Unit 5: Management Accounting Report - Penguin Sportswear Analysis

This report analyzes the application of management accounting principles and techniques within Penguin Sportswear Ltd., a medium-scale sportswear manufacturer. The assignment begins with an explanation of management accounting systems, methods, and their implications within the context of the company. It then proceeds to prepare and reconcile income statements using both marginal and absorption costing techniques, comparing the results and interpreting the data. Furthermore, the report explores the use of planning tools for budgetary control, evaluating their advantages and disadvantages for Penguin Sportswear. Finally, the report evaluates how organizations adapt management accounting systems to respond to financial problems, and the role of planning tools in achieving sustainable success, drawing comparisons with other businesses. The student, acting as a junior management accountant, addresses these points through a formal report to the board of directors, incorporating financial data, cost analysis, and strategic recommendations.

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Nilukshan Ravichandran Management Accounting WAT/B-004669
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Programme title Management Accounting
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Unit(s) Unit 5: Management Accounting
Assignment title Management Accounting
Student’sname Nilukshan Ravichandran
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Student Name/ID Nilukshan Ravichandran WAT/B-004669
UnitTitle Unit 5: Management Accounting
Assignment Number Assessor
Submission Date 31.10.2020 Date Received 1st
submission
Re-submission Date Date Received 2nd
submission
Assessor Feedback:
LO1 Demonstrate an understanding of management accounting systems
Pass, Merit & Distinction P1 P2 M1 D1
Descripts
LO2 Apply a range of management accounting techniques.
Pass, Merit & Distinction P3 M2 D2
Descripts
LO3 Analyse the use of planning tools used in management accounting
Pass, Merit & Distinction P4 M3
Descripts
LO4 Evaluate ways in which organisations could use management accounting to respond to financial problems
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Pearson
Higher Nationals in
Business
Unit 5: Management Accounting
Assignment 01

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Nilukshan Ravichandran Management Accounting WAT/B-004669
General Guidelines
1. A Cover page or title page – You should always attach a title page to your assignment. Use previous page as
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9. If you are proven to be guilty of plagiarism or any academic misconduct, your grade could be reduced to A
REFERRAL or at worst you could be expelled from the course

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Student Declaration
I hereby, declare that I know what plagiarism entails, namely to use another’s work and to present it as my own
without attributing the sources in the correct way. I further understand what it means to copy another’s work.
1. I know that plagiarism is a punishable offence because it constitutes theft.
2. I understand the plagiarism and copying policy of the Edexcel UK.
3. I know what the consequences will be if I plagiaries or copy another’s work in any of the assignments for this
program.
4. I declare therefore that all work presented by me for every aspects of my program, will be my own, and where
I have made use of another’s work, I will attribute the source in the correct way.
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between myself and Edexcel UK.
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attached.
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Assignment Brief
Student Name /ID Number
Unit Number and Title Unit 5: Management Accounting
Academic Year
Unit Tutor
Assignment Title Create Financial Reports using Management Accounting Techniques
Issue Date
Submission Date
IV Name & Date
Submission Format:
The submission should be in the form of an individual written report. This should be written in a concise,
formal business style using single spacing and font size 12. You are required to make use of headings,
paragraphs and subsections as appropriate, and all work must be supported with research and
referenced using Harvard referencing system. Please also provide a bibliography using Harvard
referencing system.
Unit Learning Outcomes:
LO1 Demonstrate an understanding of management accounting systems
LO2 Apply a range of management accounting techniques
LO3 Analyze the use of planning tools used in management accounting
LO4 Evaluate ways in which organizations could use management accounting to respond to financial
problems

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Assignment Brief and Guidance:
Scenario of Penguin Sportswear Ltd
Penguin sportswear (Hereafter referred as Penguin) is a medium scale enterprise which manufactures
sportswear. It has been registered as a private limited company in 2010. It manufactures and sells its own brand
of sportswear under following categories.
 Premium – High end brand for quality conscious customers
 Vantage – Good quality brands with medium price range; and
 Regular – Average quality brand with low price range
The company has 3 branches in main locations of Colombo besides having a head office to control all the
activities. The main competitor is Lanka sportswears and they have 5 branches and 3 of them are very close to
the existing branches of Penguin.
The Penguin has its manufacturing set up near Biyagama where they produce number of sportswear that they
sell under their brand names mentioned above. This manufacturing set up was started in January 2011 with a
small manufacturing plant but over the years the production has increased by many folds. There is no proper
management accounting system and Mr. Roy Perera is the manufacturing manager who is in charge of the
accounting department of the manufacturing unit, who does not have any background of management
accounting. He prepares all management accounting reports on MS excel. The reports that have been prepared
do not reflect the correct cost of the products manufactured since it varies significantly every month. The
variation ranges from 10% to 20%, which is beyond the understanding of the manufacturing manager.
All the shares of Penguin are owned by the family members. In the recent board meeting, the directors decided
to recruit a junior management accountant to streamline these calculations and correct the reporting. Assume
that you have been selected as the “Junior Management Accountant” on probation basis for Penguin.

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In the first meeting held with Mr. Roy Perera, you have been given the information about products and costs
relevant to May/ June months of the current year 2017.
Following is the income statement of Penguin sportswear, prepared by the company and provided to you for
further information.
Penguin sportswear
Income Statement
For the end of First month
The loss created a serious problem in the company. Some other relevant data is given below:
 Units produced during the first month: 50,000 units
 Units sold during the first month: 40,000 units
Variable costs:
 Direct materials: $2.00 per unit
 Direct labor: $1.60 per unit
 Variable manufacturing overhead: $0.40 per unit
 Variable selling and administrative expenses: $1.50 per unit
Other information
 Fixed manufacturing expenditure and Fixed Selling/Admin Expenditure will be applicable in same
amounts for the first quarter.
 Budgeted number of production units are expected to be 50,000 per each month.
$
Sales (40000 units x $10) 400,000
(Less) Variable Cost of goods sold (160,000)
Gross Contribution margin 240,000
(Less) Variable Selling & admin expenditure (60,000)
Contribution margin 180,000
(Less) Fixed expenditure
Fixed manufacturing expenditure 150,000
Fixed Selling & Admin Expenditure 40,000 (190,000)
(10,000)

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Nilukshan Ravichandran Management Accounting WAT/B-004669
Mr. Roy Perera, the manufacturing manager, has asked you to prepare a report explaining the role and function
of the management accounting department, covering the management accounting systems operating in the
organization as well as the range of techniques used.
Being a Junior Management Accountant (on Probation), you need to submit a formal report to the board of
directors. Your report should address following findings as supportive information.
Activity 01.
 Explain principles of management accounting in context of Penguin Sportswear Ltd.
 Explain different types of management accounting systems in context of Penguin Sportswear Ltd.
 Explain the different methods that can be used for management accounting reporting by Penguin
Sportswear with their implications.
Activity 02.
 Prepare company’s income statement using marginal and absorption cost techniques, for the second
month. Consider 50,000 units were produced & 60,000 units were sold in the second month and there
were no closing inventories
 With the help of available data, prepare reconciliation & discuss about the cost method used by the
company.
 Use Management reporting techniques to reconcile the second month’s net operating income under both
the costing approaches by interpreting the data available.
Activity 03.
Assume that the report that you presented in task 1 was much appreciated by the directors and you have
been recruited on permanent basis at Penguin as a “Junior Management Accountant”. Mr. Aravinda Rodrigo,
who is a director at Penguin and who looks after accounting and finance related matters of the organization
said that, he is interested to know how different planning tools will help the organizations in achieving its goals
and objectives. Furthermore, how management accounting systems help to respond to different financial
systems respond to different financial problems within Penguin.
You need to prepare a report covering the following tasks. These tasks should be linked to the given scenario
of Penguin.
 What are the most important planning tools for budgetary control that you recommend to be used at
Penguin? Explain the advantages and disadvantages to Penguin of applying the said tools.