Management Accounting Report: Financial Decision Making at Stitchland

This report offers a comprehensive analysis of management accounting, focusing on its application within the context of Bright Star financial consultancy and its client, Stitchland Ltd. The report begins by defining management accounting and its significance, contrasting it with financial accounting, and detailing various accounting systems such as cost accounting, inventory management, and price optimization. It then explores different types of management accounting reports, including cost accounting, accounts receivable aging, and performance reports. The report further delves into cost analysis, covering cost volume profit analysis, flexible budgeting, cost variance, and different costing methods like absorption and marginal costing, along with valuation methods like LIFO and FIFO. Finally, it examines planning tools such as budgeting, capital budgeting, and their advantages and disadvantages. The report provides insights into financial decision-making and strategic planning within a business environment.

Management Accounting

INTRODUCTION
Management accounting refers to preparation accounts and reports which will render
exact and timely statistical as well as fiscal data that is requisite by management for making day-
to-day short- term decisions. It arranges financial along with non-financial information within
organised way (Laudon and Laudon, 2015). Accounting system is referred to accounting process,
that will furnish reports to managers by which they can formulate plans as well as policies with
respect to future. This report is based on Bright Star financial consultancy, they are responsible
for serving various organisations such as Stitchland Ltd. This report also deals with different
management accounting systems, costing methods for presentation of income statements. Along
with this, usage of planning tools & management as well as accounting systems for measuring
financial crises has been elaborated.
TASK 1.
P1 Explicate management accounting as well as necessary obligations of diverse accounting
systems.
Management accounting: It refers to system which is related to internal governance of
organisation by which usage of resources can be maximised. With respect to Stitchland Ltd
organisation, utilise these accounting system while carrying out their manufacturing operations.
Management accounting system: It is a kind of a system that is liable for arrangement of
monetary as well as non-financial data of organisation within effectual way with an aim of
formulation of decision (Plumb and et. al., 2017). It is necessary for Stitchland Ltd to have
knowledge associated with management accounting.
Significance to incorporate assorted accounting systems in firm: Various kinds of
accounting systems assist within computation of cost along with inventory management system
that are beneficial for Stitchland Ltd for effectual management of stocks. It also renders price
optimisation which will furnish a framework for identification of prices.
Origin, role and principle:
Origin: It can be monitored through revolution within time frame in organisations of
England. Along with this conceptual framework of accounting is evolving from years.
1

Principles: The accounting system comprises of major generalities, they are value,
relevance, influence & trust (Hilton and Platt, 2013). All these principles have significant
importance and assist to attain effectual results with respect to these.
Distinguish among management & financial accounting system:
Basis Management accounting system Financial accounting system
Significance Internal stakeholders of Stitchland
Ltd are aided by management
accounting.
This system will assist both external
and internal shareholders of
organisation.
Duration of time There do not exist any peculiar time
for formulation of records within
this accounting system.
In this case Stitchland Ltd, prepares
financial statements of peculiar fiscal
year in its relevant end.
Management accounting types:
Cost accounting system:This denotes accountancy systems. This renders a framework for
estimation of cost associated with products (Hopper and Bui, 2016). It will assist organisation
like Stitchland Ltd to calculate entire cost associated with manufacturing as well as services. It
aids organisation that operates within manufacturing sections. Organisation has executed this
accounting system for managing as well as controlling entire cost associated with manufacturing
of clothes.
Inventory management system:It is associated with finding out goods within
manufacturing process or supply chain. It negotiate with quantity of raw materials as well as
finished goods through which organisation can take effectual steps respectively (Stein and et. al.,
2015). This the reason that, organisation formulate decisions with respect to purchase of raw
materials. Bright Star financial consultancies, client organisation Stitchland Ltd can utilise these
scheme to carry their activities.
Price optimisation system:It renders basis for determination of price at an effectual level.
It is responsible for assigning prices by taking into consideration cost as well as profit acquired
by organisation and satisfaction level of their customers. This accounting system is responsible
for fixture of appropriate prices of services as well as products offered by Stitchland Ltd as they
need to furnish clothes at appropriate price to their customers.
2

Job costing system: It is liable to assign as well as compute job of cost associated with
diverse operations separately. Finally, this system is utile for those entities in which various jobs
as well as activities are allotted for every operation (Turban, Volonino and Wood, 2015). Like
Stitchland Ltd get details of price associated with fabrication operations through this system.
Advantage of management accounting systems:
Cost accounting system: It is important for organisation, figure out value associated
with different activities as well as operations. It is necessary for Stitchland Ltd to make use of
accounting system as by this they will be able to get entire cost associated with clothes
fabrication.
Inventory management system: This denotes monitoring stocks accessibility within
their warehouse. With respect to Stitchland Ltd they can pull off the stock with respect to
designed clothes through their usage.
Price optimisation system: It will aid in determination of prices of services which are
offered by firm (Lavia López and Hiebl, 2014).
Job costing system: It is usable within rendering info associated by cost for peculiar task
respectively. Along with this, it will aid to have information related with value within diverse
operations allotted for production processes within Stitchland Ltd.
P2. Explicate diverse activities of management accounting reporting.
Information system attributes:
 Reliableness: This dimension of information system which will make sure certain info is
furnished according to operations carried out within organisation.
 Accuracy: It is crucial for organisation to furnish appropriate information with respect to
internal reports associated with management accounting without any kind of error.
 Updated : Financial and non fiscal information must remain up to date with respect to
day to day to activities and transactions that are carried out.
Significance of existing informations: Information needs to be apprehensible for the purpose
associated with formulation of intrinsic records (Leitner, 2013). Apart from this, these
information will render framework through which better decisions can be made.
Types of reports:
Management accounting reports: They denotes crucial unit as through this
management can formulate inner determination. Along with this, reports are developed by
3

assistance of financial and non-financial transactions which have occurred within organisation
(Modell, 2014). For an instance within Stitchland Ltd organisation can prepare various reports
that have been illustrated below:
 Cost accounting reports: This comprises of info associated with entire value of diverse
operations and activities. Like Stitchland Ltd organisation furnish reports which aids
them in maintenance of cost associated with manufacturing processes.
 Account receivable ageing report: In this entire information is contained with respect
to collecting from debtors present within market. Along with this, it includes time period
at which transaction has been taken place.
 Inventory management report: It furnish information related with quantity of stocks
that are made acquirable within warehouses (Nielsen, Mitchell and Nørreklit, 2015).
Within Stitchland Ltd, management formulate crucial decisions with respect to
manufacturing of fresh products according to information furnished by report.
 Performance report: It comprises of information associated with employees
performance as well as diverse activities. Due to this organisation can access
performance of diverse factors independently. Like Stitchland Ltd can control execution
of these reports in an effectual manner.
TASK 2.
P3 Compute costs through usage of specific tools associated with cost analysis.
Cost: It denotes entire cost associated with expenditures that took place in between
diverse operations and activities within organisation. They can be divided into variable, fixed,
indirect, direct cost, etc. For an instance within Stitchland Ltd, various kinds of cost occurs such
as labour, material and many others (Senftlechner and Hiebl, 2015). Cost analysis denotes a
process in which entire cost associated with diverse activities is computed so that individual
monetary value is identified.
Cost volume profit analysis: It is analysis method, related to identification of deviation
in between profits and value. Its objective includes measure of fiscal situations according to
fluctuations within volume and cost. With respect to Stitchland Ltd they determine difference in
between these factors by carrying out analysis.
4

Flexible budgeting: It is associated with budgets that might be altered with respect to
varying volume and gross sales (Soin and Collier, 2013). With respect to Stitchland Ltd, utilises
these methodologies for changing relation in terms of sales of clothes.
Cost variance: This refers to alterations or variance within calculated cost and actual
cost of services. In context of Stitchland Ltd they identify variance in between cost associated
with manufacturing as well as approximated cost.
Marginal as well as absorption costing:
Absorption costing: In this type of technique, fixed as well as variable costing are taken
into consideration with respect to cost of product.
Marginal costing: It is associated with diverse form of absorption costing techniques. In
this, variable cost will be taken as unit cost but fixed cost is considered as period cost.
Cost allocation: It refers to process of allocation of overheads according to entire
operations (Ward, 2012). In context of Stitchland Ltd, they are responsible for assigning
expenditures according to diverse manufacturing activities.
Fixed cost: This is not associated with output level. It is a kind of a cost that do not alter
with respect to alterations within quantity of sales or production. Fixed cost is in the form of
telephone charge, rent, etc.
Variable cost: It denotes cost that is associated with fluctuations within productivity &
gross revenue quantity. By this, entire value has diverse quality with respect to fixed cost. Some
examples are material cost, overhead.
Standard costing: This signify cost that can be foreseen with respect to future time
period with respect to diverse activities (Wickramasinghe and Alawattage, 2012). Along with
this, it acts as major basis for making comparison in between actual performance. In context of
Stitchland Ltd organisation, they can make use of cost for analysing entire exact cost.
Activity based costing: This is associated with costing system in which cost is defined
with respect to diverse operations respectively.
Inventory cost: It is a kind of cost which comprises of price of storing, ordering,
carrying, etc. With respect to Stitchland Ltd, they determine cost associated with inventory for
managing entire cost.
Valuation methods:
5

LIFO: In this the resources which bought by Stitchland organisation at last were used at
beginning of their processes.
FIFO: This denotes stock which has been bought first is used initially by employees of
Stitchland organisation (Maas, Schaltegger and Crutzen, 2016).
Overhead: They includes expenses that leads to direct impact on labour as well as
material.
6

Income statement under absorption costing method for month of May & June
7

Income statement under Marginal costing method for month of May & June
8

9

Valuation of closing stock using LIFO and Weighted average method:
10