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GRAFTON COLLEGE OF MANAGEMENT

SCIENCES

ASSIGNMENT BRIEF UNIT NO 5


MANAGEMENT ACCOUNTING

PEARSON BTEC LEVEL 5


HND IN BUSINESS
Unit 5| Management Accounting

QUALIFICATION: PEARSON BTEC LEVEL5 HND IN BUSINESS


Unit 5: Management Accounting
Unit code: H/508/0489 Unit type: Core
Unit level: 4 Credit value: 15
TQT: 150
Assignment Title: Application of management accounting principles on General
Sportswear Ltd.
Author: Muhammad Ismail Internal Verifier: Muhammad Touseef
Assignment Approval Date: 20th Dec 2016 Date Issued to Learners: 23rd Jan 2017
Draft Submission Date: 30th Mar 2017
Final Submission Date: 21st April 2017

Aims & Objectives of the Assignment

The overall aim of this unit is to introduce the fundamentals of management accounting which apply to the
wider business environment and the organisations which operate within that environment. Students will
explore how management accounting uses financial data to aid planning decisions, and the monitoring and
control of finance within organisations.
On successful completion of this unit students will be in a position to present financial statements in a
workplace context and be able to assist senior colleagues with financial business planning. In addition,
students will have the fundamental knowledge and skills to progress onto a higher level of study.

Learning Outcomes
By the end of this unit a student will be able to:
1. Demonstrate an understanding of management accounting systems.
2. Apply a range of management accounting techniques.
3. Explain the use of planning tools used in management accounting.
4. Compare ways in which organisations could use management accounting to respond to financial
problems.

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Unit 5| Management Accounting

Essential Unit Contents

LO1 Demonstrate an understanding of management accounting systems

Introduction to management accounting:


What is management accounting? Definition of management accounting.
What is a management accounting system?
Why is it important to integrate these within an organisation?
Explore the origin, role and principles of management accounting.
The distinction between management and financial accounting.

Different types of management accounting systems:


Cost-accounting systems, inventory management systems, job-costing systems and price-optimising
systems.
Benefits of different types of systems.

Presenting financial information:


Why information should be relevant to the user, reliable, up to date and accurate.
Why the way in which the information is presented must be understandable.
Different types of managerial accounting reports.
LO2 Apply a range of management accounting techniques

Microeconomic techniques:
What is meant by cost? Different costs and cost analysis.
Cost-volume profit, flexible budgeting and cost variances.
Applying absorption and marginal costing.

Product costings:
Fixed and variable costs, cost allocation.
Normal and standard costing, activity-based costing and the role of costing in setting price.

Cost of inventory:
Definition and meaning of inventory costs and different types of inventory costs.
The benefits of reducing inventory costs to an organisation.
Valuation methods.
Cost variances.
Overhead costs.

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Unit 5| Management Accounting

Essential Unit Contents


LO2 Apply a range of management accounting techniques

Microeconomic techniques:
What is meant by cost? Different costs and cost analysis.
Cost-volume profit, flexible budgeting and cost variances.
Applying absorption and marginal costing.

Product costings:
Fixed and variable costs, cost allocation.
Normal and standard costing, activity-based costing and the role of costing in setting price.

Cost of inventory:
Definition and meaning of inventory costs and different types of inventory costs.
The benefits of reducing inventory costs to an organisation.
Valuation methods.
Cost variances.
Overhead costs.

LO3 Explain the use of planning tools used in management accounting


Using budgets for planning and control:
Preparing a budget.
Different types of budgets (e.g. capital and operating).
Alternative methods of budgeting.
Behavioural implications of budgets.

Pricing:
Pricing strategies.
How do competitors determine their prices?
Supply and demand considerations.

Common costing systems:


Actual costing, normal costing and standard costing systems.
How cost systems differ depending on the costing activity: job costing, process costing, batch
costing and contract costing.

Strategic planning:
Applying PEST, SWOT, balance scorecard or Porters Five Forces analysis to the financial position of
an organisation.

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Unit 5| Management Accounting

Essential Unit Contents

LO4 Compare ways in which organisations could use management accounting to respond
to financial problems

Identifying financial problems:


Using benchmarks, key performance indicators (financial and non-financial) and budgetary targets
to identify variances and problems.

Financial governance:
Definitions of financial governance, and how this can be used to pre-empt or prevent financial
problems.
Using financial governance to monitor strategy.

Management accounting skill sets:


What are the characteristics of an effective management accountant?
How can these skills be used to prevent and/or deal with problems?

Effective strategies and systems:


The development of strategies and systems which require effective and timely reporting, full
disclosure of financial positions and are responsibly owned and governed.

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Unit 5| Management Accounting

Vocational Scenario- General Sportswear


General Sportswear is a medium sized enterprise which manufactures sportswear. It has been registered
as private limited company in 2009. It manufactures and sells its own brand sportswear namely:
Supreme- topmost brand for quality conscious;
Deluxe- good quality with medium range price; and
Regular average quality with low price.

The company has 3 outlets in prime locations of London besides having a head office to control all the
affairs. The close competitor is Premier Sportswear and they are having 5 outlets, 3 of them are very close
to the existing outlets of General Sportswear.

The company has its manufacturing set up near Manchester where they produce a number of sportswear
which they sell under their brand name, as mentioned above. This manufacturing set up was started in
June 2010 with a small manufacturing plant but over the years the production has increased many fold.
There is no proper management accounting system. Mr. Alex Burton is the manufacturing manager, who is
a relative to the director, is the in charge of the accounting set up of the manufacturing unit, who does not
have any background of management accounting. He prepares all management accounting reports on
excel sheet. The reports which are being prepared do not reflect a true cost of the product being
manufactured since it varies significantly every month. The variation ranges from 10% to 20%, which is
beyond understanding for the manufacturing manager.

All the shares are owned by the family members. In the recent board meeting, directors decided to recruit
a junior management accountant to streamline these calculation and correct their reporting. You have
been selected as Junior Management Accountant (on Probation) for General Sportswear.

In the first meeting with your Mr. Alex Burton, you have been given some reports for the year ended Sep
2016.
General Sports Wear
Statement of Profit & Loss
for the year ended 30th Sep 2016
in "000 "
Sales 25,600
Cost of Sales 12,500
Gross Profit 13,100
Expenses:
Rent & Rates 1,100
Salaries 2,100
Advertisement 500
Administration Expense 600
Selling Expense 300
Depreciation 2,000
Total Admin & Selling Expenses 6,600
Profit before Interest & Taxes 6,500
Interest Expense 250

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Unit 5| Management Accounting

Profit before tax 6,250


Taxation 1,875
Net Profit 4,375

The following details have also been given to you:

Cost of sales consist of the following parts:


Direct material 40% of cost of sales
Direct Labour 25% of cost of sales
Rest of the cost of sales is Factory overhead

In the year ended Sep 2015 & Sep 2016, the detail of production is as under: Figures are in 000

Sep 2015 Sep 2016


Sales 23500 25600
Cost of Sales 13000 12500
Closing Stock Nil Nil
Physical stock finished 2500 1000
Goods in process (Approx.) 25% of closing stock 25% of closing stock

Note: All the goods in process and closing stock are part of the cost of sales.

You have also extracted the following data from the available records.

Sales Sep 2015 Sep 2016


Bifurcation Units Rate in Amount Units Rate in Amount
Product A 500,000 21 10,500,000 450,000 23 10,350,000
Product B 620,000 16 9,920,000 750,000 15 11,250,000
Product C 308,000 10 3,080,000 500,000 8 4,000,000
Total 23,500,000 25,600,000

Cost of Sales Direct Direct Labour Fixed Variable Fixed Variable


Bifurcation Material Admin O/H Admin O/H Selling O/H Selling O/H
Product A 22% 9% 40% 50%
Product B 12% 8% 30% 30%
Product C 6% 8% 30% 20%
Total as % 40% 25% 2,500,000 100% 300,000 100%

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Unit 5| Management Accounting

TASK
1 Task 1 covers Learning Outcome 1 & 2.

As a first task, Mr. Alex Burton, manufacturing manager, has asked you to prepare a report explaining
the role and function of the management accounts department, covering the management accounting
systems operating in the organisation as well as the range of techniques used.

Being a Junior Management Accountant (on probation), you need to submit a formal report to board
of directors which should consists of all elements of a formal report like title page, table of contents,
executive summary, context & background, main report with proper headings & subheadings,
conclusion and recommendations, if any. The recommended word limit is 2,0002,500 words,
although you will not be penalized for exceeding the total word limit. (Further details under
assignment notes below.)

You must include the following in your formal report.

A. An explanation of the principles of management accounting and give the essential requirements of
different types of management accounting systems in context of General Sportswear. (P1)

(For Merit)
What benefits can be achieved through effective implementation of management accounting in
General sportswear and evaluate these benefits. (M1)

(For Distinction)

In your presentation, you need to critically evaluate the integration of management accounting
systems and management accounting reporting in organisational process of General sportswear.
(D1)

B. In second part of your presentation, you have to identify and explain different methods used for
management accounting reporting which can be used in General sportswear with their
implications. (P2)

C. In third part, using marginal and absorption cost techniques, prepare an income statement for
General sportswear. (P3)

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Unit 5| Management Accounting

(For Merit)
With the help of available data, accurately apply a range of management accounting techniques
and produce appropriate financial reporting documents for both the financial year and compare
them. (M2)

(For Distinction)
Produce financial reports that accurately apply and interpret data for a range of business activities.
You need to work out variances in all three major cost for all the three products and evaluate them
with correct conclusion. Advise the management about the individual profitability of all three
products and what are the impact of revising the price of the products and profitability? (D2)

Grading Criteria
Pass Merit Distinction
L.O. 1: Demonstrate an understanding of management accounting
systems.

P1: Explain management accounting M1: Evaluate the benefits of D1: Critically evaluate how
and give the essential requirements of management accounting management accounting
different types of management systems and their application systems and management
accounting systems. within an organisational context. accounting reporting is
integrated within
organisational processes.
P2: Explain different methods used
for management accounting
reporting.

L.O. 2: Apply a range of management accounting techniques.

P3: Calculate costs using appropriate M2: Accurately apply a range of D2: Produce financial reports
techniques of cost analysis to prepare management accounting that accurately apply and
an income statement using marginal techniques and produce interpret data for a range of
and absorption costs. appropriate financial reporting business activities.
documents.

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Unit 5| Management Accounting

TASK
Task 2 covers Learning Outcome 3 & 4
2

Your formal report in the task 1 above was much appreciated by the directors and you have been
recruited on permanent footing in General sportswear as Junior Management Accountant. Mr
David Hamilton, who is a director in General Sportswear and looks after accounting and finance
matters of the organisation, asked you that he is interested in understanding that how different
planning tools will help the organisations in achieving its goals and objectives. Further, how
management accounting systems help to respond to different financial problems within General
Sportswear.
You need to prepare a power point presentation of at least 12 slides covering the following tasks.
These tasks should be linked to the given scenario of General Sportswear. This is an individual
submission and the learner need to present it in the form of a 10-minute individual PowerPoint
presentation and 5 minutes allocated for questions, panel of assessors and students can ask
questions.
The speaker notes will also be part of the task and it will submitted with presentation. The tasks
should be logically divided into different power point slides with appropriate main and sub-
headings. You also need to submit a bibliography using the Harvard referencing system. The
recommended word limit is 1,5002,000 words, including speaker notes, although you will not be
penalised for exceeding the total word limit.

A. What are the three most important planning tools for budgetary control you will recommend to
be used in General sportswear with their advantages and disadvantages. (P4)

(For Merit)
Analyse the use of your recommended planning tools in task A above and their application for
preparing and forecasting budgets. (M3)

B. You need to compare any other organisation with General sportswear and explain how
organisations are adapting management accounting systems to respond to financial problems.
(P5)
(For Merit)
As a next step, you need to analyse how General sportswear after adapting management
accounting system improving its profitability and could gain a sustainable success over the
period of time. You can use the financial data given in task 1 above (M4)

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Unit 5| Management Accounting

(For Distinction)
You have to evaluate how planning tools for accounting as discussed in above task respond
appropriately to solving financial problems to lead organisations to sustainable success.
Your answer should be in context of General Sportswear. (D3)

Grading Criteria
Pass Merit Distinction
L.O. 3: Explain the use of planning tools used in management LO3 & 4
accounting. D3: Evaluate how planning
tools for accounting respond
appropriately to solving
P4: Explain the advantages and M3: Analyse the use of different
financial problems to lead
disadvantages of different types of planning tools and their
organisations to sustainable
planning tools used for budgetary application for preparing and
success.
control. forecasting budgets.
L. O. 4: Compare ways in which organisations could use management
accounting to respond to financial problems.

P5: Compare how organisations are M4: Analyse how, in responding


adapting management accounting to financial problems,
systems to respond to financial management accounting can
problems. lead organisations to sustainable
success.

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Unit 5| Management Accounting

Submission Guideline
Students must observe the following submission guideline:

Hardcopy of the assignment should be submitted at the college reception on or before at 5.00 pm
on the date specified.
There is stipulated length for the work is given in each task. However, there is no penalty for
increase in word limit.
All work must be delivered in both hardcopy and softcopy versions. The softcopy should be
uploaded on to the MOODLE.
For security purposes, learners should keep both copies with them.
Sources should be acknowledged fully by referenced books, journals used and URL visited using
Harvard reference style. A good guidance is available on college MOODLE. You can also learn it in
your study skill sessions.

Assignment Notes

Learners are requested to comply with the following instructions on handing in their assignment work:
Work should be comprehensively referenced using Harvard style.
Sources must be acknowledged fully by reference books, journals used and URL visited along with
dates of visitation.
Use the Harvard Referencing System (see attached details).
All work should be word processed, font size of 12 and font style of Times New Roman/Arial.
Subtitles of the assignment should be in the font size of 14 and main title in font size 16.
Pages should be numbered in footer.
Spell check the document and read thoroughly for grammatical errors.
1.5-line spacing is preferable.
Reference at the end of the assignment.
All paragraphs containing text should be aligned in justified mode.

Plagiarism and collusion


Any act of plagiarism and collusion will be seriously dealt with according to the GCMS regulations.

In this context the definition and scope of plagiarism are presented below:

Using the work of others without acknowledging the source of information or inspiration. Even if
the words are changed or sentences are put in a different order, the result is still plagiarism
(Cortell 2003).
Collusion is described as the submission of work produced as a result of the collaboration between
two or more parties. Additionally, collaboration entails the sharing of one persons work with
others who submit either all or part of their coursework as their own.
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Recommended Resources

DRURY, C. (2015) Management and Cost Accounting. 9th Ed. Cengage Learning.
EDMONDS, T. and OLDS, P. (2013) Fundamental Managerial Accounting Concepts. 7th Ed.
Maidenhead: McGraw-Hill.
HORNGREN, C., SUNDEN, G., STRATTON, W., BURGSTALHER, D. and SCHATZBERG, J. (2013)
Introduction to Management Accounting. Global Ed. Harlow: Pearson. (This text is available
electronically and is supported by access to an online course)
SEAL, W. et al (2014) Management Accounting. 5th Ed. Maidenhead: McGraw-Hill.

Websites

www.cimaglobal.com
www.accaglobal.com

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Unit 5| Management Accounting

Harvard Referencing System


We expect students to use the alphabetical or name-date method known as the HARVARD system. There
are two parts in this system:

Citation within text or body of the report:

In this the author's surname and year of publication are cited in the text, e.g. (Bond, 2004).

Reference List:

A reference list (of these citations) is included at the end of the assignment, in alphabetical order by
author. The reference list also includes additional details such as the title and publisher. A bibliography
lists relevant items that you have used in the preparation of the assignment but not cited in your text. A
bibliography should also be in the Harvard style and the inclusion of such a list shows that you have read
widely beyond the items you have cited.

Examples of citation within text or body of the report:

Cormack (1994, p.32-33) states that................


............ This view has been supported in the work of Cormack (1994, p.32-33).
Jones (1946) and Smith (1948) have both shown
Corporate Author: 1st citation: Royal College of Nursing (RCN), 2007
2nd citation: RCN, 2007

Examples of listings in reference list:

1. Books with one author: Redman, P., 2006. Good essay writing: a social sciences guide. 3rd ed.
London: Open University in assoc. with Sage.

2. Books with two, three or four authors

The required elements for a reference are: Authors, Initials., Year. Title of book. Edition. Place: Publisher

Kirk, J. & Munday, R.J., 1988. Narrative analysis. 3rd ed. Bloomington: Indiana University Press.

3. Books with more than four authors

For books where there are more than four authors, use the first author only with surname and initials
followed by et al.

The required elements for a reference are: Author, Initials., Year. Title of book. Edition. (only include this if
not the first edition) Place: Publisher
Grace, B. et al., 1988. A history of the world. Princeton, NJ: Princeton University Press.

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4. E-books

For e-books the required elements for a reference are: Author, Year, title of book. [type of medium] Place
of publication: Publisher

Fishman, R., 2005. The rise and fall of suburbia. [e-book]. Chester: Castle Press.

If available at website:

Fishman, R., 2005. The rise and fall of suburbia. [e-book]. Chester: Castle Press.

Available at: libweb.anglia.ac.uk / E-books [accessed 5 June 2016].

5. Journal articles

Author, Initials., Year. Title of article. Full Title of Journal, Volume number (Issue/Part number), Page
numbers.

Perry, C., 2001. What health care assistants know about clean hands. Nursing Times, 97(22), p.63-
64.

6. Newspaper articles

Author, Initials., Year. Title of article. Full Title of Newspaper Day and month before page numbers of
article.

Slapper, G., 2005. Corporate manslaughter: new issues for lawyers. The Times, 3 Sep. p.4-5.

7. Journal articles from an electronic source

Boughton, J.M., 2002. The Bretton Woods proposal: an in depth look. Political Science Quarterly,
[online]. 42 (6), Available at: http://www.pol.upenn/articles (Blackwell Science Synergy) [accessed
12 June 2016].

8. Internet

National electronic Library for Health. 2003. Can walking make you slimmer and healthier? (Hitting
the headlines article) [Online]. (Updated 16 Jan 2016) Available at: http://www.nhs.uk.hth.walking
[accessed 10 April 2005]. The title of a web page is normally the main heading on the page.

9. E-version of annual reports

Marks & Spencer, 2014. Annual report 2013-2014. [Online]. Available at: http://www-marks-and-
spencer.co.uk/corporate/annual2013/ [accessed 4 June 2016].

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