1.0.

Introduction
1.1. Origin of the Report
This report is prepared as a requirement of academic activities of the course Management accounting
under the supervision of Mr. Mohammed Sawkat Hossain, Lecturer and course teacher, Department of
Finance & Banking, Jahangirnagar University.
1.2. Objectives of the report
The main idea of making this report is to find out the differences between the knowledge which can be
obtained from books and at the same time real work place implication in the field of management accounting.
So this report primarily focuses on descriptive discussion on managerial accounting theory and its real
implementation. Therefore the report is aimed at covering those points carefully which already came to
known by analyzing farms cost accounting report with theoretical knowledge. It is also focuses on various
aspect of using managerial accounting knowledge in a companys day to day work to find out real cost of
production . However the research work finally produces a report which is an academic requirement. Also, at
the same time the report will generates useful building blocks for further studies on this subject that will help
both young learner and the user of managerial accounting at the same time.
1.3. Research Question & Scopes
The main research question of this report is
How the managerial concepts are used in Apex Spinning & knitting Mills Ltd?
To find out the answer of this question the factors that are included and excluded are given below:
Included are 1. Managerial Accounting and the Business Environment
2. Costs Terms, Concepts and Classifications in Management Accounting
3. Job-Order Costing of Management Accounting
4. Analysis and Use of Cost Behavior in Cost Accounting
5. Cost-Volume-Profit Relationships in Management Accounting
Excluded are
1. Process Costing of Management Accounting
2. Variable Costing of Management Accounting
3. Activity Based Costing of Management Accounting
4. Profit Planning of Management Accounting
5. Capital Budgeting Decision
6. Flexible Budgets and Overhead Analysis
7. Relevant Cost for Decision Making
1.4. Methodology
This is a descriptive report which secondary data The secondary data comes from the website of Apex and
annual report of Apex Spinning & Knitting Mills Limited. We people compute mathematical concept through
using various management accounting tools like contribution margin statement, CVP analysis, Absorption
and Variable costing system. Various published books and renowned management accounting websites helps
to great extent to complete our research work.
1.5. Limitations
There are some limitations in the completion of the report. As we say that, we do research through using the
secondary data. This secondary data are coming from the companys website. And all information are not
given in the website and internet. We try to do the work with some primary and internal data. But the
companys employee and management committee was reluctant to give any information regarding this. They
give only those information which are available in the website. Finally, we would like to conclude the
following things as the limitations of making the report.
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1. Access to information
2. Access to resources
3. Time management
4. Employees reluctance to give information
1.6. Delimitation
Though there is some limitations in the completion of the report, we try to do the best with the given
information given in the website and books.
1.7. Report Preview
This report is based on two terms. Firstly we describe the short history of the company. Then we try to solve
the mathematical problem regarding management accounting with the given data of the company.

2.0 Company preview (ASKML)

2.1. Mother company
It is a business enterprise of Apex textile complex. The ATC ( Apex Textile Complex) is running under the management
of Apex Holdings Limited. There are also 3 running company under ATC. Companies under AHL have been supplying
textiles to several large retail chains in the European Union and north America for the last 20 years and enjoy
prominent status with them.

2.2. Date of establishment

Apex Spinning and Knitting Mills Limited (ASKML) was incorporated in 1990 as a public limited company and listed
with our national stock exchanges, which are Dhaka Stock Exchange, and Chittagong Stock Exchange.

2.3. Head office

The head office of the company is situated at Rupayan Golden Age, 5 th & 6th Floor 99, Gulshan Avenue,
Gulshan, Dhaka-1212, Bangladesh.
2.4. Products
The company was initially formed for processing and export of knit garments, however subsequently, state of
the art plant and equipment was added for handling all kinds of knitted fabrics and now ASKML is a leading
manufacturer and exporter of all kinds of textiles knitted garments. The products of this company is polo
shirt, tee shirt, sweat shirt, fleece shirt, jogging pant for gents, ladies, kids.

Jogging
pant

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Picture 1: Products of ASKML

Source: www.apexknitting.com
2.5. Quality
All the knitted fabric is subjected to 100% inspection in accordance with the companys established quality
inspection standards, which are part of ASKMLs Internal Quality Management System. During the fabric
processing, they work in compliance with international standard and also follow OkO Tex 100 Standard.
During stitching & packing, AQL (Acceptable Quality Level) or In-Line Inspecting as well as AQL
(Acceptable Quality Level) or Final Inspection is carried out. Besides that they also comply with customers
supplied specifications reports.
2.6. Philosophy
The company believe that only by after providing our Customers with the Services and Products specified at
the requested time, and in the stated manner, they can claim to be a Quality Conscious Company, and expect
their Customer's continued patronage. Therefore, they as a Company must at all times ensure that all labor
participate in producing their products in accordance with their customer's requirements. Apex has an
enviable reputation as an international garment manufacturer and their reputation is based on a simple but
solid philosophy that runs through every phase of their business.
Quality is everything, and for that they continue to maintain compliance standard for their consumer markets
in the European Union and North America, and that has been their philosophy. To ensure quality their own
Quality Assurance Department (QAD), under the leadership of a highly experienced quality manager and a
team of well-trained quality inspectors are operating the QAD independently from the production team. They
are submit their reports directly & only to the upper key management personal. The QAD works very hard to
ensure the desired quality standards using the most sophisticated and modern laboratory equipment. Color
fastness, shrinkages are maintained to the world standard.
2.7. Research and Development (R&D)
This company uphold the demand for quality and spend heavily on the most advanced production facilities as
well as constantly upgrade both machineries and the technical knowledge of our professional staff. To keep
pace of their competitive edge, we constantly look for ways to improve our efficiency and try to offer our
customers with best possible prices by keeping our production costs low by employing economies of scale.
Development of new products has been one of the main objectives, to provide our customers with an
incredible amount of options to satisfy due to the ever-changing nature of the industries fashion demands.
The products developed with the help of our R&D team are competitive and of international standards.
2.8. Capacity

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The company has won worldwide reputation for our high quality standards for our
manufactured garments as well as unsurpassed management system. As were able to fulfill
these requirements they had received several export trophies over the years. The factory
manufactures various styles of Polo Shirts, Tee Shirts, and Sweats Shirts and currently exports
around 1.3 million pieces of garments every month to North America, Europe and South East
Asia. The knitting machines are of 5 to 16 gauges for flat knit and 18 to 28 gauges for circular
knit. Most of the circular knitting machines are imported from Germany and South Korea.

2.9. Marketing & Merchandising

Marketing & merchandising division's main function is to introduce ASKML to new buyers whenever the
opportunity arises. Some of the other tasks maintained by this department are to provide marketing samples,
analyze prices and preserve regular communication with existing buyers about their requirements. They also
provide development samples & prices for both old and prospective customers of ASKML. The
merchandising team is also responsible for allocating production blocks to existing buyers and follow up on
the fulfillment of the allocated space. This team is also the intermediate between the buyers and the factory
production team

2.10. Production process flow

The production process flow of is given below with the following diagram.
Figure 01: Process flow of ASKML

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Source: www.apexknitting.com

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2.11. Related company

The other related company along with ASKML are Apex Foods Limit (AFL), Apex Lingerie Limited (ALL),
Apex Yarn Dyeing Limited (AYDL), Matex Bangladesh Limited ( MBL), Apex textile printing Mills. All the
companies are reputed for their quality product.

3.0. Implementation Of Management Accounting concepts

We would try to complete research problem through the total implication of management accounting. For this
particular purpose, we would like to explain some of the topic then try to relate those ideas with the ASKML.
We therefore, like to show what we will explain throughout the report.
1.
2.
3.
4.

Costs terms, concepts and classifications

Job-order costing
CVP analysis
Absorption and variable costing

Now the implementation of each topic is described below in the perspective of ASKML.

4.0. Cost terms, Concepts and Classifications

4.1. Management Accounting and Financial Accounting
There are several differences between this two. Now the differences are given through a diagram:
Table 4.0. Differences between financial and management accounting
Financial Accounting
External
It is applicable in terms of FA
Reports and statements are a must in
FA

Management Accounting
Internal
It is not applicable in MA.
These are not mandatory
in MA.

It considers the whole organization

5.
verifiability
Vs relevance
6. Period

It should be verifiable and reliable

7.
inventories
(Activities)

Merchandising (Finished Goods)

Buy FG
Sell FG

8. COGS (I/S)

Beginning inventories
***
+purchase
***
FG available for sale
***
- Ending
COGS
***

It covers only production

unit
It must be relevant. It
means that the cost
should have relevance.
It focuses on future info./
predictions
It focuses on
manufacturing
inventories.
Buy RM(Raw
materials)
Conduct- WIP ( Work
In Process)
Complete FG
(Finished Goods)
Beginning FG
***
+COGM
***
FG available for sale
***
-ending
***
COGS

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Items
1.Users
2. GAAP
3.
Requirement
s
4. Subject

It focuses on the historical information

***

9. Balance
Sheet
10. Income
Statement

Considers merchandising inventory

It considers PURCHASE

Considers manufacturing
inventory
It considers COGM

4.2. Classifications of Costs

The cost can be classified in many different ways. The ways by which cost can be classified are given below :
1.
2.
3.
4.

Nature of cost
Cost by objective
Cost Behavior
Cost for decision making approach

4.2.1. Nature of Cost

The nature of cost under management accounting is given through the following chart
Chart 02: Classification of cost in terms of Nature
Nature of cost

Manufacturing Cost (Product Cost)

DRM

DL

MOH

Non-manufacturing cost
(Period Cost)
Marketing/
Administrative cost

selling

expense

1. Manufacturing Cost: Cost directly interlinked only with the operation or manufacturing department. Most
manufacturing companies divide manufacturing costs into three broad categories.

i.
Direct Raw Material (DRM)
ii.
Direct Labor (DL)
iii.
Manufacturing OverHead (MOH)
The description of each item and example is given below through the table.
Table 02: Description and example of manufacturing cost
Item Name

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Direct
raw
materia
l

Item description

Example in context
ASKML
Raw material that are directly involved Yarn, dyes and chemicals
with the production process are called
direct raw material.

of

Direct labor

The labor that directly helps or interlinked

with the production process are called
direct labor.
Administrative cost includes all executive,
organizational and clerical costs associated
with the general management of an
organization
rather
than
with
manufacturing, marketing or selling.

Manufacturing
overhead

Wages paid to the factory

workers
Yarn, dyes and chemicals,
wages and charges, carriage,
electricity etc.

2. Non-manufacturing cost: Non-manufacturing cost are those cost which are directly interlinked with
the marketing and selling expense, administrative expense. This cost is classified into two categories:
i. Marketing and selling expense
ii. Administrative expense
Now the description of each item is given below through the table:
Table 03: Description and example of non-manufacturing cost
Item Name

Item description

Example in context of ASKML

Marketing and
selling expense

Marketing and selling cost includes all

costs necessary to secure customer orders
and the finished product into the hands of
the customer. These cost are often called
order-getting and order-filling costs.

Advertising, shipping, sales

travel, sales commissions, sales
salaries and cost of goods
warehouses

Administrative expense

Administrative cost includes all executive, salaries, utilities, rent etc.

organizational
and
clerical
costs
associated with the general management
of an organization rather than with
manufacturing, marketing or selling.

4.2.2. Cost Behavior:

According to cost behavior cost can be classified into two categories. These are:
1. Fixed cost
2. Variable cost
Table 4.1.: Fixed and variable cost in terms of ASKML

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Item Name
Fixed cost

Description
Example in terms of ASKML
A fixed cost is a cost that Insurance, property taxes, rent,
remains constant in total supervisory
salaries,
regardless of changes in the administrative salaries
level of activity.

Variable cost

A variable cost is a cost that Yarn, dyes and chemicals,

varies in total, in proportion to wages and charges, carriage,
changes in the level of electricity etc.
activity.

Source: Annual report of ASKML 2011-2012

4.2.3. Cost Classification to cost objectives:

There are only two categories according to cost objective.
1. Direct cost
2. Indirect cost
1. Direct cost: a direct cost is a cost that can be easily and conveniently traced to the particular cost object
under consideration. It includes the cost of
i. Direct Raw Material
ii. Direct Labor
2. Indirect Cost: an indirect cost is a cost that can not be easily and conveniently traced to the particular cost
object under consideration. It includes the cost of
i. Manufacturing overhead
ii. Marketing and selling cost
iii. Administrative cost

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4.2.4. Cost for decision making approach:

In making decision there are three types of approaches in accordance with costs. These are:
i.
Differential cost and revenues
ii.
Opportunity cost
iii.
Sunk cost

i. Differential cost and revenues: It is the dispersion between cost & revenues. For instance,. For instance,
we assume that ASKML have 2 have two branches in one city. The employee of a company will prefer that
which will give him or her more benefits in respect to cost.
ii. Opportunity cost: Opportunity cost is a potential benefits that is given up when one alternative is selected
over another.
For example: When Apex Holdings Limited wanted to invest more money on its other business subgroup it
has to spend less money on ASKML. Because it wants to earn more money through ASKML.
iii. Sunk cost: A sunk cost is a cost that has already been incurred and that cannot be changed by any
decision made now or in future.
For example, the annual report of 2000 in 2012 is a sunk cost. Because that report has no impact over
decision making process of ASKML.
4.3. Measuring Cost Of Goods Sold
To measure cost of good sold of a manufacturing company we have to figure out step process.
i. RM
ii. WIP
iii. FG

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Table 4.2.: Measuring Cost Of Goods Sold ASKML (2011-2012 and 2010-2011)

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5.0 Job Order and Process Costing System:

The main purpose of managerial costing system is to provide cost data in order to help in planning,
controlling, directing and making decision.
5.1. Costing Process: Two costing systems are commonly used in manufacturing and in many service
companies.
1. Process costing: A process costing system is used in situations where the company produces many
units of a single product for long period.
Equation used to measure process costing system:
unit product cost = total manufacturing cost/total units produced
However, our selected company ASKML uses process costing system.
2.Job Order Costing: A job order costing system is used in situations where many different
products are produced each period.In this system,cost are traced and allocated to jobs and thanthe cost of jobs
are divided by the number of units in the job to arrive at an average cost per unit.
5.2. Raw Material Requisition Form
The materials requisition is a detailed document that (1) specifies the type and the quantity of materials to be
drawn from store room and (2) identify the job to which the cost of the materials are to be charged.
Figure 5.1: Raw Material Requisition form
Job.re.No:....................
Division/units:................
Description

Date:..................
Unit

Per unit cost

Total cost

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5.3. Job Cost Sheet

A job cost sheet is a form prepared for each separate job that records the materials and overhead cost charged
to the job.

Figure 5.2: A Typical Job Cost Sheet

5.4. Application Of Manufacturing OverHead (MOH):

There are two steps of incorporating MOH in Job-order costing process.
i.
MOH Base: To facilitate the allocation of manufacturing overhead to each job predetermined
overhead rate is calculated before the period begins.
POHR(Predetermined Over Head Rate)= Estimated total MOH cost/ Estimated total units.
ii.

MOH Applied: POHRActual activity

Figure 5.3: Determining the level of MOH applied
Dr
Cr
Actual MOH
XXX
Balance b/d
XXX
XXX

MOH
MOH applied
XXX
(POHR*Actual activity)=
XXX
XXX
Balance c/d
XXX

*** When MOH applied is > actual MOH

This credit balance is called MOH over applied and when
MOH applied < Actual MOH
This debit balance is called MOH under applied.
*Pearcos method:
i. Adjustment with COGS: In this mehod the difference is adjuseted with COGS.
ii. Adjustment with COGS, WIP, FG (Adjusting COGS, WIP or FG by making it debit or credit)
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Figure 5.3: Distribution of MOH under multiple item

Accounts

Balance

Proportion

COGS
WIP
FG
Total

XXX
XXX
XXX
XXX

XX%
XX%
XX%
XXX%

Distribution of
MOH (over or
under applied)
XX
XX
XX
XX

For MOH over applied the journal entry will be

MOH..
Dr. XXX
COGS .
Cr. XXX
WIP ..
Cr. XXX
FG
Cr. XXX

For MOH under applied the journal entry will be

COGS . Dr. XXX
WIP .. Dr. XXX
FG
Dr. XXX
MOH..
Cr. XXX

6.0 Cost Volume Profit (CVP) analysis:

Cost-volume-profit (CVP) analysis helps managers understand the interrelationships among cost, volume,
and profit by focusing their attention on the interactions among the prices of products, volume of activity, per
unit variable costs, total fixed costs, and mix of products sold. It is a vital tool used in many business
decisions such as deciding what products to manufacture or sell, what pricing policy to follow, what
marketing strategy to employ, and what type of productive facilities
6.1. Basics of Cost volume Profit analysis:
Contribution margin:
Contribution margin is the amount of remaining from sales revenue after variable expenses have been
deducted. Contribution margin is used first to cover fixed expenses. Any remaining contribution margin
contributes to net operating income. If the contribution margin is not sufficient to cover the fixed expenses,
then a loss occurs for the period.
The CVP analysis statement ASKML is given below through the graph.
Table 6.1: CVP analysis of ASKML
Per unit

In %

Sales
- Variable Cost
Contribution margin
-Fixed cost
Net profit

175
161
14

100%
92%
8%

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Items

Actual
(1,44,59,868 units)
2,52,44,40,000
2,32,41,60,000
2,002,80,000
18,34,50,000
1,68,30,000

Source: Annual report of ASKML 2011-2012

Contribution Margin Ratio (CM ratio) in terms of ASKML:
The contribution margin as a percentage of total sales is referred to as the contribution margin ratio.
The formula to calculate his ratio is
CVP ratio = (Contribution Margin/Sales) x 100
= (Unit contribution margin/unit selling
Price) x100
= 14/175 x 100
= 8%
Short cut approach to calculate change in net income by CM ratio
For instance we can assume that the net income ASKML is risen by 50,0000 taka. So the change will be like
this.
Change (increase/decrease) in sales = 5,00,000
X Change in contribution margin ratio =
8%
Change in Contribution margin
= 40000
6.2. Break-even Analysis
The level in which total revenue is equal to total cost is break-even level. It is also called no profit- no loss
point. Break even analysis is one of the important part of CPV analysis. It is designed to answer the questions
like how far sales could drop before the company begins to lose money.
Break-even analysis can be approached in two ways
Equation method
Contribution margin method
6.2.1. Equation method
The equation method centers on the contribution approach to the income statement. The format of the income
statement can be expressed in equation format as follows:
For computing break-even sales in units , we assume that break-even sales in units =Q , and the formula will
be like this:
Sales = Variable expenses + Fixed expenses + Profits
For ASKML the break-even sales in quantity will be175 Q= 161Q+ 183450000+0
Q= 183450000/14
=13103571
For computing break-even sales in taka, we assume that break-even sales in taka= x, we will contribution
margin to compute this.
Sales= Variable expenses + Fixed expenses + Profits
For ASKML the break-even sales in taka will be:
x= .92x+183450000+0
0.8 x= 183450000
x= 183450000/0.8
= 22,93,12,500
At the break-even point, profits are zero. Therefore, the break-even point can be computed by finding that
point where sales just equal the total of variable expenses plus fixed expenses
6.2.2. The contribution margin approach
The contribution method is actually a shortcut version of the equation method. This approach centers on the
idea that each unit sold provides a certain amount of contribution margin that goes toward covering fixed
costs. To find how many units must be sold to break even, divide the total fixed costs by the unit contribution
margin. So the formula stands
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Break-even point in units sold= Fixed expenses/ Per Unit contribution margin
For ASKML the breakeven sale will be= 1,83,45,0000/ 14
= 13103571
Variation of this method uses the CM ratio instead of the unit contribution margin. The result is the breakeven in total sales dollars rather than in total units sold. And this method is used particularly in those
situations where the company has multiple product lines and wishes to compute a single break-even point for
the company as a whole. The formula is :
Break-even point in total sales dollars= Fixed expenses/ CM ratio
For ASKML the Break-even sales in taka will be= 18,34,50,000/ .8
= 22,93,12,500
6.3. Margin of Safety
The margin of safety is the excess of budgeted (or actual) sales over the break-even volume of
sales. The margin of safety helps management assess how far above or below the break-even
point the company is currently operating. The formula to calculate the margin of safety is
Margin of Safety= Total sales Break-even sales
For ASKML the margin of safety will be
=2524440000-22993112500
`
= 22951127500
The margin of safety can also be expressed in percentage form. This percentage is obtained by
dividing the margin of safety in dollar terms by total sales:
Margin of safety percentage= (Margin of safety in dollars/ Total sales) x 100
Margin of safety in percentage = (Margin of safety in dollars/ Total sales) x 100
= (25244400002524440000) x 100
=91%
6.4. Operating Leverage
Operating leverage is a measure of how sensitive net operating income is to percentage
changes in sales. The degree of operating leverage is a measure, at any given level of sales, of
how a percentage change in sales volume will affect profits. It is computed by dividing
contribution margin by net operating income.
Degree of operating leverage = Contribution margin/Net operating income
For ASKML the operating leverage will be= 2,002,80,000/1,68,30,000

= 12

7.0. Absorption and Variable Costing

For instance we assume that the following things are happened in ASKML for the convenience of solving the
mathematical portion. We consider following things were happened in ASKML.
Table 7.1. Assumed description of cost in ASKML
Description
Amount
Sales (per unit)
50
Manufacturing cost:
Variable cost per unit produced
DRM
11
DL
6
14

Variable Over Head

Fixed cost per year
Selling & Administrative cost:
Variable per unit sold
Fixed per year

3
120,000
5
70000
Table 7.2 Detail of inventory
Year 1
0
10,000
8,000
2,000

Units
Beginning Inventory
Units Produced
Units sold
Ending inventory

Items
DRM
DL
Variable MOH
Fixed MOH
Total
Items

Table 7.1. Computing per unit product cost

Y1
Y2
11
11
6
6
3
3
12
20
32
40
Table 7.3. Income Statement (Absorption costing system)
Year 1
Year 2

Sales revenue
-COGS
Beginning inventory

5080,000

+ COGM
(3210,000)

320,000
64,000

-Ending
Gross Margin
(-) Selling and
admin cost
Variable selling
admin cost
Fixed selling and
admin cost
Net margin

Year 2
2,000
6,000
8,000
0

400,000

5080,000

400,000

(200032)
64,000
(406000)=
240,000
256,000

304,000

144,000

96,000

40,000
70,000

40,000
70,000
110,000

110,000

34,000

(14,000)

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4.2

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