BTEC Unit 5: Management Accounting Principles and Planning Tools

This report provides a comprehensive overview of management accounting principles and planning tools, focusing on their application within an organization. It begins by describing the core principles of management accounting, including designing and integrating information, management by exception, and inflation accounting. The report then examines the role of management accounting and its systems, such as price optimizing, job costing, inventory management, and cost accounting, using Nasty Gal Vintage as a case study. It includes a calculation of Nasty Gal Vintage's income statement using both marginal and absorption costing methods. The report further discusses the role of management accounting in modifying budgets, forecasting, make-or-buy decisions, and assessing profitability. Part two delves into the benefits and limitations of various planning tools used in budgetary control, such as capital budgeting and zero-based budgeting. A comparison between Nasty Gal Vintage and Marks and Spencer in adopting management accounting systems is presented, followed by recommendations for Nasty Gal Vintage's business growth and success.

Unit-5
Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1.Describing principles of management accounting...................................................................1
2.Management accounting and Management accounting system role........................................2
3. Calculating income statement using marginal and absorption costing for showing role of
these statements in organisation growth and success. ................................................................3
4.Determining role of management accounting within organisation..........................................4
5.Advantages of function to the organisation.............................................................................5
6.Concluding that shows the importance of management accounting........................................6
PART 2............................................................................................................................................6
1. Benefits and limitations of various planning tools used in budgetary control-.......................6
2. Comparison between Nasty Gal vintage and Marks and sp in adopting management
accounting system.......................................................................................................................8
3. Recommendation to Nasty Gal Vintage for its business growth and success.........................9
CONCLUSION................................................................................................................................9
REFERENCES .............................................................................................................................10

INTRODUCTION
Management accounting is a strategic framework used by an enterprise to achieve its
organisational goals. This report is divided into two sections. Section one consist generally
accepted principles of management accounting and various tools followed by concern such as
job costing, inventory management and price optimisation (Argenti, 2018). Income statement of
Nasty Gal Vintage, deals in apparel industry founded in the year 2006 using absorption and
marginal costing approach which shows calculation of two months. Functions and significance
of management accounting is also being discussed. Section two includes concept and various
budgetary techniques used in planning. Comparison of policies adopted regarding management
accounting between Nasty Gal vintage and Marks and Spencer is elaborated in the below section.
For success of Nasty Gray vintage there are few strategies which are required to undertake,
advising the same is also included in the report given under.
MAIN BODY
1.Describing principles of management accounting.
Management accounting refers to the process of analysing cost and it includes rendering
information related to financial data to the managers useful in decision making. It is an internal
process of an organisation which is used to take quality decisions of an enterprise. Principles
refers to the guidelines which signifies how to do and in which manner things will take place,
some of the principles of management accounting are given as below-
A. Designing and integrating- Information of accounting is planned in a way which includes
creating, organising data in organised manner which helps to reach conclusions by integrating all
the records maintained.
B. Management by Exception- It includes techniques of budgetary control and standard
costing tools which aids in finding deviations either favourable or unfavourable (Astuty and
Pasaribu, 2021). If found unfavourable, revision of strategies and procedures are taken in this
regard.
C. Inflation accounting- Inflation is defined as general increase in price level which requires to
be adjusted to know the money value in real terms. For gaining money stability it is necessary to

adopt inflation accounting. Actual financial health of an enterprise can be revealed by adopting
the techniques of inflation accounting.
2.Management accounting and Management accounting system role.
Every enterprise focuses on present performance and comparing those performance with
the standards set. Management accounting is a process of supplying information required to take
judgement. Information is presented in the form of charts, figures and tables. With respect to
Nasty Gal Vintage,it adopts various accounting system which can be discussed as given below-
 Price optimising system- This is a model based on mathematics which assist in
analysing the impact of change in prices on demand. Quantity demanded is affected by
change in price so this system helps to know about the customer's demand and
preferences through which Nasty Gal vintage is able to adopt huge market share and
perform its marketing activities easily (Caglio and Ditillo, 2021).
 Job costing system- It is a method used to keep track on each activity of the production
process and finding the cost of each task. Nasty Gal Vintage is involves in assembling
data of each component such as direct material, labour and overhead and sum all the costs
to know about the expenses incurred to evaluate reasonable profits of the firm.
 Inventory management system- In this system it monitors the flow of inventory by
using several tools of stock management. Economic order quantity and just in time helps
to know manage inventory level. Nasty Gal Vintage is adopting just in time which
enables to supply stock as and when required which reduces ideal stock cost and
decreases piling of stock.
 Cost accounting system- It is a framework helps to know the individual cost of each
product through which Nasty Gal vintage take corrective decisions about each product
whether to remove or control the cost of stock (Ervural,Evren and Delen, 2018).
3. Calculating income statement using marginal and absorption costing for showing role of these
statements in organisation growth and success.
Cost is termed as expenses incurred while manufacturing a particular product
(Hutahayan, 2020). Nasty Gal vintage income statement by using marginal costing and

absorption costing approach (Keijzer and Lundsgaarde, 2018). These can be calculated 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
Marginal costing- It is a costing process which includes only variable cost in its product
cost for knowing operating profits of the firm. Fixed cost is included in the period cost.
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

Absorption costing is an accounting technique which includes all types of direct and
indirect cost involved in manufacturing a particular product (Khan, 2018). It can be used by
Nasty Gal Vintage to keep track of profits accuracy in 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
Nasty Gal vintage is gaining a profit of 110000 which reflects its proper management of
cost and its drivers.
4.Determining role of management accounting within organisation
In Nasty Gal Vintage, management accounting processes play vital role in achieving the
predetermined targets, few points can be elaborated to understand role of management
accounting within organisation-
 Modify budgets- It is a financial tool which is used to plan and estimate business cost.
According to management accounting reports, measures can be taken to revise the budget
to attain standards and reach to its defined goal.

 Forecasting- Information regarding cost and various overheads ease to make future
decisions required to carry out business operation in an effective manner (Nikias, 2019).
Estimating the future outcomes is possible only through using reports of management
accounting that aids to lower or balance the cost.
 Make or buy option- An organisation has a choice whether to fabricate the product in
manufacturing concern or purchase from outside. Selecting option which maintains
profitability of organisation is only possible through studying the management
accounting reports (Sariand et.al.,2020). In context of Nasty Gal vintage, dealer in
apparel industry estimate each product cost to choose between make or buy.
 Assess rate of return and profitability- To examine profitability of an organisation it is
necessary to keep attention on the areas where the scope of money earning is high and no
losses. For this purpose, Nasty Gal vintage examine its management accounting reports
which rises the profitability of the enterprise.
5.Advantages of function to the organisation
Particular Advantage
Cost keeping system Nasty Gal vintage uses this tool to keep check on the stores and
material . It is effective to use this system because variances can
be find out by comparing actual and standard price of material,
labour and overhead.
Inventory management
system
Nasty Gal Vintage is benefited by using management system of
inventory. Economic order quantity, minimum and maximum
stock levels aids in maintaining balance between ideal and excess
stock problems.
Price optimising system This company is using this tool for matching its services with the
customer dynamic needs. Nasty is eliminating manual work and
reducing human errors. Management by objective is clearly
defined which helps its employees stick to its target.

6.Concluding that shows the importance of management accounting
Top management is adopting management accounting systems and its various tools to
coordinate the activities required to carry out apparel firm. Marginal costing and absorption
costing method is used by Nasty Gal vintage for comparing cost of two months. In its
comparative statements of November and December it is attaining more profits in the month of
December.
PART 2
1. Benefits and limitations of various planning tools used in budgetary control-
Budgetary control – Is a process which helps in preparing estimated budgets for future purposes
and are useful for comparing standard performance with actual performance. Comparison of
performances helps to calculate variances and take preventive measures without any delays.
Planning tools are methods which helps an organisation in controlling working and operations in
an organisation. Superiors of Nasty Gal Vintage use different tools for better planning and
managing of budget system. Tools in reference with Nasty Gal Vintage are stated below -:
(I) Capital budgeting : It can be explained as investment appraisal in corporate sector with the
help of capital. It is termed as a process that explains whether a business is worthy of investment
in New assets, new stocks, new goods, replacing of plants and research development projects. It
is considered as a process which helps to give an idea to allocate scarce resources for best
possible use. An ultimate goal underlaid is to maintain consistency, sustainability during the life
cycle of company (Rahmani and Ghashghaei, 2018).
Advantages of capital budgeting in Nasty Gal Vintage :
1. Helps Nasty Gal Vintage to have proper control over the working and gives an idea to lower
down the expenditure of business and cut down costs.
2. Helps to understand risks involved and its adverse effects on working of company.
3. It serves as an guide to take correct actions on the way towards decision making and grab
opportunities prevailing in the market (Tilt,2018).

Disadvantages of Capital budgeting in Nasty Gal Vintage :
1.The techniques used in Nasty Gal Vintage capital budgeting are based on predictions and
estimates for future uses but as far for the fact it is clear that future always remain uncertain and
this might result as a failure in unpredictable situations.
2. If budgeting turns out to be non reliable it might affect the working, sustainability and long
term life cycle of business.
3. It is non reversible, rigid in nature & would result in generating problem which would be
difficult to overcome in a running business.
(II). Zero- based budgeting : It is a technique which explains expenses involved in entering a
new market and then the budgets are developed according to the needs, wants and expectations
for a given period. Nasty Gal Vintage uses this budget to renew old budgets, develop new
budgets and approve them for new time period.
Advantages of Zero based budgeting :
 Nasty Gal Vintage focuses on Allocation of scarce resources and increases efficiency.
 It provides transparency, promotes expansion & growth of business.
 It helps to control cost, increase efficiency and play its role in profit maximisation too.
Disadvantages of Zero based budgeting :
 It is a complex procedure to manage the working and results of a business.
 It does not support Nasty Gal Vintage in unpredictable environment and it is difficult to
use such methods in such situations.
 It may not support long term goals of the organisation in the long run.
(III).Operating budget : It can be explained as a budget that includes revenue, expenditure
earned and generated so far with the help of daily operations of the business. Nasty Gal Vintage
takes help of this method in managing present expenditures of business (Urbinati and et.al.,
2020).
Advantages of Operating budget in Nasty Gal Vintage :
 1. It helps Nasty Gal Vintage in calculating costs and managing short term expenses &
losses of business in order to achieve goals.
 It also to maintain market image of business in long run and improve working of
company as well.

 It is considered flexible to provide financial assistance to company for achieveing its
objectives set so far.
Disadvantages of Operating budget in Nasty Gal Vintage :
 It is not helpful for Nasty Gal Vintage as it does not provide any guidance in estimating
actual and standard costs.
This technique is considered complex in nature and does not support alteration at any point of
time during the year.
2. Comparison between Nasty Gal vintage and Marks and sp in adopting management
accounting system
Basis of difference Nasty Gal Vintage Marks and Spencer
Financial problem This company is facing
difficulties in managing adequate
working capital. It is required for
day to day activities of the firm.
Lack of WC results in employees
and customer dissatisfaction.
It is dealing with negative cash
flow problem. It implies that
company is not capable to pay
its dues and debts on time and
cash outflows are higher than
the inflows.
Management accounting
approach
It is using benchmarking approach
. This aids in comparing
competitor's and its own methods
to conduct its operations. Rivalries
cost and its tactics are used as
benchmark to achieve targets.
It is using key performance
indicators or areas which
require major focus in the
business. Those segment or
product is considered which
derives lowest risk and higher
returns.
Management accounting
systems
This company is using Cost
accounting system approach. It
is beneficial because it takes
individual consideration of each
product cost and its drivers.
It is adopting Inventory
management system which
keep track of inventory level
required to be maintained for its
daily tasks. Problem of stock

Declining cost of apparels
eventually increases revenue of
the firm.
piling can be resolved by using
this approach.
3. Recommendation to Nasty Gal Vintage for its business growth and success.
Sustainable business success refers to fulling the present achievement needs of the firm
and generating future benefits as well. Nasty Gal Vintage can incur its expenses on financial
governance and corporate social responsibility to gain the trust of its customers and enjoy
competitive advantage over other firms existing in the market. By approaching towards auditing
and keep eye on every key performance indicators helps to gain increased market share and
improved profitability of the firm which results in success of the firm.
CONCLUSION
As per the above report it can be concluded for analysing the performance of apparel
industry firm,Nasty Gal Vintage various methods are used and its application in the business
results in the stability of tasks performed. Variance analysis,zero based budgeting and many
other budgetary tools helps to work according to the budget. Proper planning and forecasting by
using management accounting techniques is done. Employee and customers can be satisfied by
following management accounting and budgetary tools.

REFERENCES
Books and Journals
Argenti, J., 2018. Management techniques: a practical guide. Routledge.
Astuty, W. and Pasaribu, F., 2021. The Impact of Business Environment and Organizational
Culture on The Implementation of Management Accounting Information System in
Some Hotels. Budapest International Research and Critics Institute (BIRCI-Journal):
Humanities and Social Sciences, 4(3), pp.6251-6262.
Caglio, A. and Ditillo, A., 2021. Reviewing interorganizational management accounting and
control literature: a new look. Journal of Management Accounting Research, 33(1),
pp.149-169.
Ervural, B.C., Evren, R. and Delen, D., 2018. A multi-objective decision-making approach for
sustainable energy investment planning. Renewable energy, 126, pp.387-402.
Hutahayan, B., 2020. The mediating role of human capital and management accounting
information system in the relationship between innovation strategy and internal process
performance and the impact on corporate financial performance. Benchmarking: An
International Journal.
Keijzer, N. and Lundsgaarde, E., 2018. When ‘unintended effects’ reveal hidden intentions:
Implications of ‘mutual benefit’discourses for evaluating development
cooperation. Evaluation and Program Planning, 68, pp.210-217.
Khan, M.I., 2018. Evaluating the strategies of compressed natural gas industry using an
integrated SWOT and MCDM approach. Journal of Cleaner Production, 172, pp.1035-
1052.
Nikias, A.D., 2019. An Experimental Examination of the Effects of Information Control on
Budget Reporting with Relative Project Evaluation. Journal of Management Accounting
Research, 31(2), pp.177-196.
Rahmani, A. and Ghashghaei, F., 2018. The relation between accounting comparability and
earning management. Accounting and Auditing Review, 24(4), pp.527-550.
Sari, R.N., et.al., 2020. Effect of environmental management accounting practices on
organizational performance: role of process innovation as a mediating
variable. Business Process Management Journal.
Tilt, C.A., 2018. Making social and environmental accounting research relevant in developing
countries: a matter of context?. Social and Environmental Accountability
Journal, 38(2), pp.145-150.
Urbinati, A., et.al., 2020. The role of digital technologies in open innovation processes: an
exploratory multiple case study analysis. R&D Management, 50(1), pp.136-160.
(Argenti, 2018)(Astuty and Pasaribu, 2021)(Caglio and Ditillo, 2021)(Ervural,Evren and Delen,
2018)(Hutahayan,2020).(Keijzer and Lundsgaarde, 2018)(Khan, 2018)(Nikias, 2019)
(Rahmani and Ghashghaei, 2018)(Sariand et.al.,2020)(Tilt,2018)(Urbinati and et.al.,
2020)