Comprehensive Management Accounting Report for Good Clothing Ltd

This report provides a detailed analysis of management accounting practices for Good Clothing Ltd. It begins with an introduction to management accounting and its benefits, followed by a critical evaluation of the management reporting system. The report delves into various costing method...Read More

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
M1: Benefits of management accounting system ......................................................................3
D1: Critical evaluation of management reporting system...........................................................3
P3: Calculation of cost by using various costing methods..........................................................4
M2: Various range of management accounting techniques........................................................6
D2: Produce financial reports by apply and interpret data for Good clothing Ltd.....................8
TASK 3..........................................................................................................................................11
P4 and D3: Advantages and disadvantages of different types of planning tools .....................11
M3 Use of planning tools and their application........................................................................14
TASK 4..........................................................................................................................................14
P5 Comparison between two organisation for adopting management accounting system.......14
M4 Management accounting lead enterprise to solve financial issues ...................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting is a necessary tool by which every organisation can manager
and operate their every day financial as well as non-financial transactions. The primary motive of
using accounting systems is to summarise, record and evaluate different outcomes that can be
beneficial for the company in next coming time. The provision of accounting information is an
essential aspects for “Good clothing Ltd” that can be use in order to generate more specific
results. It is crucial for them to make use of management accounting system in their operations to
control costs and other expenses those are affecting the profitability of the company.
This project report provide more valuable information about use of accounting and
reporting systems by various departments in an organisation (DRURY, 2013). Some specific
costing method is been used those are helpful in analysing net profitability of the company.
Advantages and disadvantage of using planning tools in budgetary-control are discuss more
effectively. Whereas understanding of financial issue and all those effective techniques those are
useful in resolving those issues are explain clearly under this report.
TASK 1
M1: Benefits of management accounting system
In every business organisation, it is vital for them to make use of accounting systems in
more effective manner. This would help in gain competitive advantages over other companies.
There are various advantages of using this accounting system that is usually happen with the
capability for companies to improve operations and efficiencies. It will enable the fluctuation of
business financial capital gains.
D1: Critical evaluation of management reporting system
It is vital for the Good clothing companies to make sure that every data would be
properly recorded into the various accounting books so that valuable decision can be done. There
are crucial statements those are helpful for taking crucial decision-making for the further
expansion of business operations.
TASK 2
3

P3: Calculation of cost by using various costing methods
Cost is said to be the value of money that has been given up to produce something or
deliver better services to an organisation. In this business operations, the cost can be related with
formation of new manufacturing units. The total amount of expenditure incurred by managers
during proper establishment of the plant consider as cost to company. In accounting context, cost
which is define as cost amount that is given up an equipments. This would consists of all those
costs which is essential to get an assets in accordance to use.
This cost accounting helps in assisting in decision-making that is processes “Good
clothing company” to evaluate its costs (Vasile and Man, 2012). Some of them are direct,
indirect, fixed and operating cost. There are some valuable costing methods those are helpful in
determining net profitability of the company. In order to make vital decision it is essential for
them to make use of accounting data in proper manner so that estimation of total cost can be
determined. Costing is a well organise process of forecasting total cost that involves in a
particular projects of a company. Basically, it is perfect system of evaluating cost of production
in order to analyse expenses at various level of production. Those are explain underneath:
Absorption costing: It refers to the costs which is associated with every manufacturing
activity such as production of products and services. In some other terms, these are total costs of
a finish goods in inventory that will be related with direct labour, material and semi-flexible cost
at the time of manufacturing process. These types of costing is require to be followed as per the
set accounting standards in accordance with developing an stock evaluation which is mention in
the company's balance sheet (Brandau, and et. al., 2013)
Marginal costing: It is known as those are cost which is incur by the Good clothing
company during the production of one extra units. It is generally determine as the part of variable
cost because id does not consider fixed cost. This seems to be a variation in total cost that is
comes out after making production of additional units. The primary objectives of this costing is
to determine at which level of manufacturing the company is going to attain its break-even point.
Comparison
Absorption costing Marginal costing
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In this costing method, both fixed and variable
costs are taken into account at the time of
production.
This costing method would consider only
variable cost during the time of manufacturing
of goods and services.
In mid-size organisation, these overhead cost
of goods and services is best ways to estimate
total net profit during the year.
In this costing proper consideration of total
fixed cost that is said to be period cost. It
varies with changes in units. It is more simple
and easy to use.
It is not that much effective tools for decision
making.
It is so reliable for the owners and that can be
taken as future decision-making as more easy
tools.
In order to make vital decision-making it should be effective enough to make use of
variations from existing practices those are having relatively limited period of cost and time. The
term marginal cost includes one of the marginal cost per units and sometimes is more effective
aspects of analysing current year performance of an organisation.
Computation of net profit by using marginal and absorption costing
Particulars Per unit Total profits
Sales 100 1000000
Total manufacturing
costs 80 800000
Total Absorption
cost 2 20000
TOTAL
PRODUCTION
COST 820000
Net profits 180000
Particulars Per unit Total profits
Sales 100 1000000
Total variable costs 80 800000
Contribution 20 200000
5

Less: Fixed cost
Adiminstration cost 15 150000
Sales and marketing 5 50000
Total fixed Costs 200000
Net profits as per marginal costing 0
M2: Various range of management accounting techniques
Financial planning is a crucial activity for deciding in advance regarding the financial
activities those are essential to attain primary objectives of Good clothing Ltd (Hiebl, Feldbauer-
Durstmüller and Duller, 2013). It consists of determining both short and long term financial
objectives of the an organisation. The another techniques is financial statement analysis which
attempts to determine the importance of this to an organisation. The techniques of this specific
analysis is comparative trend analysis, cash-flows statements and ratios evaluation. Standard
costing techniques is also an effective techniques which is helpful in determining operating
situations by making comparison of actual data with that to standard one. Revaluation accounting
is the techniques that assures the maintenance in order to preservation of funds to an
organisation.
Forecasted financial statements for 2017:
Income statements 2015 2016
% growth
variance 2017
(£) (£)
Cost of goods sold 60926 68075
11.7339067
065
866860.699
044743
Purchase(COGS+closing-
opening stock) 60758 67457
11.0257085
487
811218.221
56753
Revenue 63557 62284
-
2.00292650
69
-
62466.2745
566971
Operating profit/loss 2631 -5792
-
320.144431
775
1848484.54
884074
Net interest -432 -571 - 17801.4537
6

32.1759259
259 037037
PBT 2259 -6376
182.248782
6472
-
1168394.23
815848
PAT from continuing
operation 1912 -5719
199.110878
6611
-
1144434.11
506276
Discontinued operation 0
PAT from discontinuing
operations -942 -47
1.27388535
03
-
106.872611
465
Profit for the year 970 -5766
494.432989
6907
-
2856666.61
85567
Balance for the year ended 2017
Balance Sheet: 2015 2016
% growth in
variance 2017
(Millions) (Millions) (Millions)
Assets:
Non-Current Assets:
Property, Plant & Equipment: 24490 20440 19.8140900196 425440
Intangible Assets: 3795 3771 0.6364359586 6171
Investment Properties: 227 164 38.4146341463 6464
Investments: 1301 1915 -32.0626631854 -59485
Other Financial Assets: 3210 3906 -17.8187403994 -65694
Other Non-Current Assets: 1569 2060 -23.8349514563 -47040
34592 32256 7.2420634921 265856
Current Assets:
Inventories: 3576 2957 20.9333784241 64857
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Trade and Other Receivables: 2190 2121 3.2531824611 9021
Cash at Bank & In Hand: 2506 2165 15.7505773672 36265
Current Asset Investments: 1016 593 71.3322091062 42893
Other Current Assets: 3797 3983 -4.6698468491 -14617
Current assets 13085 11819 10.7115661223 138419
Other Assets: 2487 139
1689.208633093
5 234939
Total Assets: 50164 44214 13.4572759759 639214
Liabilities:
Current Liabilities:
Borrowings: 1910 2008 -4.8804780876 -7792
Trade Payables: 18296 17797 2.8038433444 67697
Current Liabilities 20206 19805 2.024741227 59905
Net Current Assets: C n/a C n/a C n/a
Non-Current Liabilities:
Borrowings: 9303 10651 -12.6560886302 -124149
Provisions: 777 894 -13.0872483221 -10806
Other Non-Current Liabilities: 3963 5788 -31.5307532827 -176712
14043 17333 -18.9811342526 -311667
Other Liabilities: 1193 5 23760 118805
Total Liabilities: 35442 37143 -4.5795977708 -132957
Net Assets: 14722 7071 108.2025173243 772171
Capital & reserves: 0
Share Capital: 405 406 -0.2463054187 306
Share Premium Account: 5080 5094 -0.274833137 3694
Other Reserves: -498 -414 20.2898550725 -8814
Retained Earnings: 9728 1985 390.0755667506 776285
Shareholders’ Funds: 14715 7071 108.1035214255 771471
Minority Interests / Other
Equity: 7n/a n/a
Total Equity: 14722 7071 108.2025173243 772171
8

D2: Produce financial reports by apply and interpret data for Good clothing Ltd
Profitability Ratio's 2016 2015
Return on Capital Employed
(ROCE) =
Profit before interest
and tax (PBIT) x 100.00%
Capital Employed *
-
23.7289524
356
8.255930
7142
[*where, Capital Employed
= Total Assets - Current
Liabilities] 24409 31868
Profit Margin on Sales = Operating Profit x 100.00%
-
9.29933851
39
4.139591
2331
(Operating Profit Margin) Sales
The profitability ratio is used to determine company's ability to incur profit for the
company during the time. The ROCE is an effective ratios which is use to measures capability by
comparing net operating profits to capital employed. It is higher in 2016 which is means that
large amount of profits is been invested into the company. Profit margin is in negative as
compare to last year (Hiebl, Feldbauer-Durstmüller and Duller, 2013).
(2) Liquidity Ratios
2016 2015
3 Current Ratio = Current Assets
0.596768
4928
0.6475799
268
Current Liabilities
9

4 Quick Ratio / Acid Test Ratio =
Current Assets less
Stock
0.447462
7619
0.4706027
913
Current Liabilities
(3) Efficiency Ratios (measured in Days or in Times)
2016 2015
5 Stock Turnover Period = Average Stock 365 days
17.9642238
087
19.569190
4934
Cost of Sales
Stock Turnover = Cost of Sales
20.9432395
016
18.651767
9473
Average Stock
6 Debtors Turnover Period = Average Debtors 365 days
13.6133677
991
12.375898
7995
Sales
Debtors Turnover = Sales
26.8118811
881
29.492807
4246
Average Debtors
7. Creditors Turnover Period = Average Creditors 365 days
97.0544939
739
108.41025
0502
Purchase
Creditors Turnover = Purchase
3.76077381
95
3.3668402
97
Average Creditors
8 Fixed Assets Turnover = Sales 1.40869407 1.2669842
10

88 915
Fixed Assets
(4) Gearing Ratio (measured in Percentage or in Times)
2016 2015
9 Gearing Ratio = Prior Charge Capital #
100
.00
% 345.13
195.387854
911
Equity & Preference Share
Capital & Reserve + Total
Long term Debt
[# where, Prior Charge
Capital = Total Long
term Debt + Preference
Share Capital] 24404 28765
or
Total Liabilities less
Current Liabilities
100
.00
%
Capital Employed 71.03 47.81
10 Interest Cover =
Profit before interest and
Tax 10.14 -6.09
Interest Charge
(5)Investors' Ratios (Shareholders' Ratios) (measured in Percentage or in Times)
11

11
Earnings per Share
(EPS) = Earnings ^ -612.101910828
30.2274851
979
Number of Ordinary Shares
[ where, Earnings = Net
Profit after Tax and
Preference Dividend]
12 Price / Earnings Ratio = Market Value of the Share -0.02 0.95
EPS
TASK 3
P4 and D3: Advantages and disadvantages of different types of planning tools
Budget: It is refer as an estimation of the expanses and revenues over a particularise
future time period. A budget can be create for a family, person, country, government, business
and group of people. It is prepared and planned to have proper utilisation of capitals. It is a
predetermined statement of the policy of management during an allotted time which gives a
standard or modular for comparison with the outputs actually. It is very essential and main term
for the each and every organisation in order to prepared accurate budgets. Good Clothing Ltd
required to prepared and formulated an accurate budget and plan in an effective and efficient
manner (Cooper, Ezzamel and Qu,2017).
Budgetary-control: It is identify as an effective system and process in order to retain
budgets as a term of monitoring and planning entire part of selling or producing services and
products. With the help of this technique's Good Clothing Ltd easily control their all budget in a
systematic manner. In this referred company easily maintain their business activities and
functions essentially. Accurate budget also help the manager to increase their turnover and sales
in few time period.
Process of budgetary-control: This process consists several steps which are determine
as below:
Consult with managers: It is important and first phase which is foremost for the
company success. In this stage, manager of the Good Clothing Ltd provide necessary
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information and data to the junior manager. All these content are mainly related with business
performance, productivity, profitability, success, changes and development. In this stage
manager conduct research program to determine the basis requirement of clients regarding
clothes.
Do impressive Assumption: After collecting all necessary information and data for the
customers, referred form try to provide effective and quality clothes to the customers at
affordable cost. In this requirement of the manager is to reduce all losses in a systematic manner.
Motive of planning an accurate budget is to handle future plan and additional cost of the
products.
Fixed data for budget to achieve objectives: Main aim and motive of company is to
accomplish predetermined goals and targets in few time duration. For achievement of this,
business need to collect accurate information. It is essential for the Good Clothing Ltd to
enhance their performance and productivity level (Burritt and et. al, 2011).
Calculation of data or information with budgeted: It is referred as an another phase
which is important for the enterprise to measure accurate information and data of the company in
limited time duration. Proper calculation assist the business manager to increase their sales and
turnover speedily.
Review analysis: It is analysis last process for reviewing the entire phase in a systematic
and essential manner. In this stage administrator highly review their success and development
effectively.
Planning Tool: It is foremost and important part of the each and every organisation to
plan an effective budget and strategy to the organisation in order to accomplish predetermined
goals and objectives. There are various tools and technique's which are included in the planning
of budget are determined as below:
Forecasting Tools: Planning tool that assists administration in its attempts to make out
with the risk and uncertainty of the upcoming contingency, relying primarily on data and
information from the present and past evaluate of trends. This methods has different kind of
advantages and disadvantage which are determined as below:
Advantages Disadvantage
 Objectives and goals forecast that is
accurate.
 In nature, this tool is not easy in order
to acquiring a experts panel.
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 Useful for new product, technology,
industry sales forecast etc.
 Both short and long term forecasting
possible.
 Longer time period for acquiring
consensus.
 Forecast is break-down into territories
or products in not possible.
Scheduling Planning tool: It is a cocomo of process, tool and concept which is essential
for the organisation to achieve long term goals and objectives in limited time duration (Maas,
Schaltegger and Crutzen, 2016). It is also valuable for the company to reduce their financial
issues in an effective and essential manner. There are some weak and strong point of this
technique's which are determined as below:
Advantages Disadvantage
 It is very powerful technique for
controlling and planning a project and
have the some advantages.
 This approach illustrates the freedom of
entire work package, tasks, work
element and many other.
 It provides one possible schedule only.
 It never show the affects of delays in a
specific activity on the run of another
plan.
Contingency planning tools:This tool gives a maximum funds, resources or time that are
held for utilisation in react to a necessary risk secession for example: considering contingency
time period in way of key personal loss. There are some benefits and disadvantage of this
technique's which are determined as below:
Advantages Disadvantage
 This tool give entire emphases for the
company and help in the achievement
of long term goals and objectives.
 This technique identify the company
weakness and strength which is main
advantages.
 This tool is time consuming for the
company, it is not good for the
organisation.
 This will decrease the employees
productivity and business profitability
ratio.
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M3 Use of planning tools and their application
All planning tools and important for the organisation in order to increase their sales and
revenues. With the use all planning technique business entity easily accomplish their targets and
objectives in limited time duration (Messner, 2016). There are some planning tools such as
Forecasting Scheduling and Contingency, these are assist in the development and growth of the
organisation in limited time duration.
TASK 4
P5 Comparison between two organisation for adopting management accounting system
Management Accounting System evaluate the company's financial information and on the
basis of that account manager develops report for both internal and external stakeholder. With
the hep of this report, manager can take strategic decision in an appropriate manner and
determine the ways to run an organisation more efficiently. Such reports are depend upon
management's informational needs and involve break-even chart, budgeting, trend chart,
forecasting and product cost analysis.
This system aid in providing essential information to management which plays vital role
in decision making. An effective accounting system reaches into almost every department of the
company such as marketing, sales, human resource, operation and IT. In addition to that it also
involve information related with current sales, lead generation, per day number of sales, cash in
hand, delivery deadline, aging status of account payables and receivables, current inventory level
and order backlog etc. All this mentioned information serve as a basis for determining key
performance indicator of different parts of the company. With the help of this report, one can
easily determine its performance throughout the year as it identifies overall profit and loss
generated by firm during a year. This tool not only aid in knowing company's performance in
the market but also provide assistance in solving various issues of the company in an effectual
manner (Ramljak and Rogošić, 2012).
These issues directly affect the functions and operation of company for long term.
Therefore, manager of Good Clothing Ltd. Uses various tools and techniques of management
accounting system so as deal with such issues in an effective manner. Below mentioned are some
of the financial issues faced by Good Clothing Ltd are as follows:
15

Inefficiency in estimating future cost and revenue: It is essential for every business
enterprise to correctly examine their current and future revenue and cost. This will help them in
knowing whether they have yield appropriate profit during the year or not. Estimating future
revenue and cost is crucial as it aid company in taking right decision related with spending
money in other business activity. Better accuracy of revenue and cost estimate, better the
decision-making and planing is in adjusting and predicting future change.
Invaluable management information: With the help of management accounting report
one can easily determine firm's performance through out the year in terms of yielding profit and
loss. Due to incorrect figures and numbers, it become difficult for referred firm manager to take
appropriate decision and estimate future cost (Hoque, 2011).
The manager uses below mentioned techniques so as to solve these issues in an effective manner:
Benchmarking: Benchmarking is related with measuring the effectiveness and quality of
firm's product, policies and service delivery against their previous or past performance. These are
considered as their standard on the ground of which company measures its current performance
with the previous one so as to identify whether there is an improvement in their business
practices or not. Along with that it also aid in determining areas which requires improvement.
Financial Governance: There are certain rules and regulation which is framed by various
Government Bodies with an aim of improving the market position of the company as well as its
image and goodwill in customer's mind. All the companies are liable to follow these rules and
regulation.
Key Performance Indicators: This is considered as the most suitable and effective tool
that solves finance issues in a systematic manner. In simple words, these are the measurable
value that exhibit how effectively firm is attaining their business objective. Company uses KPI's
at various levels so as to examine their success towards reaching target. High level of KPI
emphasize on business function and process that management view as most crucial element for
measuring their progress and performance towards meeting performance target and strategic goal
(Agbejule, 2011).
Comparison between two Organisation
Good Clothing Ltd. Sewport
 It is a medium size firm that  Sewport is also facing issues in term of
16

manufactures clothing for independent
and emerging designers. Currently,
because of low availability of fund,
company is facing problems in terms
of accomplishing their goal and day to
day operations. In order to deal with
such issues in an effective manner,
manager of referred firm mainly
focuses on Benchmarking.
 In order to improve overall
performance and productivity, firm
uses benchmarking as well as financial
governance.
financial issues that lower down its
entire profitability. In order to deal with
such issues in a structured manner,
respective firm is using key
performance indicators.
 In order to achieve desired objective
and goals, referred firm is using
benchmarking, financial governance
and key performance indicators as their
major strategic tools.
M4 Management accounting lead enterprise to solve financial issues
Management Accounting System emphasize on internal needs of the company. It help the
manager in determining financial position of the company over the year. With the help of this
technique, manager can easily identify current, sales, profit, loss, expenses of the firm. However,
there are certain cases when manager is unable to take strategic decision because of incomplete
information of its financial figures. In order to estimate future cost and revenue in an appropriate
manner, firm require to critically examine all financial figures in an effectual manner. In addition
to that, there are various tool and techniques such as benchmarking, key performance indicator
and financial governance that aid in solving financial issues effectively (Vakalfotis, Ballantine
and Wall, 2013).
CONCLUSION
From the above report this has been summarised that management accounting is an
important concept that help Good Clothing Ltd in keeping control over its financial activities.
different types of systems were discussed in detail that are used by the management to maintain
the records of a particular year which can be further utilised for the purpose of comparison.
17

Budgets were discussed which shows that how they help in controlling the flow of funds in
different departments and also control over the same is made possible which reduces the total
cost of the firm.
18