Management Accounting Report: Stitch-land Company Analysis

This report provides a comprehensive overview of management accounting principles and their application within the context of a medium-sized manufacturing company, Stitch-land. It begins with an introduction to management accounting, outlining its role in financial performance evaluation, decision-making, and strategic planning. The report delves into various management accounting systems, including cost accounting, inventory management, job-costing, and price optimization systems, highlighting their importance and benefits. It explains the significance of effective information systems and different types of management accounting reports, such as inventory, performance, and cost reports. Furthermore, the report explores costing techniques for preparing financial statements, including flexible budgeting, cost variance analysis, absorption costing, and marginal costing. It also discusses different types of costs like fixed, variable, normal, standard, and activity-based costing, along with inventory cost and valuation methods. The report aims to provide valuable insights into the application of management accounting in overcoming financial issues and improving overall business performance.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1. ..........................................................................................................................................1
P1 Explanation of management accounting and essential requirement of various accounting
systems........................................................................................................................................1
P2. Explanation of various kind of methods of management accounting reporting...................3
TASK 2. ..........................................................................................................................................4
P3 Costing Techniques for preparing the financial statements...................................................4
TASK 3............................................................................................................................................8
P4 Benefits and drawbacks of different planning tools..............................................................8
TASK 4..........................................................................................................................................11
P5 Management accounting in response to overcome financial issues.....................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
In accounting term the concept related with arranging, organising, reporting, evaluating
and measuring total financial performance by the responsible manager in order to assess the
overall financial position is known as management accounting (Antipova and Bourmistrov,
2013). This process support in decision making and reducing the factors due to which
performance and profitability of business can be reduces and makes policies and strategies to
improve the entire profit margin in nearby future. In this report, stitch-land medium-sized
manufacture company have been selected to better underestimates the methodologies of
management accounting. The company use to produce designer cloths as per the latest trends and
needs of customer.
In this report, detail of management accounting reports and system have been discussed,
along with costing techniques are used to prepare income statements to determine net profit for
the year. Different kind of planning tool are being applies to prepare budgets and overcome
financial issues.
TASK 1.
P1 Explanation of management accounting and essential requirement of various accounting
systems.
In the present business scenario, the accounting process that is related with the internal
management of company and provide essential support in collecting, sorting, reporting,
examining and assessing the crucial financial informatics so that resources are fully utilised to
achieved the predefined target is known as management accounting.
Management accounting is being continuously used within each kind of businesses as
there are number of useful management accounting system which benefit the manager to
arrange and organise financial and non-financial informations that are supportive to make
decision regarding increasing and improving total profitability and productivity of an
organisation. Each system have its own importance to a company that are applied by inner
managerial personnels to control and improve mechanisms of valuable operation.
Integration of assorted systems within organisations:
It is stated that every system are equally important and have valuable use in Stitchland.
Such as cost system aid to compute the actual figure of cost utilisation whereas inventory system
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is advantageous in managing stock available in warehouse and available for sale. In addition
price optimisation system give a structure for deciding the prices (Carpenter and Mahoney,
2012).
Origin, role and principle of management accounting system:
The concept of management accounting was originated with the time of revolution of
business industries in England around 500 BC which and the main role is to provide conceptual
framework to the manager of company to make decision regarding improvement and attainment
of desired goals.
There are principally four kind of principle and rule such as relevance, influence, trust
and value. Each principles have their value for impressive outcome of management accounting
that help to accomplish goals and objective.
Financial and management accounting system:
Basis Management accounting system Financial accounting system
Significance It is an important part of internal
stakeholders which help them to make
decision for internal improvement.
Financial accounting on the other side is
is an important beneficial for external
and internal stakeholders to analyse the
entire financial status and position of
company.
Time period Manager are supposed to prepare
management reports as per their
convenience to make valuable
judgement.
This basically includes preparation of
financial statements at the end of an
accounting year.
Different type of management accounting system:
Cost-accounting systems: This cost system in related with a legal framework that are
define for the purpose of predicting cost of goods and services that are produced within
company. In Stitch-land manager with the help of this tool are able to control and manage the
total cost that is included within producing different cloths so that they can easily determine the
actual profitability of different operation activities.
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Inventory management systems: It is related with managing stock in warehouse and
track finished goods in supply chain that are supplied for sales (Collison, Ferguson and
Stevenson, 2014). It also makes manager knowledgable to hold only required stock in
warehouses which will not increase inventory holding cost. In stitch-land inventories system are
very much important as they use to keep record of total finished cloths which are ready for sale
and total raw material available in storehouse. It directly increase sales volume for company as
more and more cloths are being supplied to customer on their demand.
Job-costing systems: With the support of job costing system company are able to
compute total cost that are being incurred on different jobs. By implementing this system
management of Stitch-land are able to calculate the overall cost spend on valuable jobs as well as
they are able to reduce the unprofitable occupation from company to increase productivity.
Price-optimising systems: In recent time each company uses this system as it provide
valuable guidelines that aid in fixing best price of product that are befitted to customer. In
selected company manager use to analyse the market properly and use appropriate techniques in
order to reduce manufacture cost so that best price are fix to the valuable product of company.
This will draw interest of more number of customer helping in increasing the overall profit
margin in specific time.
Benefits of different types of systems:
 Cost accounting system- This system is supportive to Stitch-land in acquiring
information approximate to whole cost required to manufacture different cloths.
 Inventory management system- This aid in tracking the available stock in storage house
so that finished goods are being prepared.
 Price optimisation system- One of the most crucial accounting system that defines the
best prices of cloths for Stitch-land to attract more number of customer.
 Job costing system- The major importance of job costing system is to provide
information related with cost of job individually included in different crucial operations.
P2. Explanation of various kind of methods of management accounting reporting.
Effective information system:
 Reliability- This is the primary characteristic of an information scheme that, according to
the organization's operations, data should be accurate and reliable to the facts and figure
occurring within specific time period (Correa and Larrinaga, 2015).
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 Accuracy- It is compulsory to have precise data so that inner management accounting
statements can be produced without mistake
Value of presenting the informations understandable:
In business situation it is compulsory for the management to provide the authentic and
presentable informatics in annual reports and statements to external and internal shareholder so
that actual financial and overall performance can be analysed and evaluated. If information is
clear and understandable than reasons for mismanagement or any other issue can be reduced.
Different types of managerial accounting reports.
Management accounting reports, are consider to be an effective framework that gives
detail informations about total happing within company during a specific year. There are number
of reports that are being prepared by management of to effectively assess the financial and non-
financial informations to make crucial decision. Some of these are discussed below:
Inventory report: It is one of the crucial report that is prepared by the company on
regular basis so that they can get the enough knowledge about the actual quantity of stock
present for running manufacture process. In respective company this report gives detail data of
total raw fabric that is used to manufacture designer finished cloths which are sold to fulfil the
demand of customer. It also provide strength to supply chain of stitch-land and make more profit
throughout the year.
Performance report: This report is mainly prepared by the internal manager of company
in order record the complete performance of each worker and business activities that are included
in valuable operations. Manager of respective firm use performance report to record and analyse
the performance of employees engaged in manufacture and distribution process in order to
increase the productivity within specific time.
Cost report: It is essential for an organisation to maintain proper record of total cash
being utilised in various activities and maintain reserve to meet contingency situations. In stitch-
land manager are taking use of this report to control cost and include more business activities
that will help to increase profit margin (Gooneratne and Hoque, 2013).
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TASK 2.
P3 Costing Techniques for preparing the financial statements.
In business term, the monetary value that is being used to by companies in order to run
various useful activity and business operation in most profitable manner is defined as cost. There
are number of jobs that are being related with business activity like fixed, direct, indirect and
variable.
The systematic procedures of calculating cost and expenses that are being associated with
different operation so that overall cost expenses are assessable is consider as cost analysis
( Harun, An and Kahar, 2013).
In companies the techniques that is related with proper examination of entire cost so that
profit can be evaluated in known as cost volume profit analysis. It support the manager to
assess the financial status and position in accordance to cost and profit.
Flexible budgeting: The effective method that is being linked with valuation of prepared
budgets and bringing changes as per the market or current situation of business in define as
flexible budgeting. In stitch-land the concept of flexible budgeting is used in order to meet the
market demand and requirement of business so that they are able to provide services on regular
basis.
Cost variance: The process related with estimating actual variance between the predicted
cost and total cost which is included in production of cloths. In stitch-land the manager are using
this variance to determine the reason for low profit by evaluating the budgeted cost and actual
cost.
Absorption costing: The costing of absorption is a sort of costing method that takes
fixed and variable costing as the price of the item.
Marginal costing: This method of costing is distinct from the method of absorption
costing. Under this, varying costs are taken as the price of the unit while fixed costs are taken as
the price of the period.
Cost allocation or distribution may be described as an activity-specific method for
allocating overheads. Manager of specific company use to assign expenses as per the various
manufacturing operations in order to maintain profit.
Type of cost.
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Fixed cost- This is defined as the cost that is not relevant to the level of production or
this cost do not vary with the changes in output level (Hoque, 2018). Some of the basic example
of this cost related to stitch-land are telephone charges, internet handling fee, rent etc.
All those cost which are related with the changes in level of production are consider as
variable cost. It is totally different from fixed cost as in respective company cost of labour,
material and other overhead are consider as variable cost.
Normal costing- This kind of cost mainly consider product cost that include cost of
labour, material etc.
Standard costing- The standard cost is a cost that is forecast for different types of
activities in the future. It also functions as a basis to compare real efficiency. Manager use this
costing, to measure the real price of each activity that support to grow profit in future time.
Activity based costing: This type of costing method is mostly used by the management
of stitch-land in order to allocated to respective activities separately so that total cost usage can
be evaluated.
Inventory cost: It is a type of expense that involves ordering costs, storage and
transportation costs, etc. They calculate the price of stock in the corresponding business
mentioned above so that they can handle the price.
Valuation methods:
LIFO- The method is related with last in first out where manager uses raw material that
is being purchased at very last to fulfil the demand of market. Such as in Stitch-land manager
first analyse the market situation then buy the required raw material in order to provide the goods
in market.
FIFO- It is related with first in first out as company are always focused to clear
warehouse. They use this method in order to clear the stock as soon as possible because market
situation are continuously changing (Munday, Turner and Jones, 2013).
Overhead- These are kind of types expenditures which are related to direct stuff and
labour. Like rent, wages are a popular instance of the above-mentioned business overhead.
Statement of profit or loss for January 2019 by using Marginal costing.
Particulars PER UNIT Budgeted
80000
Sales Revenue 1 80000
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COST OF SALES
Cost Of Production: Variables
Direct Material 0.65 52000
Opening Inventory 0
Less : Closing Inventory 0 52000
CONTRIBUTION 28000
Fixed Overheads 16000
Fixed selling and administration costs 5200
Profit 6800
Particulars Actual- Q1
Sales Revenue 66000
COST OF SALES
Cost Of Production: Variables
Direct Material 50700
Opening Inventory 0
Less : Closing Inventory 7800 42900
CONTRIBUTION 23100
Fixed Overheads 16000
Fixed selling and administration costs 5200
Profit 1900
Particulars Actual- Q2
Sales Revenue 74000
COST OF SALES
Cost Of Production: Variables
Direct Material 42900
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Opening Inventory 7800
Less : Closing Inventory 2600 48100
.
CONTRIBUTION 25900
Fixed Overheads 16000
Fixed selling and administration costs 5200
Profit 4700
Statement of profit or loss for January 2019 by using Absorption costing.
Particular PER UNIT Budgeted
80000
Sales Revenue 1 80000
COST OF SALES
Cost Of Production: Variables
Direct Material 0.65 52000
Fixed Overheads 0.2 16000 16000
Opening Inventory 0
Less : Closing Inventory 0 52000
CONTRIBUTION 28000
Fixed selling and administration costs 5200
Profit 6800
Particular PER UNIT Actual- Q1
Sales Revenue 1 66000
COST OF SALES
Cost Of Production: Variables
Direct Material 0.65 50700
Fixed Overheads 0.2 16000
Opening Inventory 0
Less : Closing Inventory 10200 56500
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CONTRIBUTION 9500
Fixed selling and administration costs 5200
Profit 4300
Particular PER UNIT Actual- Q2
Sales Revenue 1 74000
COST OF SALES
Cost Of Production: Variables
Direct Material 0.65 42900
Fixed Overheads 0.2 16000
Opening Inventory 10200
Less : Closing Inventory 3400 65700
CONTRIBUTION 8300
Fixed selling and administration costs 5200
Profit 3100
TASK 3.
P4 Benefits and drawbacks of different planning tools.
The elaborated and detail format of future income and expenses that is related with
different activities of business is known as budgets. In companies, budgets have number of
advantages such as reduce failure of operation, remove unprofitable activity etc. There are
various types of budgets that are being prepared by manager of Stitch-land these are discussed
below:
Master budget: This is related with combination of different budgets that are being
prepared by every department of Stitch-land in order to estimate the total revenue to be earned
during a period. It also help to overcome the difficult situation faced by each department while
operating business (Nakajima, Kimura and Wagner, 2015).
Advantages
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 Beneficial in creating a wider organizational view that would help to improve profit
margin for company.
Disadvantages
 Difficulty in modification is not easy as it take more time and cost.
Capital Budget:
This budget is related with investment of resources in distribution or allotment of fixed
assets such as intangible property, machinery and plant etc. In respective firm this tool is used to
ascertain the actual inflows and outflows of capital and total expenditure and revenue for
operating activities.
Advantages Helps organizations to categorize biggest investment and make choices to divest loss-
making organizations.
Disadvantages
 This budget is uncertain, irreversible and rigid because they are highly based on
assumptions.
Alternative methods of budgeting:
ZERO BASED BUDGETING :
ZBB is one of the most crucial alternative budgeting technique that is prepared by
company, where cost starts from scrape and all expenditure should have a circumstance for the
upcoming period. It believes the reassessment of each individual in the financial statement and
provides grounds for each cost to be acquired in the years to come. Stitch-land is a
manufacturing company so they uses ZBB technique to decrease the unseen expenses relevant to
different process during a period.
Pricing strategies-
Penetrating pricing strategy: By using this method of pricing businesses keep their
product prices low and rise in line with market growth (Navarro‐García and Madrid‐Guijarro,
2014).
Skimming pricing strategy: Under this approach, organizations in the original phase
keep their prices high and decline after market set-up.
Cost plus pricing strategy: It is focused on a straightforward idea by which price is
ascertained by contributing to the cost of goods a profit quantity.
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