Management Accounting: Types of Systems, Cost Analysis Techniques, and Planning Tools

This article discusses the different types of management accounting systems used in Nasty Gal Vintage, including cost accounting, inventory management, price-optimizing, and job-costing systems. It also covers the techniques of cost analysis for preparing income statements using absorption and marginal costing. Additionally, it explores the advantages and disadvantages of different planning tools used for budgetary control. The article evaluates the integration of management accounting reports and systems with organizational processes and analyzes how management accounting approaches can lead an organization towards sustainable success.

Management Accounting

Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Types of management accounting system with its essential requirements...........................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...............................................................................................................5
TASK 2............................................................................................................................................5
P3: Techniques of cost analysis for preparing income statement by using absorption and
marginal costing...........................................................................................................................5
M2: Applying a range of management accounting techniques ...................................................6
D2: Applying and interpreting data for varied business activities...............................................7
TASK 3............................................................................................................................................7
P4: Advantages and disadvantages of different types of planning tools used for budgetary
control..........................................................................................................................................7
M3: Uses and application of planning tools in preparing and forecasting budgets.....................9
TASK 4............................................................................................................................................9
P5: Comparison between companies on adoption of management accounting system for
responding financial problems.....................................................................................................9
M4: Analysing how management accounting approaches can lead an organisation towards
sustainable success.....................................................................................................................11
D3: Evaluating how planning tools responds to financial problems while leading organisation
towards attaining success...........................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is a technique used by organisations to prepare varied reports
about differential business operations. It primarily assists an establishment analysing and
interpreting communication channels in order to provide required information to decision-
makers. Nasty Gal Vintage, an American clothing retail company is taken into consideration for
better understanding the concept of management accounting, its principles and its implications in
business operations. Nasty Gal Vintage is founded in 2006 and has its headquarter at California.
United States of America.
This project illustrates a finer understanding of management accounting system and its
necessities in implementing planning tools in organisation. This project includes varied
techniques of analysing cost which helps company in preparation of income statement. This
project also provides the ways in which company uses management accounting in order to solve
financial problems. It also depicts varied advantages and disadvantages for planning of
budgetary control.
TASK 1
P1: Types of management accounting system with its essential requirements
Management accounting is an exercise that essentially focuses on identifying and
evaluating organisational objectives in order to communicate differential financial and non-
financial data to top management of organisation (Astuty and Pasaribu, 2021). Managers can use
this information preparing differential budgets and performance reports. Management accounting
is far more different concept than preparation of financial statements. Key difference between
them is that former is prepared in connection to internal processes while latter is drawn up for
external entities like shareholders. It essentially helps in forecasting future trends and cash flows
of business operations which further aids mangers in creation of budgets. Management
accounting system is a technique of controlling and influencing employees as well as various
costs which are essential for attaining organisational goals (Bedford and Speklé, 2018). Effective
implementation of management accounting system in Nasty Gal Vintage is beneficial as it
provides differential insights which is helpful in decision-making and planning processes. By use
of this, accountants provides charts, tables and flowcharts which made the decision-making
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process more generic and justified. Various types of management accounting system in
relevance to Nasty Gal Vintage are discussed below: Cost-accounting system is a strategical framework which aids organisation in estimating
product price for performing profitability analysis and stock valuation (Caglio and
Ditillo, 2021). It is beneficial for Nasty Gal Vintage as it helps in identifying profitable
products for business operations. This system also assists accountants of establishment in
preparing financial statement. It consists of job order and process costing methods. Nasty
Gal Vintage uses hybrid system of cost accounting by combining both the methods as it
engaged in production of unique clothing line and has various departments in order to
operate its activities effectively. It is essentially required in establishments as it assists in
maintaining cost efficiency in operations and also improves accountability of different
departments. Inventory management system is concerned with valuing and accounting changes in
stock at any business stage. Nasty Gal Vintage uses this system in order to maximize its
sales and optimize profit-margins. Inventory of organisation consists of three types,
namely, raw materials, work-in-progress and finished goods. Its implementation is
essentially required in organisations to increase operational efficiency and longevity in
business operations. It assists Nasty Gal Vintage in identifying direct costs related to
procurement and storing process. It also aids company in having a reserve of extra stock
which can help in case of shortages. Price-optimising system is a mathematical model which aids an organisation in analysing
and evaluating how demand varies with changes in price level of product or service
(Diab, 2021). Data or information collected by this system is combined with cost and
inventory for recommendation of prices that aids in improving profitability. Nasty Gal
Vintage uses this system for collecting information about market tends, customer
demands and preferences in order to operate its activities better. This system is essentially
required in organisation for generating more sales as well as profitability. It provides
reliable and relevant information which assists Nasty Gal Vintage in planning its
marketing activities.
 Job-costing system is an technique of assembling differential information about tracking
and analysing cost with specified job or task (Englund and Gerdin, 2018). It needs to
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assimilate various data based on direct material, cost and overhead. Nasty Gal Vintage
uses this system for deciding accuracy of its estimating model which aids it in quoting
prices of products. It also assists organisation in generating reasonable profit. Essential
requirement of this system in an organisation is continuous monitoring of production
process which aids in identifying issues and making corrections in order to avoid any
crippling situation.
P2: Methods used for management accounting reporting
Management accounting reports are prepared on continuous basis and assists an
organisation in making plans and measuring performance (G'iyosov, 2019). These reports should
be authentic and accurate as many crucial business decisions are based on them. Managers of
Nasty Gal Vintage critically analyse the accumulated information to prepare reports which aids
them regulating its business operations. It is beneficial for establishment as it helps in improves
organisational efficiency and motivating employees to increase their performance as per set
standards. Various methods used for management accounting reporting in context to Nasty Gal
Vintage are as follows: Budget management accounting reports are significant for an organisation as it
measures its performance effectively. It consists of sources of expenses and income of
businesses. It aids Nasty Gal Vintage in catering unforeseen circumstances and analysing
past experience. It is essential for establishments to monitor organisational monetary
resources in order to plan for future. It aids top management in holding subordinates
accountable for spending company resources on non-profitable avenues. Accounts receivable aging report is vital for businesses who relies on extended credit
from market. These reports helps Nasty Gal Vintage in identifying defaulters and
improving their collection process. It is helpful in determining doubtful accounts and
writing off the debts. These reports provides indicators for understanding financial
situation of customers of company. Job-cost report is considered with allocation of expenses to a specified project or service
which is financed by company (Hutaibat, and Alhatabat, 2020). These reports aids Nasty
Gal Vintage in identifying and evaluating the areas where profits are high so that it can
concentrates on these specified areas. This also aids in avoiding job or project which have
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low profit margins. It also assists in improving financial proficiency and increase
profitability. Performance reports are vital to mangers as it aids in taking decisions strategically.
These reports aids Nasty Gal Vintage in comparing actual performance with pre-
determined standards in order to find any discrepancies or variance in that. It is
significant for entities in accurately measuring their strategy towards stated mission and
objectives. It not only helps in measuring employee performance but also quantifies
organisation as a whole.
 Inventory management reports are significant for establishments as they provide
accurate and reliable representation of inventory at different stages of business
operations. These reports aids Nasty Gal Vintage in determining reorder time and
efficiency in operating inventory in business activities. This helps in reduction of cost as
well as improve and maintain quality of products.
M1: Benefits and application of management accounting system
System Benefits and Application
Cost-accounting system This is beneficial for Nasty Gal Vintage as it
helps in assessing variable and fixed costs
accurately for different processes. It is applied
in Nasty Gal Vintage by calculating various
ratios such as price variance, gross margins etc.
Inventory management system It benefits Nasty Gal Vintage in case of
shortage and excess of inventory. This system
is applied by company through proper auditing
of stock.
Price-optimising system This system benefits Nasty Gal Vintage in
eliminating the requirement of manual work
and minimizing human error. It is applied in
establishment by analysing past data and define
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business goals clearly.
Job-costing system It is beneficial for Nasty Gal Vintage as it
assists in monitoring cost of each job or
service. This system is applied in company by
analysing job costing reports in order to know
about completed and progressed jobs.
D1: Evaluation of integration of management accounting reports and system with organisational
processes
In Nasty Gal Vintage, various organisational processes are interlinked with differential
management accounting reports and systems (Krutova, Tarasova and Nosach, 2020). For
instance, inventory management reports and system are integrated together in the workings of
Nasty Gal Vintage in order to optimize effectiveness in operations. Simplified inventory
management accounting reports and system are closely connected with procurement of stock it
offers to its customers. This will further benefits company in catering needs of their massive
customer base and enhances its reputation in market. By the help of these reports and system, it
can avoid situations like having under or over stock as customer preferences, choices and market
trends are dynamic in nature.
TASK 2
P3: Techniques of cost analysis for preparing income statement by using absorption and
marginal costing
Cost can be termed as monetary value which is incurred by an organisation in
manufacturing of products. These cost from buyer's perspective is called price. It can be also
termed as expense in financial books. Various types of cost in relevance with Nasty Gal Vintage
are as follows:
 Fixed cost are compulsory for an organisation to pay irrespective of their business
activities. These cost do not vary with increase or decrease of commodities produces by a
company. Nasty Gal Vintage incurs fixed cost in form of depreciation, rent etc.
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 Variable cost are vary with increase and decrease in production level of commodities.
Nasty Gal Vintage incurs manufacturing and packaging cost in operating in their business
activities.
Cost analysis is a technique used in a systematic manner in an organisation aids in
analysing various decisions about effectiveness and allocation of cost to differential products
(Mariina, and Tjahjadi, 2020). Techniques used by accountants of Nasty Gal Vintage in
analysing decisions related to cost are as follows:
Marginal costing is a practice where variable cost varies with increase in one unit of
commodity while fixed cost is written off towards its contribution (Massicotte, and Henri 2021).
This can be used by Nasty Gal Vintage for determining optimum production cost of products.
Income statement of Nasty Gal Vintage in accordance with marginal costing method is as
follows:
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
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Direct Labour cost 150000 150000
Fixed manufacturing
overhead
250000 250000
Less:Closing Stock 100000
Gross Profit 200000 160000
Absorption costing is an accounting technique which captures all types of direst and
indirect cost incurred in manufacturing a particular product. It can be used by Nasty Gal Vintage
tracking profits accurate and reliable manner. Income statement of Nasty Gal Vintage as per
absorption costing technique is as follows:
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 (%)
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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%
Net Profit 2500 -3500 -6000 -240.00%
M2: Applying a range of management accounting techniques
Top management of Nasty Gal Vintage adopts a range of management accounting
techniques in order to effectively organise and co-ordinates varied activities. It effectively
applies absorption and marginal costing methods to produce an comparative income statement of
earned revenue for two months. Under marginal costing profit are more for November as
compared to December.
D2: Applying and interpreting data for varied business activities
Financial reports are detailed documents that delivers differential business activities and
performance to varied stakeholders (Matsuoka, 2020). It includes income statement, cash flow
report and balance sheet. Accountants of Nasty Gal Vintage prepared income statement for
analysing and evaluating profits through absorption and marginal costing methods. Data is
analysed and evaluated for two months figures.
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TASK 3
P4: Advantages and disadvantages of different types of planning tools used for budgetary control
Budget is a microeconomic concept which estimates revenue and expenses for a specific
future period. It is flexible in its approach and continuously modified for different periods. These
are budgets plays a significant role in corporates to perform their operations effectively.
Managers of Nasty Gal Vintage prepares budgets for attracting investors and meet financial
goals effectively.
Budgetary control is an exercise of comparing actual expenditure with pre-determined
standards set by organisation. Top management of Nasty Gal Vintage applies budgetary control
effectively as it benefits it in enhance operational efficiency and profit maximisation.
Planing tools are instruments that aids an organisation in monitoring and following-up its
operations for executing a specified plan or project. Managers of Nasty Gal Vintage uses various
planning tools for better controlling of budget system. Various planning tools in context to
Nasty Gal Vintage are discussed below:
 Capital budgeting is a practice undertaken by establishments for identifying and
evaluating potential for crucial projects and investments. For instance, planning to invest
large amount in machine or new technology for long-term success of business operations.
This technique helps Nasty Gal Vintage in investigating and selecting fruitful decision for
gaining long term success of business. Its advantages and disadvantages in relation to
Nasty Gal Vintage are:
Advantages Disadvantages
It is advantageous for Nasty Gal Vintage as it
helps in understanding various risk and its
effects on investment decisions. This assists
company in choosing best investment avenue
in a competitive market to stay ahead from
competitors. It also restricts management in
under or over investing.
This can be a disadvantageous for Nasty Gal
Vintage as these are long term investment
decisions and are irreversible in its approach.
This decisions if taken wrongly can adversely
affect business durability in long term.
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 Zero- based budgeting is a technique that essentially involves bifurcating expenses in a
justified and accurate manner for each coming period. It is used by Nasty Gal Vintage in
for prioritizing allocation of resources in different departments. Its advantages and
disadvantages for Nasty Gal Vintage are:
Advantage Disadvantage
This technique benefits Nasty Gal Vintage in
justifying operating expenses and identifying
the areas which generates more profits. This
provides clear and reliable understanding of
budgets and also measure company overall
performance that would further aids in
effective budgetary control.
Its application in Nasty Gal Vintage is a
complex, expensive and time-consuming
process. It is a difficult task to justify and
allocate every aspect of expenses and revenues
in monthly budgets. Any discrepancies in this
technique hampers brand reputation.
 Operating budget is a projection of all revenues and expenses that an organisation incurs
in any project (Nielsen and Pontoppidan 2019). Top management of Nasty Gal Vintage
uses this technique in managing current expenses of business operations. It also aids
establishment in forecasting future expenditure in business activities. Its advantages and
disadvantages in accordance with Nasty Gal Vintage are:
Advantages Disadvantages
It is beneficial for Nasty Gal Vintage in
estimating cost and also manages short term
spending on business operations in order to
meet financial obligations in long-term. This
technique is flexible enough in providing
financial freedom to company for grabbing
opportunities in market.
It is disadvantageous for Nasty Gal Vintage as
it does not helps in evaluating differences
between actual and anticipated costs. This
planning tool are inflexible in their approach as
strategies formulated by using this can not be
altered for the rest of the year.
M3: Uses and application of planning tools in preparing and forecasting budgets
Managerial accountants of Nasty Gal Vintage implements various planning tools in order
to prepare and forecast different budgets (Pelz, 2019). Company uses zero-based, capital and
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operating budget techniques for knowing the effectiveness of its business operations. Zero-based
budgeting is used by Nasty Gal Vintage for allocating revenue or profit to specific expenditure.
It can be applied in organisation by streamlining and deciding which activities are to be
performed and its manner of performing. Capital budget is used by decision-makers of Nasty
Gal Vintage in making right choice about an investment or project. This can be applied in an
establishment by identifying and evaluating potential opportunities. Operating budget is used by
Nasty Gal Vintage for tracking income and expenses as well as it aids in evaluating business
financial performance. This can be applied in company through comparison of actual and pre-
stated costs.
TASK 4
P5: Comparison between companies on adoption of management accounting system for
responding financial problems
Financial problems are issues faced by organisation in operating their business activities
when they are not in a capable position to generate sufficient revenues and are unable to pay off
their financial dues (Spraakman 2020). For instance, lack of cash flows for performing business
activities effectively. Some financial problems in relevance to Nasty Gal Vintage are as follows: Lack of finance- Finance is considered as blood for companies which ensures operational
effectiveness. Without adequate finance, a company can not think to grow or expand its
business further. Even insufficient finance creates problems in routine operations of
Nasty Gal Vintage. Improper cash flow management- This practice can led Nasty Gal Vintage towards
inefficiency and disorganisation of activities. Poor management of cash flows led to
confusion and faulty reporting in business operations. It is a significant financial issues
which adversely tempers business performance.
 Excessive debts- It can poses a huge financial distress to business. Overlevraging of
funds can led Nasty Gal Vintage restricts it in keeping their short and long term
obligations and even draws it to bankruptcy. This financial problem can also create
hindrances in meeting day-to-day activities.
Management accounting approaches applied by Nasty Gal Vintage are as follows:
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 Financial governance- This involves policies and procedures aids an organisation in
tracking financial transactions, performance management and monitoring varied
operations (Tan 2019). Ineffectiveness of this practice restricts Nasty Gal Vintage in
monitoring and collecting accurate information about financial transactions. Effective
implementation of this approach helps in identifying risk faster than competitors.
 Key performance indicators- This refers to set of quantifiable tools which aids an
organisation in measuring its overall performance. These are tracked by automated
softwares and different analytical tools. It is beneficial for Nasty Gal Vintage as it helps
in formulating business goals and also measure their implementation in workings.
 Benchmarking- It is described as an exercise of comparing organisation's products,
services and strategies with those companies who are considered as leader in industry
(Youssef, Moustafa, and Mahama, 2020). Nasty Gal Vintage uses this practice in their
operations as it helps in bridging the performance gaps in order to identify areas which
needs improvements.
Comparison of different organisation for applying management accounting system in solving
various financial problems.
Basis of difference Nasty Gal Vintage Marks & Spencer
Financial problems Nasty Gal Vintage is facing
financial problem as it lacks in
working capital. Because of
this, company is not able to
meet its day-to-day
requirements thus can not
provide satisfaction to their
employees.
Marks & Spencer is facing
improper management of its
cash flows which creates
hindrances in its business
operations.
Management accounting
approaches
Nasty Gal Vintage adopts a
practice of benchmarking in
order to respond towards
financial problems. As this
approach of management
Marks & Spencer uses key
performance indicators in
order to analyse its past
performance and can compare
it with current one. This aids
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accounting helps in measuring
organisational performance
effectively with competitors.
in evaluating and identifying
any gap between them.
Management accounting
systems
Nasty Gal Vintage adopts cost-
accounting system in order to
allocate procurement cost
towards differential products.
This helps in generating more
revenue and profitability.
Marks & Spencer adopts
inventory management system
in order to manage its various
operations like production,
supply etc. Effectiveness of
this system helps in tackling
its financial problems in a
efficient manner.
M4: Analysing how management accounting approaches can lead an organisation towards
sustainable success
Nasty Gal Vintage uses various management accounting approaches that helps it to
moving ahead towards sustainable success in market (Taschner and Charifzadeh 2020).
Company uses benchmarking, financial governance as tools to attain long term success in
industry and also creates a differentiated position in market. These strategies helps Nasty Gal
Vintage in overcoming their financial problems and also accomplish sustainable success.
Financial governance aids them monitoring and auditing financial transactions performed by
them over the course of business. Key performance indicators aids Nasty Gal Vintage in
measuring their performance with competitors and also helps in gaining sustainable competitive
advantage.
D3: Evaluating how planning tools responds to financial problems while leading organisation
towards attaining success
Planning tools are designed to make workings simpler and it also assists mangers in
determining objectives, guiding behaviour and evaluating performance within an establishment
(van Erp, Roozen, and Vosselman, 2019). It also assists organisation in solving financial
problems in order to attain success. Nasty Gal Vintage uses varied planning tools such as
operating, zero-based and capital budgeting. These budgeting approaches aids company in
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allocating different costs towards specific departments and products. These are beneficial for
establishment in preparing for any coming future risk.
CONCLUSION
As per the above report it is concluded that management accounting includes with steps
to prepare reports in regards of business operations being undertaken within an organisation.
Capital budget is a type of budget which are prepared by financial managers of a firm in order to
undertake potential investment projects on time with objective to expand business and sustain in
long run.
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