Management Accounting Report: Sewport and Financial Systems Analysis

This report delves into the realm of management accounting, presenting a comprehensive analysis through the lens of Alpha Financial Consultancy and its client, Sewport, a clothing manufacturer. The report explores the core principles of management accounting, contrasting it with financial accounting, and examines various management accounting systems such as cost accounting, job costing, and inventory management, highlighting their benefits and applications within Sewport. It then proceeds to analyze different types of management accounting reports, emphasizing the importance of reliable, accurate, and up-to-date information. The report further examines financial statements, including cost analysis, cost-volume-profit analysis, and costing methods like absorption and marginal costing. It also covers variance analysis, inventory valuation methods (LIFO, FIFO, and weighted average), and overhead allocation. Supporting calculations, including material variances and inventory valuations are provided. The report culminates in a detailed examination of the practical application of management accounting principles in a real-world business scenario.

MANAGEMENT
ACCOUNTING

INTRODUCTION
MA is an accounting which is based on monetary and non monetary information which
helps in internal management of the companies (Serena Chiucchi, 2013). Eventually, this
accounting system is applied without considering any accounting period and concepts. The
organisations implement it as per their needs. To understand in broad sense about the MA, Alpha
financial consultancy company has been chosen that provides consultancy services to different
companies which operates in manufacturing, construction etc. In the report their client company
is Sewport that operates in manufacture of clothes. Additionally, in the project report the first
scenario defines about different accounting systems and reports as well as it covers different
costing methods to prepare financial statements. While the second scenario includes different
kind of planning tools and role of MAS in response to financial problems.
TASK 1.
P1. Introduction to management accounting.
Management accounting- The MA is a typical part of accounting which is associated with
providing the financial information and suggestions to the companies for the purpose of effective
planning (Lindholm, Laine and Suomala, 2017). The above company applies this accounting for
integral management.
Management accounting system- MAS is a field of accounting that gather company's
quantitative and qualitative information for preparation of reports. The main purpose of these
reports is to helping the managers of companies to take suitable decisions.
Role of alignment of accounting systems to companies: Various accounting systems of
management accounting are very important because each of them have their own role. Like the
job costing system is useful in calculating the cost of job separately as well as inventory
management system is integrated with the solving the issues of stock management. Along with
the price optimisation system helps in determining the prices. Such as in Sewport they use these
accounting systems for purpose of effective management of cost regarding to jobs as well as for
better stock management of cloths.
Origin, role and principle of MAS:

Origin- The term management accounting system was evolved by cost accounting
techniques which was developed in England during revolution of industry (Stechemesser and
Guenther, 2012).
Principles - The MAS is based on different principles such as influence, relevance, value
and trust. These principles are needed to be implemented for management accounting system.
Distinction between financial and management accounting system:
Basis Management accounting system Financial accounting system
Information This accounting system consists
both kind of accounting information
such as quantitative and qualitative
information.
While this contains only financial
information.
Accounting
principles
The management accounting does
not follow any accounting principle
and concepts
This accounting system is implemented as
per the accounting period and concepts.
Compulsory It is not necessary for the companies
to apply this accounting system.
On the other hand, it is essential for the
companies to adopt this accounting
system.
Different type of MAS- The MA includes a wide range of accounting systems and some of
them are mentioned below:
 Cost accounting system- It related to computing total cost of different activities.
Eventually, it is important for controlling and managing overall cost. Such as in the
Sewport company, this system is important for in analysing cost of their different
operations.
 Job costing system-It is related to the computing cost of job associated in of activities
(McVay, Kennedy and Fullerton, 2016). This helps in provide information about how
much cost is occurring in the process of job of various functions. In Sewport company,
they applies this accounting system is guidance of their consultancy company for the
purpose of getting information about job cost.

 Inventory management system- It is associated with management of the stocks such as
raw material, finished goods etc. In above respected company, they have implemented
this accounting system for managing raw material for production of cloths.
 Price optimisation system- This is related to the determining the prices of products and
services at an accurate level. For example in the Sewport company, they implement this
system for fixing price of their cloths.
Benefits of management accounting systems- The management accounting systems are
beneficial in the different activities of the organisations. Herein, benefit of these systems is
mentioned below:
Management accounting
system
Benefits
Cost accounting system It is beneficial in computing total cost of activities. Like in the
Sewport clothing company, they measure the cost of different
activities of manufacturing of cloths.
Job costing system It is import for computing the cost of job of various activities. Such
as in the above mentioned company, it is beneficial in providing
information about cost of job of various activities.
Inventory management
system
It is beneficial in effective management of raw material so that
companies can make better use of resources. In the Sewport
company, this is useful in taking effective decision about production
of new cloths as per the information of available finished goods.
Price optimisation system This is important for determination of the price of products and
services (Schaltegger, 2012). In the above company, they use this
accounting system for fixing the price of their products at an
efficient level.

P2. Different kind of management accounting reports.
Characteristics of better information system- This is necessary that information which is used
in the management accounting reports. Some of the characteristics are as follows:
Reliability- It is associated with a kind of information which must be reliable with the
financial transaction of the organisations. So that they can take suitable decision for further
activities.
Accuracy-This is essential that information should be accurate as per the financial
transactions. Without accuracy it will be difficult for companies to make accurate financial
reports.
Up to date- The financial transactions of the companies can not be remain same. So it is
important that financial informations should be updated for better results.
Role of presenting the informations in an understanding manner: This is important that
financial information should be easy and understanding manner so that companies can make
crucial decisions. Without this, it will be difficult for the organisations to make financial reports
and due to this many other issues may arise. Eventually, the accurate financial information helps
in taking effective decisions so it is mandatory that financial information should be
understandable.
Various kind of managerial accounting reports-
 Inventory management reports- These reports provide information about the stock
available in the warehouses (Schaltegger, 2012). It consists, quantity of RM , finished
goods etc. Due to this companies can take further decisions about the buying of new RM.
Such as in the Sewport company, they produce it for analysing the cost of storage and
need of RM.
 Budget report- It is related to providing information about actual financial performance of
the company. By this report companies can measure their performance and can take
decisions accordingly. Like in the above respected company, they use it for analysing the
actual performance and make corrective changes accordingly.

 Account receivable ageing report- It provides detailed information about total collective
amount from different debtors (Rossing, 2013). With the help of this report companies
can check about how much collection they have in the market from the debtors. As well
as these reports consist about date on which payment is due by the debtors. Such as in
Sewport, company they use if for collecting the amount which is due by their debtors or
from credit sale.
 Performance report- It is prepared for purpose of evaluating the actual performance of
employees and different activities. In this report, various kind of information is included
such as financial and non financial. In the Sewport company, they use it for evaluating
their actual performance.
TASK 2.
P3 Financial statements.
Cost- It can be defined as a combination of all the expenses which occurs in process of
operating different operations (Myers, 2013). Such as in the Sewport company, various kind of
cost occurs like cost of material, manufacturing etc. As well as some other costs like direct cost,
indirect cost, fixed and variable etc. While the cost analysis is related to calculating overall cost
of different activities so that financial position can be determined.
Cost volume profit- It is related to the determining variation in expenditures and
volume. Main purpose of it, is to evaluating financial performance on basis of change in
expenditure and volume. In Sewport they conduct this analysis for measure the variation in the
cost and profit.
Flexible budgeting- This is budgeting techniques in that budgets are being flexed or
changed if sales or volume changes. In Sewport company, they apply this budgeting for
evaluating the effect of sales and volume on the budgets.
Cost variance- In general terms, the cost variance is related to the difference between the
actual costs with the budgeted cost. Purpose of this is to finding the actual difference in the
costs. Like in the above respected company they calculate the actual variance in the costs for
minimising the cost of different activities.
Absorption & marginal costing:

Absorption costing- In this variable and production costs are considered as product cost.
(Clinton and White, 2015).
Marginal costing- This is a kind of costing technique in that fixed cost is considered as
the period cost and variable cost as the product cost.
Cost allocation- It is related to assigning cost to different activities. Above mentioned
company, apply this for allocating the overheads to various kind activities.
Fixed cost- It is a cost that do not flex if output changes. Some example of fixed cost is
rent, telephone charges etc. Such as in the Sewport company, whether they may increase or
decrease the production but fixed cost will remain same. .
Variable cost-It is a cost which changes as the change in level of output. In the above
respected company, their variable costs are such as cost of labour, material etc.
Normal costing- This can be defined as the total cost of any particular commodity
including different costs like labour cost, overhead etc.
Standard costing- This is also known by the estimated costing. In this costing, cost is
estimated for the purpose of comparing the actual cost. For example, Sewport company, they
estimate future cost of activities.
Activity based costing- This is a kind of costing under that cost is assigned for different
activities separately. Like in above respected company, they accumulate the cost of various
activities individually.
Inventory cost- It is a type of cost that incurs in the process of storing the stock in the
warehouses. This includes cost of ordering, carrying etc. Such as mentioned company, they
calculates storage cost for the purpose of minimising the cost as much as possible.
Valuation methods- The stock is being valued by various kind of method. Some of these
methods are mentioned below:
LIFO- This is associated with the manufacturing of products with the use of raw material
that was brought last (Houghton, 2013). Like in the above respected company, apply this method
for clearing of their warehouse as well as to offer goods on demand.
FIFO- This is associated with the manufacturing of products with the use of raw material
that was brought first. Such as Sewport company use this method for those goods which are
needed to be consumed as soon as possible.

Overhead- The overheads can be defined as those expenditures which are not related to
direct material or labour. In the above company some overheads are rent, salary etc.
Working note:

Material variances:
 MCV = SMC) – AMC
 MPV = SP-AP*AMC
 MUV = SQ – AQ *SP
So
Standard Price = £10 per kg
Actual Price = 20900/2200 = £9.5 per kg
Actual quantity = 2200kg
Standard Quantity = 1000kg
Calculation of closing inventory of material using LIFO and Weighted average method:

Under Weighted Average method:
05/01 Previous balance
(inventory) 40 3.0000 120.0000
05/12 Bought 25 units at £
3.60 each 25 3.60 90. 65 3.2308 210.0000
05/15 Issued 36 units 36 3.2308 116.307
7 29 3.2308 93.6923
05/20 Bought 20 units at £ 20 3.75 75. 49 3.4427 168.6923

3.75 each
05/23 Issued 10 units 10 3.4427 34.4270 39 3.4427 134.2653
05/27 Issued 25 units 25 3.4427 86.0675 14 3.4427 48.1978
05/30 Issued 5 units 5 3.44 17.2135 9 3.4427 30.9843
TASK 3.
P4 Advantages and disadvantages of different planning tools
Budget: It is a forecasting tool which is used by business entities in order to keep an
estimation of expenses which may take place in future. The process in which these are formed is
known as budgeting. In Sewport different budgets are created by top level executives in order to
forecast future incomes and expenses. While formulating budget first of all managers analyse
current situation of the organisation and assess basic requirements which should be fulfilled in
upcoming period. Afterwards, senior managers are asked to formulate different strategies to
create a budget. All of them present their formed policies in front of top executives for their
approval. When they approve one of them then budget is applied within the organisation. There
are various planning tools which are used in Sewport. Description of all of them with advantages
and disadvantages is as follows:
Master budget: It is a budget which is also known as aggregation of all the small
budgets which are formulated by organisation to analyse actual position of the company. In
Sewport it is generated to assess that all the other budgets are formed in appropriate manner or
not. Advantages and disadvantages of it for the entity are such as:
Advantage- It helps in effective planning because it contains all kind of budgets. Along
with it plays an important role for find out the problems of different functions.
Disadvantage- It is difficult to understand and read. As well as it consumes too much
cost.
Capital budget: It is mainly formulated for the purpose of allocating monetary resources
to capital expenses such as buying fixed assets. In Sewport long term investment budget is
created by managers to measure organisation's ability to generate funds with the help of its long
term investments.

Advantage- This is beneficial in taking long term decisions. Along with as per it
organisations can make buying decision of fixed assets.
Disadvantage- The main drawback of this budget is that it is does not provide accurate
result and due to this companies can not relay on it completely.
Cash budget: It is a budget which covers all the cash receipts and payments. It helps to
analyse organisation's liquidity (Spraakman and Jackling, 2014). In Sewport cash budget is
formulated for recording cash transactions that are done by the company in particular time.
Advantage- It is useful in determination of future cash requirement for companies
operations.
Disadvantage- It controls the spending power of the companies. This is why because
companies make cash transactions as per the cash budget.
Activity based budgeting: This type of budgeting technique is used to prepare budget
for different activities of the organisation. Eventually, this budgeting the each transactions are
categorised as per the activities of companies. In Sewport this budgeting technique is used in
recording the cost that is related to different organisational activities.
 Advantage: It helps to improve relationship with customers by providing them detailed
information regarding costs involved in different activities.
 Disadvantage: It requires professional training which costs very high and for all the
companies it is not possible to face high monetary resources.
Zero based budgeting: This budgeting technique guide managers to prepare budget
from a zero base and ignore balance of previous year. In Sewport managers use zero based
budgeting for the purpose of justifying each and every expense faced by organisation.
 Advantage: It guides the managers to allocate the resources effectively because it is
based on needs and benefits.
 Disadvantage: Process of conducting zero based budgeting is time consuming and small
companies such as Sewport cannot spend long period on it.
Behavioural implications of budgets:
 In order to attain business goals it is very important for managers to support budgeting
process so that appropriate results can be generated.

 Budgeting can result in inter departmental conflict as it is a type of informal bargaining in
which manager of different divisions compete for acquiring higher monetary resources to
conduct their activities.
Pricing strategies- Some types of pricing strategies are like:
Penetrating pricing- It is based on keeping prices low and increase further as time passes.
Skimming strategy- In this prices are fixed higher to develop the market and further the
prices are reduced.
Cost plus pricing- Under it, a particular fixed profit is linked to expenditure of product.
Competitive pricing- Under it prices are determined as per the competitors. As well as in
this companies try to assign their costs below the prices of their competitors so that their product
can sustain
Supply & demand consideration- The supply and demand both are interrelated with each other.
If demand increases then supply also increases (Wagner, 2015). As well as if demand increases
then prices also increase. Herein, below some factors are mentioned that may effect the pricing:
PEST analysis- It is used for analysing the external environment with the help of
following structure and categories of variables that can affect the business performance, and that
must be considered in its planning process.
Political- This factor is related to the government rules and regulations which are needed
to be followed. As well as this factor includes countries relation with other countries and political
condition which should be stable. Like the Sewport company is required to follow these rules
and regulations to sustain.
Economical- This factor consists different aspects of market such as interest rate,
inflation rates etc. Eventually, these factors play an important role in determining the prices in
above respected company.
Social- This factor includes culture, religion, gender of any country. So it is essential for
the companies to make their plans and policies as per this factor. Same as to above respective
company they need to produce their products as per the element of this factor.

Technological- As per this factor, various kind of new and advanced techniques are
included which are needed to be applied by the companies to sustain in changing environment.
SWOT analysis- It is used for analysing the micro environmental factors. Herein, below
SWOT analysis of above company is mentioned below:
TASK 4
P5 MA in response to solve financial issues.
Techniques to find financial problems:
Benchmarking- This is related to the comparing organisational policies and strategies
with other companies which are of same industry. Like Sewpart company may compare their
policies and plans with others to find out the issues.
KPI- A “key performance indicator” (KPI) is an index between two or more variables
which permit to know in a glance how the business is doing, what activities are creating or
destroying value for the evaluated business (Alyousef and Mickan, 2016).
Financial governance- It is a kind of management resource which set a legal and
operational framework to avoid the abusive use of power of the companies' shareholders on
regard the companies' stakeholders, and the preparation and consignation of wrong, or misstated
financial reports of the company which can escalate in more complex corruption cases.
This tool acts as a monitoring strategy because it consists the accountability and accuracy in the
financial data.
Difference between companies:
Basis Sewport Airdri
Financial issue This company's problem is of lack of
skilled workers and because of it
they are not able to manage
inventories effectively. It is resulting
in failure of meeting the need of
customers and lower sales.
Company's financial issue is of setting
right price of products and services.
Due to this their sell is increasing and
loss is increasing.

Accounting
system.
Their financial issue can be resolve
by applying inventory management
system. This why because if they will
apply this accounting system then
they will be able to track their
inventories. As well as can determine
about how much quantity of stock
they need to produce. This will help
them in keeping the stock up to date.
Thus their sell will increase by
meeting the need of customers on
time and financial problem will be
overcome.
It is necessary for them to overcome
from the issue and this can be done by
applying price optimisation system.
This method can be beneficial in setting
the prices at right level. Additionally,
this method assigns the prices of
products on the basis of customers
reaction on different pricing levels.
Thus their financial issue will be
resolved.
Characteristic of good management accountant:
Grasping ability-An good accountant should have ability to grasp the all happening
financial transactions in less time (Hodges, 2012).
Acceptable personality- The personality of an accountant in the above respective
organisation should be acceptable by all the employees (Flamholtz, 2012).
CONCLUSION
As per the report this can be concluded that MA is very important for companies in
internal decision making. In report various kind of accounting systems and reports are
concluded. As well as income statement is produced by absorption and marginal costing system.
Apart from it role of cost accounting system and price optimisation system is also concluded to
resolve financial issues.

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