Good Clothing Limited: A Management Accounting Systems Report

Desklib provides past papers and solved assignments. This report analyzes management accounting systems in Good Clothing Limited.

Management Accounting
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Contents
INTRODUCTION...........................................................................................................................3
TASK: 1 Demonstrate an understanding of concepts of management accounting systems........4
P1.................................................................................................................................................4
P2.................................................................................................................................................6
M1................................................................................................................................................7
TASK: 2 Application of ranges of management accounting techniques.........................................8
P3.................................................................................................................................................8
M2..............................................................................................................................................11
D2...............................................................................................................................................17
Task: 3 explain the use of planning tools used by management accounting systems...................20
P4:..............................................................................................................................................20
M3..............................................................................................................................................21
Task 4 Compare the ways how in which enterprise could use management accounting to respond
to financial problems:....................................................................................................................22
P5...............................................................................................................................................22
M4..............................................................................................................................................23
CONCLUSION..............................................................................................................................24
REFERENCES:.............................................................................................................................25
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INTRODUCTION
The following assessment report is prepared to provide an understanding about how management
accounting systems are applied in GOOD CLOTHING LIMITED. Management accounting
systems are used to provide details about the various operations in the business, monitor the
results arise from that operation and to curtail the costs associated with the projects with a view
to increase the profitability position. The following report provides details about how
management and accounting concepts integrates for formulation and implementation of decisions
with an overall target to achieve the targets financial performance. In the first task a brief
introduction about the concept of management accounting systems is discussed andtheir types
used in Good clothing limited are explained. In the second task income statement according to
the marginal and absorption costing techniques are prepared, and forecasted income statements
of 2017 of the Good clothing limited are prepared and ratio analysis on the basis of such income
statements are also provided. In task 3 and task 4 a detailed discussion about how financial
problems in the enterprise are resolved by using management accounting tools and these tools
helps enterprise achieve sustainable success to the organization.
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TASK: 1 Demonstrate an understanding of concepts of management accounting systems.
P1
Management accounting systems is an integration of management practices with the accounting
concepts. These systems are used by the management in an enterprise for formulating financial
decisions to improve the financial performance of an enterprise. In GOOD CLOTHING
LIMITED management accounting concepts are used to curtail the uncertainties relates to
decision making practices (PESTLE Analysis, 2013). Theseconcepts helps an enterpriseto
analyzethetrends, forecasting future outcomes based on the decisions formulated by the
management, cost analysis, and to analyze the future constraints in present to anticipate the
contingencies. In an enterprise a concept of management accounting is used for
planning,monitoring,controlling, forecasting, budgeting, anticipating expenditures and in
allocation of general and administrative expenses to operational costs of the projects. To achieve
the overall target objectives of an enterprise management practices and accounting concepts are
used (Woodruff, 2018).
Following are the different types of management accounting concepts should be used in
GOOD CLOTHING LIMITED for improving decisions making practices:
 INVENTORY MANAGEMNT SYSTEM:Good clothing limited uses inventory
management systems to increasethe efficiency and productivity of the various levels of
inventory management devices. Inventory management systems are used to planning and
monitoring regarding the movement of stock in an enterprise (PESTLE Analysis, 2013).
Fluctuations in the level of stock are always maintained and monitored by the inventory
management software used by an enterprise. For evaluation of prices of different
packages with respect to the demand scenarios of inventory prevailing in the market are
measured by inventory management system (Woodruff, 2018).
 PRICE OPTIMIZATION SYSTEM:Good clothing limited uses prize optimization
systems to maintain the supply chain mechanism in the enterprise by fixing the prices of
good s &services after analyzing the prevailing market forces in the competitive market
(PESTLE Analysis, 2013). Finding a right balance between an inventory management
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and in cost management price optimization is responsible. Price optimization is most
probably used to monitor the prices of similar products and services and fixing the prices
according to the given scenarios, customer’s willingness to pay and prevailing
competition in the market.
 COST ACCOUNTING SYSTEM: Good clothing limited uses cost accounting system
as a measure to evaluate the costs of its products after proper monitoring and analyzing
the expense occurred in production activities (PESTLE Analysis, 2013). Cost accounting
system is willbe beneficial tool for formulation of budgets, in controlling the
expenditures and to allocate the costs and resources according to the past year trends for
curtailing the costs. Various types of financial statements are used to ascertain the cost of
products and expense and this accounting system is also used to formulate the financial
record of the enterprise. Evaluation of budgeted results and actual results and reasons for
deviation are also analyzed with the help of this method (PESTLE Analysis, 2013).
 JOB COSTING SYSTEM:In good clothing limited job costing systems are used to
allocate the cost expenditure ascertained by the cost accounting system to a particular job.
Allocation of manufacturing costs to the individual product is sole responsibility of job
cost system. Enterprises who are engaged in manufacturing of different -different
products only use job costing system (PESTLE Analysis, 2013). This system is also
known as monitoring activity system. Most commonly enterprise uses this system to
measure the profitability scenarios resulted from appropriate allocation of expenditure
and resources to a particular job.
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P2
Management accounting reports applies to different concepts in an enterprise. To evaluate
whether target objectives of Good clothing limited are achieved or not management of the
enterprise uses different types of management accounting reports. In a small business enterprise
management accounting reports are most probably used by an enterprise to review the
performance targets in an enterprise (Laudon and Laudon, 2016). Following are the reports
which can be used by the management of Good clothing limited to facilitate a healthy
decision making practice in an enterprise:
 Managerial accounting reports: In an enterprise managerial accounting reports are
most probably generated by internal sources in an enterprise. Generation of financial
reports, project reports, and competitive scenario reports are all prepared by the
management in an enterprise (Laudon and Laudon, 2016). As these reports are prepared
by professionals existing in the enterprise so they have a high degree of credibility
therefore reports formulated by management are essential and crucial for facilitating the
prevailing decision making practices in the organizations.
 Budget reports: In all type of enterprises whether profit oriented or not budget reports
are prepared to analyze,monitor, measure the performance target levels in an enterprise.
An understanding about the overall financial conditions in an enterprise is only possible
after effective budget formulation practices. Budgets in an enterprise are prepared on the
basis of past experiences, prevailing conditions, and trends analyzed (Laudon and
Laudon, 2016). Analysis of formulated budget is an objective of decision making process
as budgets depicts about the achieved targets and reasons for deviations reading
unachieved targets.
 Performance reports: In an enterprise various types of decision re formulated after
analyzing performance reports in an enterprise (Laudon and Laudon, 2016). Performance
reports are prepared after evaluating the performance levels of employees, members etc.
in an enterprise. Various types of statements are analyzed in preparation of performance
reports like financial statements to depict the financial health of an organization, cash
flow statements to depict the position in an enterprise, work efficiency sheets prepared by
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managers to analyze about the individual performances in the working environment.To
analyze the growth of enterprise regarding achievement of formulated strategies is only
measured by performance reports (Laudon and Laudon, 2016).
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M1.
Following are the benefits of types of management accounting systems used in Good
clothing ltd and their application in their respective enterprise:
1. INVENTORY MANAGEMENT SYSTEM:
 An efficient and effective inventory management system saves time and money.
 Increase the level of accuracy of respective stock orders (Kanapickienė and
Grundienė, 2015)
 More organized work system which increases efficiency and productivity.
2. PRICE OPTIMIZATION SYSTEM:
 Immediate results in the form of improvement of financial performance.
 Quick and quality decisions
 Implement the formulated strategies and measure the profitability from particular
project.
3. COST ACCOUNTING SYSTEM:
 Improvement of efficiency by fixation of price policy
 Proper planning and control over material cost
 Easier decision formulation due to accuracy of financial accounts
4. JOB COSTING SYSTEM:
 Measurement of cost using indirect methods (Kanapickienė and Grundienė, 2015)
 Helps in monitoring cost by manufacturing process by the target benchmarks
 Improves profitability due to individual performance targets (Kanapickienė and
Grundienė, 2015).
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TASK: 2 Application of ranges of management accounting techniques.
P3
Income statement using absorption costing technique:
Income statement using absorption costing
technique
Particular Amount£
sales revenue 1000000
less:
cost of sales:
opening stock nil
direct materials -4000
direct t wages -3000
direct expenses -1000
gross profit 992000
less:
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Administration expenses -15000
sales and marketing expenses -5000
Net income 972000
Income statement using marginal costing technique:
Income statement using marginal costing
technique
Particular Amount£
sales revenue 1000000
less:
cost of sales:
opening stock 0
direct materials -4000
direct wages -3000
direct expenses -1000
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contribution /profit 992000
less:
administration expenses -15000
sales and marketing expenses -5000
Net income 972000
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M2.
Income Statement: (GIVEN
)
2016
(FORECASTE
D)
2017
(£)
Cost of goods sold 68,076.0
0
75,226.00
Purchases (cost of goods sold + closing stock -opening
stock)
67,457.0
0
74,156.00
Revenue: 62,284.0
0
61,011.00
Operating Profit / (Loss): -
5,792.00
-14,215.00
Net Interest: -571 -710.00
Profit Before Tax: -
6,376.00
-15,011.00
Profit after tax from continuing operations: -
5,719.00
-13,350.00
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