Management Accounting Report: Continental Clothing Company, Sept 2019

This report provides a detailed analysis of management accounting practices, focusing on their application within Continental Clothing Company Ltd. The report covers various management accounting systems, including job costing, price optimization, cost accounting, and inventory management, highlighting their benefits and applications. It explores different methods used for management accounting reporting, such as budget reports, accounts receivable aging reports, job cost reports, and inventory and manufacturing reports. Furthermore, the report examines the integration of management accounting systems and reporting within organizational processes, emphasizing their role in strategic decision-making. The report also delves into cost analysis techniques, including marginal and absorption costing, and their application in preparing financial statements. Finally, it discusses the advantages and disadvantages of budgetary control tools and the role of management accounting systems in responding to financial problems to achieve sustainable success. The report uses financial data to demonstrate practical applications and insights.

Management Accounting

Session: September 2019
Table of Contents
INTRODUCTION...........................................................................................................................3
LO 1.................................................................................................................................................3
Different methods used for management accounting reporting.............................................4
M1 Benefits of management accounting systems and their application within Continental
Clothing Company Ltd...........................................................................................................6
Evaluation of how management accounting systems and management accounting reporting is
integrated within organisational processes.............................................................................7
LO 2.................................................................................................................................................7
Application of management accounting techniques and produce appropriate financial
reporting documents.............................................................................................................13
Financial reports that accurately apply and interpret data for a range of business activities13
LO 3...............................................................................................................................................14
Advantages and disadvantages of different types of tools used for budgetary control........14
LO 4...............................................................................................................................................16
Adoption of management accounting systems to respond to financial problems................16
Role of MAS in responding to financial problems that can lead organisations to sustainable
success..................................................................................................................................19
Planning tools used in solving financial problems to lead organisations to sustainable success
..............................................................................................................................................19
CONCLUSION..............................................................................................................................20

INTRODUCTION
Management Accounting is a technique used to analyse different costs and operational
aspects of the business and helps in preparation of financial statements, reporting and recording
different transactions which supports the managers in better decision making to achieve the
goals of the business. This method also helps in making decisions related to competition by
gathering information and processing them which helps top level in deciding he strategies of the
business and evaluate them on timely basis. In this study Continental Clothing Company Ltd.
which is UK's one of the largest manufacture of cloths and has a significant position in clothing
industry. The company has grown to become the world market leading designer and
manufacturer of cloths and offering customers wider range of quality clothing. In this report the
following topics are discussed in detail which includes various techniques used in reporting of
management accounting, methods of cost accounting which are used to make the profit and loss
statement, tools to plan for controlling the budget and the ways in which management accounting
helps in resolving monetary issues. (Angelone and Neopost, 2015).
LO 1
Management accounting and requirement of different types of management accounting systems
Any accounting that helps the corporations in working more effectively can be terms as
Management Accounting. As per one of the well-known institutes, if management accounting is
applied in the companies by the skilled professionals then it can help the top management in
formulating good strategies and policies which can be used for the smooth operations of the
business.
For Continental Clothing Company Ltd. management accounting systems help in analysing costs
associated with production of cloths, determining ways of reducing prices and providing better
products to the customers, measurement of performance which increases efficiency of business
and hence leads to maximisation of profits. Below mentioned are few systems used in
management accounting:
Job costing Technique: It is a method wherein production costs of every product is allocated
with simultaneously keeping watch on the expenses incurred. Continental Clothing Company
Ltd. can make use of this method to calculate the costs related to every product can use this

system to determine the cost of each of its product that it offers to its clients according to their
needs and preferences. As there are lot of differences in the items that are produced, this method
needs a complete segregation of cost for every product and they are also recorded separately. It
gives details regarding the variable costs like direct material which are used. (Gupta, 2017).
Price optimising technique: This method is used to set optimal prices of all kind of products the
company offers. It helps in controlling the price level and also used to find out that what will be
the demand at each price point. Continental Clothing must use this method to set the prices
which are acceptable to different target customers and to see that how will they respond at each
price level. Company can also decide different structures related to pricing like pricing for
promotions, discounts and the market entry pricing. To decide the prices, company make use of
various factors like benchmarking the competitors, the product life cycle of the all the products
and the vision and objectives of the company as a whole.
Cost accounting technique: This method is used to determine the costs for the purpose of
analysis of the profitability of the business, valuation of its inventory and to control the overall
cost. There are two methods under this: Job and Process costing. The first one i.e. Job Costing
helps in identifying the production costs that are attached to each job in the case where the firms
have different products and different manufacturing for all. On the other side, process costs are
those that identify separate costs for every process and can be used where production go through
different processes. Continental Clothing Company Ltd. have an option to choose this method
they can identify the costs of customized products which are designed as per the requirements of
the clients. (Kaplan and Atkinson, 2015).
Inventory management technique: This method helps in the proper maintenance of stock level
and managing them. It helps in better management of inventory while focusing on procurement
and better inventory turnover. Continental Clothing Company Ltd. If uses this method, then they
can effectively manage all their stock levels, can replenish their raw materials on time and can
satisfy their consumers by proper availability of goods on the retail stores. It enables managing
officials to have a physical record of all inventories within the firm.
Different methods used for management accounting reporting
Companies can become extremely efficient and productive if they do proper reporting
and make management accounting reports. These reports can be used to do proper planning, in

making regulations for the companies and to measure the performance both financially and
operationally. Through these reports, relevant figures and statistics are produced which make
decisions better and help in making better long-term strategies for the organization. This
information is important for internal users that help in making decision making for reducing
costs or directing funds in more beneficial product lines. Continental Clothing Company Ltd.
also prepare various reports that are discussed below:
Budget reports: To measure the performance of the organization, budget reports are very
important. A budget helps a company in forecasting the future sales and expenses which are
going to be incurred based on the historical trends of the companies. It is also helpful in
forecasting unusual circumstances. Budget helps the company in achieving the set targets and
goals set. This report supports Continental Clothing Company Ltd. To meet their revenue targets
in an efficient way. (Karadag, 2015).
Accounts receivable ageing reports: This report gives detail information about each and every
debtor of the organization. It also tells the accounts receivables turnover of the company and the
duration in which they are paying back to the company. Here, the company also gets to know
that whether there is a need to tighten the policies of collection and is very useful in monitoring
the doubtful debtors who keeps on extending the dates of payment. It also identifies the bad
debts of the company and helps in managing the liquidity position of the company. Continental
Clothing Company Ltd. Make use of this report to effectively manage its policies related to
accounts receivables which needs to be monitored on a regular basis.
Job cost report: This report mentions different costs related to every activity or job of the
organisation. This report analyses that which activity is less profitable and where the efforts of
the business can be reduced or eliminated. This also examines the costs related to each project
and the wastage if any is occurring in the project is identified so that project can become very
profitable. Continental Clothing Company Ltd. can use these reports to determine the best
pricing for the products and to decrease the costs for each product to generate revenues. (Maas,
Schaltegger and Crutzen, 2016).
Inventory and manufacturing reports: The main motive of this report is to make inventory
management better and production processes more worthy. The report contents include different
costs related to labour, overhead costs and the unnecessary wastages of stock. It also helps

managers in comparing various manufacturing plants and where they are lacking so that
improvement can be done. This report can help Continental Clothing Company Ltd. for better
management of inventory levels of cloths with controlling manufacturing costs (Maas,
Schaltegger and Crutzen, 2016).
Benefits of management accounting systems and their application within Continental Clothing
Company Ltd.
Management Accounting
Systems
Benefits Application
Job costing - It helps in estimating each
and every cost throughout the
manufacturing process.
-Evaluation of quality of work
done.
This method can be used when
companies have same products
and they can keep watch on its
costs during the manufacturing
process.
Price optimising system -Determine attitude of
customers based on different
prices.
-Maximisation of profits with
best prices.
Can be used to identify prices
for promotions, discounts and
during market entry to gain a
competitive advantage.
Cost accounting system -Measure efficiency in
processes and make
improvements.
-Provides information required
for planning.
-Can help in correct
ascertainment of cost of
products and is easy to
understand and use.
Inventory management system -Improve accuracy of
inventory orders that helps in
saving time and money.
-Can use to achieve effective
and efficient flow of inventory
within the company at the time

of sale.
Evaluation of how management accounting systems and management accounting reporting is
integrated within organisational processes
The reports prepared in management accounting reflects the current order with the
company, sales revenue, cash in hand, other current assets like debtors or accounts receivable,
stock, current liabilities like accounts payable or creditors and outstanding debts. Some more
information about variance analysis and necessary statistical data are also there which enables
managers in better decision making. Continental Clothing Company Ltd prepare all these reports
for the strategic decisions. Job cost method is useful in making reports related to job costs which
includes calculation of costs, expenses and profitability of every activities happening in the
company. Cost accounting method is helpful in preparing budget report so as to analyse
company performance, control costs and determine actual expenditures incurred in past.
Inventory management system helps in preparing inventory and management report to determine
various costs related to labour, overhead costs and the unnecessary wastages of stock. Price
optimising system helps in determining strategies of pricing of different range of clothing based
on client's preference and need (Mack and Goretzki, 2017).
LO 2
Techniques of cost analysis to prepare an income statement using marginal and absorption costs
for Continental Clothing Company Ltd.
Costs reflects to value which has been put to produce goods and services. It includes all
those costs starting from the procurement of raw materials, labour used, the time and resources
utilised, other fixed and variable costs used to manufacture a product. There are two main
methods used in costing i.e. Absorption and Marginal or variable.
Marginal costing: Marginal costing refers to the method where all the variables costs are fixed
costs are treated separately and are segregated as per product and period costs respectively. Here,
segregation only happens based on variable and fixed and not on the basis of manufacturing and
non-manufacturing costs. It is an easy technique to estimate the costs and net profit and loss and
the changes due to change in the production level. (Maskell, Baggaley and Grasso, 2017).

Absorption costing: This method treats variable and fixed cost as same but it differs or
segregates on the basis of manufacturing and non-manufacturing costs. Here, while calculating
the unit cost, absorption rate is calculated and, in the end, to find out the profit or loss over/under
absorption is calculated.
(a) Cost card
Cost card (Absorption costing)
£/unit
Unit Variable Price 5
COGS Per Unit 5
Absorption cost of product
150000/
75000= 2
Selling price 8
Less- Total cost 5
Gross Profit 3

(b) Profit and loss account:
Particulars Amount (£)
Apr
’19 May ’19
Jun
’19
Jul
’19
Aug
’19
Sep’
19
Sales revenue
6000
00 480000
7200
00
6000
00
5600
00
6400
00
Less: Cost of Sales (WN1)
3750
00 300000
4500
00
3750
00
3500
00
4000
00
Gross Profit
2250
00 180000
2700
00
2250
00
2100
00
2400
00
Less: Non-manufacturing Cost Per period
-
5000
0 -50000
-
5000
0
-
5000
0
-
5000
0
-
5000
0
+/- Over/Under Absorption (WN2) 0 0 0 0
-
2000
0
1000
0
Net Profit/Loss
1750
00 130000
2200
00
1750
00
1400
00
2000
00
WNI
Calculation of Variable cost
Apr
’19 May ’19
Jun
’19
Jul
’19
Aug
’19
Sep’
19
Opening stock 0 0
7500
0 0 0
7500
0
Production cost 3750 375000 3750 3750 4250 3500

00 00 00 00 00
Less closing stock 0 -75000 0 0
-
7500
0
-
2500
0
3750
00 300000
4500
00
3750
00
3500
00
4000
00
WN2
Calculation of Over absorption/ Under absorption
Apr
’19
May
’19 Jun ’19
Jul
’19
Aug
’19
Sep’1
9
Fixed Production Overhead with budgeted
production 150000
15000
0 150000
15000
0
15000
0
15000
0
Fixed Production Overhead with actual
production
-
150000
-
15000
0 -150000
-
15000
0
-
17000
0
-
14000
0
Over/ Under absorption 0 0 0 0
-
20000 10000
(a) Cost card
Cost card (Marginal costing)
£/unit
Unit Variable Price 3
Marginal Cost 3
Selling price 8

Less- Marginal cost 3
Contribution 5
(b) Profit and loss account:
Particulars Amount (£)
Apr
’19
May
’19
Jun
’19 Jul ’19
Aug
’19 Sep’19
Sales revenue
60000
0
48000
0
72000
0
60000
0
56000
0
64000
0
Less: Variable cost
-
22500
0
-
18000
0
-
27000
0
-
22500
0
-
21000
0
-
24000
0
Contribution Margin
37500
0
30000
0
45000
0
37500
0
35000
0
40000
0
Less: Fixed Manufacturing
Overheads
15000
0
15000
0
15000
0
15000
0
15000
0
15000
0
Less: Non-manufacturing Cost Per
period 50000 50000 50000 50000 50000 50000
Net Profit/Loss
17500
0
10000
0
25000
0
17500
0
15000
0
20000
0
WN1
Calculation of Variable Cost

Variable cost
Apr
’19
May
’19
Jun
’19 Jul ’19
Aug
’19 Sep’19
Opening stock 0 45000 0 0 45000
Production cost
22500
0
22500
0
22500
0
22500
0
25500
0
21000
0
Less closing stock 0 -45000 0 0 -45000 -15000
22500
0
18000
0
27000
0
22500
0
21000
0
24000
0
Reconciliation of Net Income under Absorption and Marginal Costing
Apr ’19 May ’19 Jun ’19 Jul ’19 Aug ’19 Sep’19
Net Profit as per Absorption
Costing 175000 130000 220000 175000 140000 200000
+Changes in Opening Stock 0 0 30000 0 0 -30000
- Changes in Closing Stock 0 -30000 0 0 30000 20000
under and over absorption rate - - - - -20000 10000
Net Profit as per Marginal
Costing 175000 100000 250000 175000 150000 200000