type of system in the organisation for deciding the accuracy and the
estimated model which aids in the process of quoting the prices of the product. This also
assists the organisation in generation of the reasonable profit in the business. The
essential need of the system is continuous monitoring of the production process so that
the issues can be identified.
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P2. Methods used for management accounting reporting
Management accounting reports are prepared in the organisation on a continuous basis which
assists the organisation in making plans and measuring the performance of the company. The
report prepared must be authentic and accurate so that all the decision that are made by analysing
the reports must be authentic (Marlina and et. al., 2020). Nasty Gal Vintage critically uses the
different types of reporting systems so that they can accumulate the information for preparation
of the reports which helps in the regulation of the business operations. Various types of
management accounting reporting system used by Nasty Gal Vintage are discussed below: Account receivable aging report- This is one of the most vital system as the credit
policies of the business are dependent on this system. Through this technique the business
measures the reliability of the organisation on the extended credit. This report is useful
for Nasty Gal Vintage as it helps in identification of the defaulters and further helps the
business in improving the collection process of the business. The business also
determines the doubtful debts which is helpful for business to report the exact amount of
assets that the business have. The financial situation of the organisation is also
determined through this process. Budget management accounting report- These reports are significant for the business as
it directly helps in measuring the performance of the business effectively. This consists of
several types of components such as expenses and income that the business has reported
during the year. Nasty Gal Vintage uses this to use the past records to create a good plan
for the future operations of the company. This is essential for the organisation to monitor
the monetary resources of the business so that they can orderly plan the execution of the
future activities of the organisation. This helps in aiding the top management of Nasty
Gal Vintage in holding the subordinates of the company accountable for spending of the
resources of the organisation on the non-profitable avenues. Performance report- This is one of the most vital reports that is used by the managers of
the company to take decisions strategically regarding different situations that occur in the
business. Nasty Gal Vintage uses this report to match the planned areas with the actual
performance of the company so that they can analyse the performance of the employees
working in the organisation. This is significant for the organisation as the company can
track the performance of the organisation during the financial year and the top level
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management can come up with ways in which they can improve their financial
performance (Wegmann, 2019).
M1: Benefits and application of management accounting system
Benefits of Cost accounting system- This is helpful and beneficial for Nasty Gal Vintage as it
helps the organisation in assessing the fixed and variable costs that are concerned with the
different processes. This is applied in Nasty Gal Vintage by calculating several ratios that are
price variance, gross margins etc.
Benefits of inventory management system- This helps Nasty Gal Vintage in case of excess and
shortage of inventory being there in the organisation. The system is further applied in the
organisation through proper auditing of the stock that the company has. The timely auditing of
the stocks is essential as it ensures that the business is keeping a track on then resources that the
business have.
Benefits of Price optimising system- Nasty Gal Vintage is eliminating the requirement of the
manual work and minimizing the level of human error in the process (Ahn, Clermont and
Schwetschke, 2018). This is further applied in the establishment of past data analysis and
defining of the different business goals seriously. This system considers the benefits at which the
price of the products offered by the company can be optimized.
Benefits of Job costing system- The benefits of Nasty Gal Vintage is that it assists in monitoring
the cost of the jobs or services that are there in the organisation. This system is also helpful in
analysing the job costing reports so that they can know the completion and progressed job.
D1: Evaluation of integration of management accounting reports and system with organisational
processes
In Nasty Gal Vintage, there are various organisational processes that are interlinked with
different types of management accounting system and reports. The inventory management
system and reports are further integrated together in working of the company so that they can
optimize the effectiveness of the operations (Kudryashova and et. al., 2020). The inventory
management accounting reports and system are further closely connected with the managing the
stocks in the company. This helps the organisation in catering the needs of the customer base
which further enhances the reputation of the company in the market.
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Task 2
P3. Calculation of cost using cost analysis techniques and preparation of Income statement using
marginal and absorption cost
Cost Cards
November
Sales = 70* 10000 = £ 700000
Direct Materials = £100000
Direct Labour = £ 150000
Fixed Overheads = £ 250000
December
Sales = 70* 8000 = £ 560000
Direct Materials = £100000
Direct Labour = £ 150000
Fixed Overheads = £ 250000
Inventory = £ 2000 units
Income statement under Marginal costing
Profit as Per
absorption costing
£s November
£s
£s December
£s
Turnover 700000 560000
Less: COGS 500000 400000
Direct Material cost 100000 100000
Direct Labour cost 150000 150000
Fixed manufacturing
overhead
250000 250000
Less:Closing Stock 100000
Gross Profit 200000 160000
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Income statement under Absorption costing
Profit as Per
absorption costing
£s November
£s
£s December
£s
Turnover 700000 560000
Less: COGS 500000 400000
Direct Material cost 100000 100000
Direct Labour cost 150000 150000
Fixed manufacturing
overhead
250000 250000
Less: Closing Stock 100000
Gross Profit 200000 160000
Less: Under
absorption
0 50000
Profit 110000
Flexed Budget for the actual activity
Particulars Budget Actual Variances Variances (%)
Sales 100000 122000 22000 22.00%
Less: COGS 87500 114500 27000 30.86%
Direct Material 50000 60000 10000 20.00%
Direct Labour 25000 28500 3500 14.00%
Variable
Overhead
12500 15000 2500 20.00%
Gross Profit 12500 7500 -5000 -40.00%
Less: Fixed
Overhead
10000 11000 1000 10.00%
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Net Profit 2500 -3500 -6000 -240.00%
P4. Advantages and disadvantages of different types of planning tools that are used for budgetary
tools
Budget refers to the financial plan that is used to predict the financial plan for a particular
period of time. This shows the sum of finances that is allocated for different purposed and how
the company will raise income from the different set of sources (Fogarassy and et. al., 2018).
Preparing a budget helps in anticipating the expenses and revenues that will be reported in the
upcoming future year. Organisation helps in terms of planning strategies and plans that are
measurable for Nasty Gal Vintage.
Budgetary control refers to the process of management accounting in which it can be
described as process which helps in terms of preparation of budget for the future. This budgeted
performance is compared with actual projections which will help in terms of identifying the
variances. Nasty Gal Vintage will compare the actual performance with the budgeted figure of
the company so that they can identify the areas in which the company is lacking in terms of
performing the tasks. Achieving the desired objective is one of the prime responsibility of
employees of the company.
Advantages of budgetary control
There are several advantages of budgetary control in management accounting, few such
advantages are discussed below: Profit maximization- The aim of budgetary control is to maximize the profit of
organisation. This is one of the prime objective of the firm in which the company is
looking to maximize their revenue by using the method of budgetary control in the
management accounting. Nasty Gal Vintage should use this method in order to divide the
various capital and revenue expenditure reported in the organisation. Coordination- By using budgetary control methods the company can further increase
coordination level which will help in terms of maximizing the productivity in the
business (Samuel, 2018). The efforts that are applied in the process of business will help
in terms of attaining the set objective.
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 Determining weaknesses- Budgetary control helps in terms of determining the weak
spots of organisations. The areas of improvement are determined with the help of
comparing the actual results of the company with the panned one. Reduced cost- Budgetary control plays a significant role in the today’s scenario where the
cost gets reduced as it directly helps in managing the cost of production incurred in the
business model.
Disadvantages of budgetary control
The various set of disadvantages of budgetary control methods in management
accounting are discussed below: Uncertain future- As the future is uncertain there are several set of complication in
predicting the exact future for the company. The budget tells more of a rough analysis of
the future conditions and it does not provide exact picture of the future due to uncertainty
(Alsharari, 2019). Conflicts among different departments- The process of budgetary control can lead in
terms of raising conflicts with in different types of departments that are there in the
organisation. As there are budgets divided between two departments it raises a sense of
conflicts between the amount that is allocated between two departments.
M3. Analyse the use of different planning tools and their applications for preparing and
forecasting budget
The different planning tools that can be used by the franchise in order to effectively plan the
operations are further discussed below: Forecasting: Forecasting in the Nasty Gal Vintage refers to the management accounting
process of utilising the current and historic cost to analyse future cost. It is vital part of
company to estimate and plan for the money that will be incurred prior to actually
incurring them. Contingency planning: this planning tool help company to identify the worst case
scenarios and their potential impacts and presents potential responses. Nasty Gal Vintage
develop the financial contingency plan by collecting and evaluating data, then handle it
off to senior managers where the strategies are brainstormed (Gibassier and Alcouffe,
2018).
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 Benchmarking: this planning tool is the important process for the comparison of the
current financial position or performance with the competitors or with the previous
performance of the company itself. This helps the company by providing the significant
opportunities for the improvement as per the standard measurements. Goal setting: The key objective of the management accounting is to maximize the profits
of the company by minimizing the losses. Thus, through the goal setting planning tool
company is able to set the desired outcome for their future important decision making.
Financial goal setting help the company to stay focused and profitable for the sustainable
success (Doktoralina and Apollo, 2019).
P5. How organisations are adapting management accounting systems to respond to financial
problems
Financial problem refers to the situation in which the organisation faces a series of
difficulties in meeting the requirements of objectives. These problem are faced in terms when
there are several obligations against the respective company. Nasty Gal Vintage must adapt to
different management accounting technique which will help in terms of meeting all the necessary
obligations and addressing all the financial problems. The various types pf problems that can be
seen in the business model are lack of funds, unable to meet the desired outcome and other such
fund related activities. Few such financial problems that can be faced by Nasty Gal Vintage are
discussed below: Unconventional cash flow- An inconsistent cash flow is the common form of problem
that is faced by the company in terms of dealing with cash. Unconventional cash flow
refers to the situation when the inflow and outflow of cash are not well managed (Hadid
and Al-Sayed, M., 2021). It will be difficult for the company to deal with the
unconventional cash flow since it leads to producing the multiple internal rate of return
(IRR) which is dependent on the change in the direction of cash flow submitted in the
business. Improper allotment of fund- It is considered as the basic problem in which the company
is unable to meet the requirement of rightly allocating the funds. This allotment is made
up on different factors where the company is to decide the amount that will be required in
order to fund the projects. If Nasty Gal Vintage is able to well manage the funds, then it
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will help in terms of well distributing the funds in a proper form or manner. Proper
allocation of funds will result in smooth functioning and the objectives of the firm will be
attained.
Techniques
The various techniques that can be applied in the financial business model of Nasty Gal Vintage
in order to resolve financial problems are further discussed below: Ratio analysis- Ratio analysis is one of the best technique which helps in resolving
different set of financial problems and it further also assists in the financial aspects of the
company. Nasty Gal Vintage is required to focus more on ratio analysis in order to
evaluate the profitability, financial leverage, efficiency and other vital information about
the projects. Using this form of analysis, will help in terms of two types of analysis that
are horizontal and vertical. Nasty Gal Vintage should conduct ratio analysis on a regular
basis in order to understand the current financial position (Pedroso, Gomes and Yasin,
2020). Using a different approach in making budgets- Using an approach in which the budget
can be critically analysed and further the appropriate funding should be allotted to
different scenarios. The organisation must lower their expenses so that they can use the
assigned funds in a better manner. In context of Nasty Gal vintage, they should make a
proper budget in which an effective fund allocation is done. This will ensure that the
company have enough amounts of strategies and funds to deal with the financial
problems that the company may face in near future.
M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success
It is critically evaluated that while the firm responds to the financial problems such as
improper allotment of funds or unconventional cash flow, the management accounting leads an
organisation towards the sustainable success. By ratio analysis the Nasty Gal Vintage is able to
gather the vital financial information which helps the company to gain financial forecast and
mitigate the financial issue making the company profitable and sustainable. For the sustainable
success it is important to have regular understanding of company financial position which is also
achieved while responding to the financial issues (NGUYEN and LE, 2020). Thus, it is critically
analysed that methods like ratio analysis and budget making approaches are highly useful and
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supportive in leading the business towards sustainable success by forecasting and preparing for
the challenges company may face in future.
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success.
In the field of management accounting there are different planning tools used by the organisation
like Nasty Gal Vintage which assist the firm in responding to financial problems and also lead
the company towards the sustainable success. The forecasting is a powerful tool that helps the
company to prepare prior to the problem as per the prediction of the problem. The Benchmarking
is effective planning tool that set certain level of limit for the company to succeed in order to
avoid financial problem or failure(Englund and Gerdin, 2018). It is critically analysed that goal
setting is the effective planning tool that directs company to reach the pre-set goals set at through
this tool by removing the entire financial problem in the pathway.
CONCLUSION
From the above report it is concluded that within the organisation there is huge importance of
management accounting for the effective decision making. The report concludes that different
types of management accounting systems are useful in gathering most reliable and precise
financial data and information. The report summarizes the methods that are utilized for the
preparation of management accounting report. Moreover, the marginal and absorption cost is
calculated and income statement is drawn using the following cost with the help of provided
data. Further, it is concluded that advantages of Budgetary overpower its disadvantages and
therefore, every organisation must use different methods of budgetary control. Also, the firms
can encounter the financial issues and by which different KPIs can indicate or identify the issue
and also ways to overcome them are mentioned in the report.
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