Management Accounting Report for London Clothing Works - BTEC HND

This report provides a comprehensive analysis of management accounting principles, focusing on the case study of London Clothing Works, a manufacturing firm specializing in raincoats and outerwear. The report addresses key management accounting requirements, including various reporting methods, cost calculations, and income statement development. It delves into cost techniques like marginal and absorption costing, presenting profit and loss statements under each method for three months and a reconciliation statement. Furthermore, the report explores budgetary control, examining cash and sales budgets, and discusses their advantages and disadvantages. The report also covers performance, accounts receivable ageing, and inventory reports. The document concludes by analyzing the application of management accounting in decision-making processes and financial planning within the organization.

Management
Accounting

INTRODUCTION
Management accounting is defined as the provision of monetary as well as non monetary
information of decision making to managers. It is also known as managerial accounting and is
method of examining operations and cost of business for preparing internal reports that aids
manager to attain organisational objectives (Busco, Caglio and Scapens, 2015). As per the
scenario, the undertaken organisation for this report is London Clothing Works which is a
manufacturing firm that specialises in raincoats, outerwear and unstructured garments. Its
headquarters is in North London, UK. This report crucial many MAS requirements, various
management accounting reporting methods. calculation as well as income statement
development, tools of budgetary planning along with their advantage and disadvantage are
explained. Moreover, comparison of adopting management accounting system to responds
financial issues are also discussed in this report.
TASK1
P1
Management accounting is regarded as the profession which includes partnering
administrative decision making, devising planing as well as performance of management system,
facilitating expertise into financial report and control to aids management into development as
well as execution of a firm's strategy (Meaning and Definition of Management Accounting,
2019). In London Clothing Works its manager follow this to assure that it will improve their
enterprises in future with aids of current plan of action which are develop by them. The vital
intent of this is to gather detailed information to produce internal report that help undertaken
entities to make efficacious decision within many situation. Also, it plays crucial role in London
Clothing Works. Few are as follows: Assists in efficacious controlling: Management accounting is beneficial for business
concern to make appropriate control over many practices (Cooper, Ezzamel and Qu,
2017). As by utilising key information from internal report manager may focused on that
activities that outcomes in lower profit or higher cost. In relation to London Clothing
Works, their manager may control many prospects efficaciously by aids of management
accounting.
1

 Assists in decision making: Management accounting plays vita role as it aids entities to
formulate gainful decision. Such as the manager of London Clothing Works may take
appropriate actions and decision with help of respective accounting.
Management accounting system is regarded as intrinsic system which is applied by
several entities to observe and assess whole direct as well as indirect enterprises procedures.
London Clothing Works applied some management accounting system are discussed underneath:
 Inventory management accounting: It is regarded as accounting system whcih is
alloted into task to keep records of whole kinds of stock which is purchased or sold
through entities. The main aim of inventory system is to assure that approrpiate usages of
stored raw materials is being performed through organsaition (Gibassier and Schaltegger,
2015). Such as London Clothing Works manufacturing department used this system for
efficacious management of raw material likes clothes, thread and others so that while
production there will be not any issues occurs realted to unavailability of resources
effectively.
 Price optimisation system: It is regadred as teh system that is related into systematice
methods of operating entities to utilised appropriate pricing strategies. As per this, entities
obatin knowledge about what type of changes is needed within its pricing methods. Such
as London Clothing Works sales department applied respective system to revise the price
of their cloths as this assists them to enahnce sales units.
 Cost accounting system: It is regarded as set of framework which are focused by small
as well as large entities for the aim of analysing exact cost which is related with
organisation's practices. In London Clothing Works manager utilsied this to determine
the cost of operation practices which generates more profit by assessing its costs.
 Job order costing system: It is regadred as management accounting system that directs
administration to delegate costs to overall operations according to their features. As
London Clothing Works manfacture raincoats, outerwear and others so this system aids
their manufacturing department to assesss teh each job unit cost of producing cloths.
P2
For all entities, it is vital for them to keep appropriate information of whole intrinsic as
well as extrinsic activities to examine the deficits cause and formulate plan of action for
futuristic period (Gunarathne and Lee, 2015). For this aim, a certain methods is applied to
2

prepare many report of management accounting. Also, this assist them to take effective actions
for handling the available resources. Thus, London Clothing Work manager prepared various
reports to record appropriate data. Few of them are described underneath:
 Performance report: This is regarded as the type of management accounting report that
involves information in context of estimated and appropriate outcomes of many
operations. Based on this, the entities manager take effectual action associated to improve
overall performance. In relation to employees performance, information are provide by
respective reports (Ibarrondo-Dávila, López-Alonso and Rubio-Gámez, 2015). As this
assists manager in assessing performance of each employees so that their growth may be
assured. In respect to London Clothing Work, their workers may be promoted based on
its performance which is gather with aids of performance report.
 Accounts receivable ageing report: It is regarded as the kinds of management
accounting report that consists information related to overall debtors whose payment is
due. In addition to this, respective reports keep systematized records in respect with dates
like all debts amount, interest rate, transaction and so on. With the assistance of this
management accounting report, manager may able to approach information which is
related to debt amount and that is essential to be collected. Such as, finance department
of London Clothing Work can able to collect the debt amount form their users in less
time and money. Moreover, due to this their receivable turnover ratio will be enhanced.
 Budget report: It is regarded as the management accounting report that involves
information related to estimated expense and spending. Due to this, various practices
variances is computed that aids in considering efficacious action for future time. In
relation to London Clothing Work, their accountant make this report with the purpose of
managing their financial outcomes. Also, for appropriate utilisation of available resources
associated to financial and non financial.
 Inventory report: It is regarded as report that involves information associated with
overall inventory quantity such as raw materials, work in progress and others. Into
inventory report, information is included based on their effectual valuation of stock with
the assistance of LIFO, FIFO and so on (Nitzl, 2016). It is beneficial entities to control
overall cost of stock. For example: In London Clothing Work, their production
3

department use key information related to raw materials and finished goods by assistance
of respective reports.
TASK 2
P3
Cost technique is regarded as the procedures that is applied to ascertain cost for cost
control and decision making. This can be used to formulate decisions, negotiation, price
appraisal and assess purchasing performance. Thus, London Clothing Works, applied some cost
techniques that are discussed underneath: Marginal costing: This is regarded as techniques of cost where variable costs are charged
to unit of cost as well as fixed cost of particular period are written off in against the
aggregative contribution (Otley, 2016). This aids London Clothing Works, to compute
three months income statement.
 Absorption costing: It is regarded as techniques which is overall cost of manufacturing is
allotted to the number of units manufactured. This assists London Clothing Works to
prepare income statement by concerning both fixed as well as non fixed costs.
Profit and loss account:
Profit and loss statement under marginal costing for month of January:
4

Particulars DR CR
Sales revenue (13000 * 100) 1300000
Direct material (16000*35) 560000
Direct labour (16000*10) 160000
Variable cost (16000*8) 128000
Fixed production overhead 48000
Less : Closing stock (3000*53) 159000
Less: Cost of sales 737000
Profit 563000
Profit and loss statement under marginal costing for month of February:
Particulars DR CR
Sales revenue (15000 * 100) 1500000
Direct material (13000*35) 455000
Direct labour (13000*10) 130000
Variable cost (13000*8) 104000
Add : Opening stock (3000*53) 159000
Fixed production overhead 39000
Less- Closing stock (1000*53) 53000
Less: Cost of sales 834000
Profit 666000
Profit and loss statement under marginal costing for month of March
5

Particulars DR CR
Sales revenue (13000 * 100) 1300000
Direct material (12000*35) 420000
Direct labour (12000*10) 120000
Variable cost (12000*8) 96000
Add : Opening stock (1000*53) 53000
Fixed production overhead 36000
Less: Cost of sales 725000
Profit 575000
Profit and loss account under absorption costing for month of January:
Particulars DR CR
6

Sales revenue (13000*100) 1300000
Variable cost:
Direct material (16000*35) 560000
Direct labour (16000*10) 160000
Less- Closing stock (3000*53) 159000
Fixed production cost (48000+2000) 50000
Less: cost of sales 611000
Profit 689000
Profit and loss account under absorption costing for month of February
Particulars DR CR
Sales revenue (15000*100) 1500000
Variable cost:
Direct material (13000*35) 455000
Direct labour (13000*10) 130000
Add- Opening stock (3000*53) 159000
Less- Closing stock (1000*53) 53000
Fixed production cost (39000+2000) 41000
Less: cost of sales 732000
Profit 768000
Profit and loss account under absorption costing for month of March
7

Particulars DR CR
Sales revenue (13000*100) 1300000
Variable cost:
Direct material (12000*35) 420000
Direct labour (12000*10) 120000
Add- Opening stock (1000*53) 53000
Fixed production cost (36000+2000) 38000
Less: cost of sales 631000
Profit 669000
Reconciliation statement between absorption and marginal costing:
January (in £) February (in £) March (in £)
Profit/ marginal costing 563000 666000 575000
Increase in stock level
Marginal cost/unit 737000 834000 725000
Absorption cost/unit 611000 732000 631000
Difference 126000 102000 94000
Profit/Absorption costing 689000 768000 669000
8

TASK 3
P4
Budgetary control is regarded as the methods which is utilised for assuring firm's actual
revenues as well as expenses correspond closely to their financial plan. It includes various
planning tools and few of them are utilised by London Clothing Works are discussed underneath:
Cash budget: This is regarded as planning tools in which cash outflows as well as
inflows of entities details are specified during the budget period like annually, quarterly or
monthly. The main aim of this is to facilitate the status of entities cash position (Pavlatos and
Kostakis, 2015). Therefore, this aids finance department of London Clothing Works to get
knowledge about its organisation's cash position and also make effectual strategies related to
cash. Advantage: This assists London Clothing Works to find potential deficits in quick time
period.
 Disadvantage: The main drawbacks is that it is totally based on estimation as this may be
lost in simple way.
Sales budget: It is regarded as the types of budget that consists information related to
expected units of sales and revenue as well as possible expenses that may incurs in selling
methods. Based on this information, entity's manager may formulate their pan of action to
accomplish the targeted sales (Quattrone, 2016). So, London Clothing Works accountant make
this budget as it assists their manufacturing department to take corrective action. Advantage: The sales budget is beneficial for London Clothing Works in order to
delegate resources to many products, services and so on with an aim to realize hoped-for
sales.
 Disadvantage: The main drawback of sales budget is, it is prepared based on last data and
in some situation this may leads towards huge financial loses.
Production budget: This is regarded as the forms of budget that consists information
related to expected units of production and possible expenses that may occurs within
manufacturing process. Based on this information, the manger of entities set their plan of action
to accomplish targeted production units. The London Clothing Work accountant prepare this
budget that assists production division to take corrective actions.
9