Management Accounting Report for Fashion Entertainment Limited Company

This report delves into the realm of management accounting, focusing on its application within Fashion Entertainment Limited. It begins with an introduction to management accounting, its types, and the importance of internal reporting for decision-making. The report then explores various methods of management accounting reporting, including cost accounting, inventory management, performance reports, and budget reports. It provides insights into the benefits of different management accounting systems, such as inventory management, price optimization, cost accounting, and job costing. The analysis extends to how these systems are integrated within Fashion Entertainment Limited's processes. Furthermore, the report examines the preparation of income statements using marginal and absorption costing techniques, highlighting the role of planning tools and management accounting in addressing financial issues and preparing budgets. The report concludes by emphasizing the importance of management accounting for effective financial management and decision-making within the company. The report showcases the practical application of management accounting principles in a real-world business context, providing valuable insights into financial planning, analysis, and reporting.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION................................................................................................................................3
TASK 1.................................................................................................................................................3
Question 1. Management accounting and its types..........................................................................3
Question 2. Different methods of management accounting reporting.............................................5
M1. Benefits of management accounting systems...........................................................................6
D1.Management accounting systems and reporting are integrated with process of Fashion
entertainment limited company........................................................................................................7
Question 3. Preparation of income statements.................................................................................7
M2. Management accounting techniques to produce financial statements.....................................9
D2. Interpretation of produced financial reports...........................................................................10
TASK 2...............................................................................................................................................10
Question 4. Use of planning tools of management accounting.....................................................10
Question 5. Role of management accounting to solve the financial issues...................................11
M3. Use of planning tools for preparation of budgets in Fashion entertainment limited company.
.......................................................................................................................................................13
M4. Management accounting systems in response to solve financial issue..................................13
D3. Planning tools in response to solve the financial issues.........................................................13
CONCLUSION..................................................................................................................................14
REFERENCES...................................................................................................................................15

INTRODUCTION
The term management accounting is linked with a kind of accounting system that is
involved in the process of preparation of internal reports with the help of financial and non financial
information (Nørreklit, 2017). This accounting is very crucial for the aspect of managers. It is so
because with the help of it they make their future plans and policies as well as determine the
financial position. In the absence of this accounting, it may be difficult for companies to manage
various activities in an effective manner. Herein, the project report Fashion entertainment limited
company is selected that is involved in the manufacturing of designed cloths. The company is
located in London, UK and size of entity is medium. Along with the project report describes about
various types of tasks in which term management accounting is defined in broad sense. Such as
explanation of management accounting and its types are mentioned. Along with various techniques
and methods of reporting is also described. Further, the income statement is prepared with help of
marginal and absorption costing techniques. Additionally, limitation and drawbacks of planning
tools of budgetary control along with importance of management accounting from overcoming the
financial issues is mentioned in the end.
TASK 1.
Question 1. Management accounting and its types.
The management accounting may be defined as an important part of accounting that is
associated with the internal management of companies with help of internal reports (Santini, 2013).
As per the accounting rules and regulation this is not necessary for companies to implement this
accounting as financial accounting. But looking at its importance, this accounting is becoming
essential part. In the aspect of Fashion entertainment limited company, they use this accounting as
well as its various types that are mentioned below:
 Inventory management system- It is an accounting system which is linked to the an effective
management available goods including all kind of goods such as raw material, finished
goods, work in progress (WIP) etc. The companies who use this accounting system they take
benefit of it not only in management of inventories but also for controlling the cost of
storage. As per above discussion about inventory management, it can be said that it is
essential for keeping cost of storage under control as well as for taking crucial decisions. For
example in above selected company, they use this accounting system in the aspect of
management of their raw material such as cotton, silk etc.
 Price optimisation system- This is defined as an accounting system that is aligned to the
measuring customer's reaction on different pricing levels. On the basis of this reaction of

customers it helps in marking the exact price of products. Without implementation of this
accounting system, companies may face various issues such as lower sales because if price
will not effective then customers will not prefer to buy. So it is essential for companies in
keeping prices of their products and services at a suitable level so that selling can be
increase. In Fashion entertainment limited company, they use this that helps them in selling
the cloths at an effective prices. Along with they evaluate customers' reaction on multi-pal
level of prices.
 Cost accounting system- It is a kind of accounting system that is linked to the providing cost
regarding information to companies (Humphrey and Miller, 2012). The key aim of this
accounting system is to minimising the costs so that profit can be earned. With the use of it,
organizations can get detailed information about various kind of costs such as production
cost, advertisement cost and many more. So this is essential for minimising and keeping the
cost under control as per the estimated set before. In the aspect of above fashion
entertainment limited company, they implement this accounting system with an objective to
keep cost of various operations below to standards. As well as above company is involved in
the manufacturing of cloths so this accounting system is useful for them in producing cloths
in lower cost that leads to higher benefit to them.
 Job costing system- Under this type of accounting system of management accounting,
detailed information is provided about cost of job that is involved into multi-pal tasks
(Takeda and Boyns, 2014). With the use of this accounting system companies can find out
variation into actual job cost and standard cost. It is essential for organizations for
minimising the cost of job with the help of detailed information provided by this accounting
system. In the context of above, Fashion entertainment limited company they use this
accounting system that provides below mentioned information such as:
Direct material cost- The detailed information about price of material as well as quantity of
material purchased is provided by this accounting system.
Direct labour cost- Along with above cost regarding information, the job costing system
provides information related to number of labours and wages paid to each labour (Bryer,
2013).
Overheads- In organizations, there are various kind of overheads occurs that is recognized
by help of above mentioned accounting system.
So these are the main types of management accounting as well as each of them have own
importance.

Question 2. Different methods of management accounting reporting.
Organisation prepare their accounting reports throughout the year on the basis of facts and
figures, which is further used by the management to prepare management accounting reports ().
These reports help in planning, decision making, strategic management, identification of problems
etc. Accuracy requirement of accounting reports is high as management reports are based upon
accounting reports and decisions are taken on their basis.
Methods of Management accounting reporting
The methods used for management accounting reporting are
1) Cost Accounting Reports : Cost accounting reports are those financial reports which helps to
compute the cost of the items manufactured by the organisation which includes cost of raw
material, labour cost, overhead cost etc. To calculate cost per unit total cost is divided by
number of unit produced, this helps manager to understand profit margins and capacity
(Maskell, Baggaley and Grasso, 2017). It facilitate planning of raw material cost and their
waste management , labour cost & idle time, administration cost, other related and
monitoring of profit margins. Fashion Entertainment limited company prepare cost reports
to estimate their total cost, cost per unit which helps them to manage & increase profit
margins. Also cost report helps fashion entertainment limited to optimise use of resources
and minimise wastage by keeping a check on inventory material & cost, labour idle time
etc.
2) Inventory Management Reports : Inventories are important resources for any organisation as
its mismanagement can incur huge cost to company. Management need to prepare a plan for
inventories related to various issues like what should be the level of stock, reorder level,
quotations from the suppliers, availability of right inventory on right time, wastage of
inventory during processing etc. Inventory management reports helps management to take
decisions regarding all these issues. Maximization of revenues depends upon availability of
inventory on right time without stock outs because stock outs have impact on the entire
process. For Fashion Entertainment limited company it is important to manage inventory
well as delay in inventories will directly affect the events in which those inventories are to
be used and it can lead to loss of client. Inventory management reports facilitates in all these
aspects as all the transactions are recorded and on the basis of which demand forecasting of
inventory is done.
3) Performance Reports : Performance reports are prepared by the companies to analyse the
performance of the overall organisation and of each and every employee of the organisation
after a specific period of time (Endenich, 2014). Every department has to prepare their
performance reports at the end of period which can vary in all departments. Mangers uses

these reports for coordination between actual and standard performance on the basis of
which targets are decided and also rewards to the employees are dependent upon these
reports. Corporate decisions for organisation like diversification, expansion etc. are taken on
the basis of these reports. This report help management to measure the gap towards common
goal of the organisation. Similarly Fashion entertainment limited uses this report. To analyse
the individual performance, rewards of the employees, comparison between capacity and
actual performance this report is used by the company.
4) Budget Reports : Budgets reports are those reports which are prepared by the organisation to
calculate estimated cost and revenue for a specific period of time and analyse the
performance (Holsapple, 2013). Budget reports are prepared for different activities and
department for a specific period of time. Budgets are generally based upon past occurrence
of the events and on available information. Organisation arrange resources on the basis of
budget they have prepared for a particular event. Budget reports reflects how well company
has established budget for the activity which can be analysed by comparing the budget with
actual cost incurred. In Fashion Entertainment Limited, budget reports are very important as
the total cost has to be divided in different activities and actual performance need to be
analysed before occurrence of any activity.
M1. Benefits of management accounting systems.
As above mentioned that various types of management accounting are essential. Herein,
below importance of these accounting systems is detailed below:
Inventory management system- It is useful for companies for tracking the cost and quantity of
available materials in warehouses. For example in above company, this helps to them in giving
detailed information about costs such as purchasing cost of raw material, ordering cost etc.
Price optimisation system- This is beneficial to organizations in assessing the reaction of different
customers on price patterns (Windolph and Moeller, 2012). As per it, companies set the level of
price. For example in above, Fashion entertainment limited company they use it for marking the
price of their various designed cloths as per customer's perception.
Cost accounting system- In this accounting system companies get information related to cost of
various aspects such as direct and indirect cost. As well as it helps in comparing actual cost with the
estimated cost that result in evaluation of overall cost in an organization. Such as in the Fashion
entertainment limited company, it helps them by providing information related to the cost of
manufacturing of cloths along with cost of advertisement etc.

Job costing system- As per above description of job costing system, it is useful for providing
information related to the direct material cost, labour cost and overheads. Like in the above
company, it helps to them in effective management of funds allocated in various jobs to perform
organizational operations.
D1.Management accounting systems and reporting are integrated with process of Fashion
entertainment limited company.
The management accounting system like job costing system, cost accounting system, price
optimisation system etc. are aligned to organizational process (Cleary, 2015). For example in above
mentioned organization, the cost accounting system is linked to their manufacturing process of
clothing in keeping cost low as well as price optimisation system is integrated to their sales
department for marking prices of cloths accurately. This shows that management accounting
systems are linked to the Fashion entertainment limited company's process. Same as the
management accounting reports like cost accounting reports, inventory management reports etc. are
integrated with above mentioned organization's process. This is so because cost accounting reports
are interrelated with their finance department by providing complete information related to various
costs. Same as rest of other reports are interrelated to Fashion entertainment limited company's
process.
Question 3. Preparation of income statements.
Marginal costing- This is related to a kind of costing technique in which fixed and variable
costs are taken in different manner. Under it, fixed cost is considered as period cost and variable
cost as cost of unit.
Absorption costing- It is linked to a costing technique that is associated to the taking both
cost in an equal way. Such as fixed and variable costs as cost of unit (Bagautdinova, Kundakchyan
and Malakhov, 2013).
Below income statements of Modern limited are prepared below that are as follows:
Income statement under marginal costing method for month of March, 2018 (for product X)
Particulars Amount (in £)

Sales (4600*180)
Less: Marginal cost of sales:
Direct material 150000
Direct labour 180000
Variable production costs 120000
Variable selling cost 9200
Contribution
Less: Fixed production overheads
Less: Fixed administration overheads
Less: Fixed production overhead
Net loss
828000
459200
368800
210000
54000
300000
(195200)
Income statement under marginal costing method for month of March, 2018 (for product Y)
Particulars Amount(in £)
Sales (3200*150)
Less: Marginal cost of sales:
Direct material 84000
Direct labour 84000
Variable production costs 56000
Variable selling cost 6400
Contribution
Less: Fixed production overheads
Less: Fixed administration overheads
Less: Fixed production overhead
Net loss
480000
230400
249600
210000
54000
140000
(154400)
Income statement under absorption costing method for month of March, 2018 (for product X)

Particulars Amount(in £)
Sales (4600*180)
Less: Cost of good sold:
Direct material cost 150000
Direct labour cost 180000
Variable production cost 120000
Fixed production cost 300000
Closing stock(400*84) 33600
Gross profit
Less: Variable selling overhead
Less: Fixed selling cost
Less: Fixed administration cost
Net loss
828000
783600
44400
9200
210000
54000
(228800)
Income statement under absorption costing method for month of March, 2018 (for product Y)
Particulars Amount(in £)
Sales (3200*150)
Less: Cost of good sold:
Direct material cost 84000
Direct labour cost 84000
Variable production cost 56000
Fixed production cost 140000
Closing stock(400*84) 33600
Gross profit
Less: Variable selling overhead
Less: Fixed selling cost
Less: Fixed administration cost
Net loss
480000
397600
82400
6400
210000
54000
(188000)

M2. Management accounting techniques to produce financial statements.
Different types of techniques of management accounting such as absorption and marginal
costing are helpful for preparation of income statements (Ball, Grubnic and Birchall, 2014). In the
project report to produce income statement of Modern limited company, both techniques are being
used. In both the techniques income statements are prepared by taking costs in different manner.
Such as in absorption method, fixed and variable costs are taken as unit cost as well as in marginal
costing method both costs are taken separately.
D2. Interpretation of produced financial reports.
On the basis of above prepared income statement of Modern limited company, this can be
analysed that company is facing net loss from both the product. Such as in the absorption costing
method, there is net loss of £228800 and 188000 respectively. So it can be interpreted that their
financial condition is not good due to this huge amount of loss. Same as in the marginal costing
method, there is also loss of £195200 and 154400 which indicates that company's cost is high and
due to this they are facing this loss.
TASK 2.
Question 4. Use of planning tools of management accounting.
Budgets are simply characterised to estimations of costs that takes place while producing
products in bulk quantity and selling them (Gibassier, 2017). Budgets allows managers to create
spending plan for future by taking into consideration the past addition to existing budgets so to
ensure that organisation has enough money to pay for the important along with daily operations.
Following the set budget keeps financial managers of Fashion entertainment limited company out of
debt as well as helps in overcoming from debt situations.
Budgetary control: These are the mechanisms or concepts that helps financial managers to
limit the spending of the entity in adequate manner. Such control plays significant role as it is very
important to control excessive spendings as they impacts on overall profits of corporate. Budgetary
control helps accountants of Fashion entertainment limited company to monitor revenue addition to
level of expenses in operating activities. They ensures payments and receipts of the selected
company remains within the adequate level. Below defined budgetary control are used by the
company:
Incremental budgets: such type of budgetary control is prepared by adopting actual
performances addition to previous period budget as a basis in order to add amounts for coming
budget period (Scapens, 2012). Allocation of monetary resources for new period are based on

allocations done in previous period. Using such budget, changing impacts on performances can be
easily monitored. It helps in providing similar treatments to different departments that results in
avoiding conflictual circumstances.
Advantages: Incremental budget benefits organisational managers to understand the changes
as well as achieving coordination among different budgets. Managers of Fashion entertainment
limited company with the help of this budget can operate distinct departments in consistent basis.
Disadvantages: Incremental budget increases spendings as well as prioritising monetary
resources limits developing new ideas. It further increases spending of Fashion entertainment
limited company and leads to situations related with spending more or losing activities.
Fixed budget: A kind of budget that does not flexes for decrease as well as increase in
volume such as sales or other activities (Kastberg and Siverbo, 2016). Such budget is based on
certain assumptions related with selling specific products only within the accounting period. It is
considered as easy way to effectively managing planning of expenses addition to operations.
Advantages: Fixed budget benefits accountants of Fashion entertainment limited company to
measure profits together with performances in order to keep the costs down.
Disadvantages: Fixed budget does not consider unpredictable events that caused huge
spendings and results in unfair outcomes.
Flexible budget: The budget that are modified as per changes in production, actual sales
level along with any other change (Christ, Burritt and Varsei, 2016). It uses expenses together with
incomes by using baseline of current production. It helps managers to estimate the manner in which
output changes as per changes in expenses and revenues.
Advantages: Flexible budget helps managers of Fashion entertainment limited company to
analyse seasonal expenses and irregular earnings and accordingly taking decisions.
Disadvantages: It requires more planning activities to track expenses addition to making
adjustments which causes confusing aspects for the stakeholders of Fashion entertainment limited
company.
Question 5. Role of management accounting to solve the financial issues.
Herein, below two case studies are mentioned of two companies who are facing various
financial issues:
Case study 1.
The continental clothing company is involved in manufacturing of cloths and this is located in
London, UK. In recent years, the company's sells is getting down continuously and due to this their
profits are also decreasing. The owners of company are unable to find out exact issue which is
resulting in lower sells. As time passing their issue is resulting in a big financial crises.

Case study 2.
Sewport company is a UK based company located in London. The company is involved in the
production of fabrics and cloths. As well as they distributes their cloths in different segments of UK.
The major issue of this company is higher cost of their operations including various kind of costs
such as production cost, storage cost etc. It is overall resulting in higher cost and lower profit. Due
to this, company is getting issue of recovering the cost.
So these are the two case studies in which both companies are facing different types of financial
issues. Below methods to identify financial issues are mentioned such as:
Ratio analysis- Under this technique of financial issue finding, a wide range of ratios are calculated
and interpreted ( Grabner and Moers, 2013). It contains ratios like sales turnover ratio, inventory
turn over ration, gross profit ratio etc. In the context of above continental clothing company, they
use it to deduct exact financial problem.
KPI- Same as above technique, it is also an important method to find out financial issues. In this
activities of an organisation are categorised as per their profitability. With the help of it, companies
can evaluate financial issue by profitability level of activities. Like the above Sewport company use
it for finding the financial issue.
Comparison of companies for solving the financial issue:
Basis Case study (1) Case study (2)
Financial issue The continental clothing company is
facing the financial issue of low sales
below the expected standard. Due to
this their revenues are decreasing and
company is struggling from lack of
financial resources.
The Sewport company is facing the
issue of higher cost of their operations.
Due to this their revenues are
decreasing and expenditures are
increasing. As a result company do not
have enough fund for rest of other
activities.
Management
accounting
technique
The above company is using ratio
analysis technique to find the exact
issue in their operations. Their
financial issue is identified by
calculating sales turn over ratio that
The above company is applying key
performance indicator technique. In this
technique, their financial issue is
identified by focusing on those
activities which are occurring high cost