Management Accounting and Systems: A Case Study of Rowlinson Knitwear

This report discusses different types of management accounting reports and systems, along with costs, for Rowlinson Knitwear. It also explores the benefits and drawbacks of planning tools for budgetary control.

MANAGEMENT
ACCOUNTING

Table of Contents

INTRODUCTION
Management accounting is referred as an accounts management system which is linked to
the analysis, interpreting and monitoring of financial data so that internal decisions related with a
company can be taken in a proper manner. This accounting system is essential for a firm as data
stored in these systems helps manager of a company to formulate appropriate plans and polices
(Adler, 2018). This allow a firms to gain competitive advantage over rivals. This report is written
in context with Rowlinson Knitwear which is a UK based clothing manufacturing company,
situated in Stockport, England. Company earns revenues of around 11.8 million pounds and
employ 30 employees. This assignment is going to discuss about different types of management
accounting report and systems along with costs so that an appropriate income statement can be
formulated. Also, benefits and drawbacks associated with planning tools to control budget is
mentioned.
TASK 1
P1 Mention about management accounting and provide basic requirement for various kind of
management account systems
Management accounting is the procedure in which business operations and costs are
analysed so that income & financial reports related with company can be formulated in a proper
manner. This will allow the manager of firm to take right decisions so that high business
advantage can be gained without any compromise. It benefits the concerned company in gaining
long term benefits against rival firms. This system is mainly used by manufacturing companies
so that information related with inventory, textile, spendings and earnings can be managed in a
systematic manner (Ahmad and Mohamed Zabri, 2015).
Role of management accounting
 Planning: With the help of management accounting, a manager can acknowledge the
accurate information about accounts of a company. This will help them in formulating a
plan so that efficient business strategies can be formed and high advantage can be gained.
 Control: By using management accounting and associated aspects, manager in
Rowlinson Knitwear can compare their actual performance by expected performance so
that required modifications in organisational work can be carried out.
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 Decision-making: This is another important role of management accounting. With the
help of identified facts and figures about accounts, the accounts manager of a company
can take right decisions so that concerned business can earn high revenues.
Differences in management accounting and financial accounting
Management accounting Financial accounting
 It reports about the aspects which are
causing problem in company along
with measures to resolve them.
 It is related with formation of
operational reports that are distributed
within workplace only.
 It reports upon the profitability and
efficiency of a business.
 It is concerned with preparation of
financial statements that are distributed
in and outside organisation.
In relation with Rowlinson Knitwear, management accounting will benefits the firm in
manage their costs and productivity so that high level of profit margins can be acquired. Below
are mentioned different kinds of management accounting systems along with their role in
organisational work:
Price optimisation system: Main purpose associated with this system is to identify all
the costs which takes place while manufacturing a product. Different costs in this context are
selling costs, promotion cost, production costs etc. This system of management accounting
acknowledge about product life cycle, goal level, price strategy etc. which helps a firm in
formulating right business strategies. This system will benefits Rowlinson Knitwear in shaping
demand and reaction of their clients at different price levels. As product demand is linked with
cost, hence this system will benefits Rowlinson Knitwear in adjusting their price moderately so
that a proper balance between profits and sales can be maintained. By this, customer base of
company can be retained for maximum time.
Inventory management system: This system of management accounting is used by
manufacturing companies to keep a track on their inventory. By using this system, a business
firm can check if it has needed material to carry out their production process in an efficient
manner or not. Appropriate management of inventory will ensure Rowlinson Knitwear about
manufacturing of products without wasting any material (Alsharari, Dixon and Youssef, 2015).
There exist varied kind of inventory management systems which are stated below:
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 First in first out (FIFO): In this process, those inventories which are purchased earlier
are considered as a priority during manufacturing of products.
 Last in first out (LIFO): As per this process, material and resources which are
purchased last will be used for production as a priority.
 Average cost method (AVCO): In this procedure of inventory management system,
stock available to company is utilised on Average basis. This means average of stock is
selected for production and used for manufacturing purpose.
In case of Rowlinson Knitwear, main raw material required by company are raw fabrics
and cotton bundles so that manufacturing of clothes can take place. Manager of company can
adopt FIFO method so that no resources and raw material will be put on hold for larger time
span. Due to this, all the resources will be used in timely manner and production cost of
company will reduce. By this, high revenues will be earned without any complexities.
Job order costing system: This system is mostly used when a company is dealing with
orders of an individual customer. As requirements of a customer is considered here, it is called as
Job order costing system. Here, every job cost is tracked in a separate manner and allow the
manager to identify the amount of material, resources and man power required to finish the
order. Rowlinson Knitwear is a cloth manufacturing company which provide customised school
and corporate wear to their customers as their requirement. Hence, this system will allow the
company to perform their work systematically so that high profits and revenues can be earned
(Chiarini and Vagnoni, 2015).
P2 Discuss various methods to manage accounting reports
Management accounting reporting is a procedure which allows a company to formulate
income and management reports in accordance with the facts & information given by
management accounting systems. There exist different type of reports which allow a company to
manage their data in a systematic manner. In context with Rowlinson Knitwear, different
management accounting reports are stated beneath:
Budgetary reports- These reports are prepared to measure the actual performance of
company by comparing outcomes with expected outcomes. This is an internal report which
allows a firm to analyse the issues and performance management at workplace. With the help of
these reports, budget of a company is prepared and important financial decisions are taken. In
case of Rowlinson Knitwear, manager of company can use this report to evaluate their actual
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performance within marketplace by identifying if company is spending less or more capital then
expected amount. This will allow them to acknowledge if they are earning profits or not (Cooper,
Ezzamel and Qu, 2017).
Cost managerial accounting reports- This report includes all the information and facts
related with different costs of a company spend during production of services or products. This
type of report involves information linked with labour overhead, direct cost material cost etc.
With the help of this cost, manager in Rowlinson Knitwear can check and monitor information
related with costs and also evaluate those activities which requires high expenses. To formulate
these reports, cost accounting system is needed. Concerned company can use these reports to
analyse the cost for different business activities in a proper manner. This will helps them in
removing those activities which are not profitable. Hence, high productivity will be maintained
at company.
Inventory cost report- It includes information associated with resources, materials and
other stock present in warehouse for production process. By using these reports, a company can
identify and check the quantity of stock present for manufacturing purpose. Also, these reports
involves the information associated with demand and supply of product. Manager in Rowlinson
Knitwear can use this report to acknowledge their ordering, storage and carrying costs along with
identifying the amount of resources present in warehouse (Hiebl, 2014). By this, company will
not face shortage of materials while production and good sales can be earned.
M1 Evaluate the benefits of management accounting systems including their applications in
organisational context
Their are several benefits are attached with management accounting that assist financial
department of an organisation to manage and control their finance in appropriate manner. Some
benefits of management accounting system is mention as follow:
Types of management accounting system
Inventory management system: This system will benefits Rowlinsin Knitwear in
understanding and finding out the actual needs of inventory and available stock so that
manufacturing of products can take place in a proper manner. Appropriate record of inventory
will benefits Rowlinson Knitwear in giving clear instructions to employees about the stock
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which must be used before. This will allow the company to reduce wastage of materials and
resources (Jamil and et. al.,2015).
Job costing: This management accounting system will benefits Rowlinson Knitwear in
recording transactions about each job, work and operations. By this, company will be able to
allocate various costs in a systematic way so that transactions can be managed in a proper
manner.
Price optimisation system: Benefits associated with this system in context with
Rowlinson Knitwear are completion of work in minimum amount. This system will allow the
firm to eliminate their extra activities so that expenses can be carried out in an optimal manner.
D1 Critical evaluation of management accounting systems and reports in integrated
organisational procedures
To gain high advantages, manager in Rowlinson Knitwear is required to have integration
in their management accounting reports and systems. This will benefits the concerned company
in gaining strategic advantage against rivals. Integration of systems and reports of management
accounting will assists a company in attaining its goals in timely manner. Without the use of
accounting systems, it is not possible for a firm to prepare accounting reports. For example, to
prepare inventory management report, manager at Rowlinson Knitwear will needed to use
inventory management system. Hence, these two process are needed to work in an integrated
manner (Modell, 2014). Without these reports, manager of a company will not be able to
formulate strategies and tactics as per market situation. Hence, these reports are important for
systematic work at workplace. This shows the integration of management accounting reports
with organisational processes of a business firm.
TASK 2
P3 Calculation of costs by using different techniques of cost to formulate and income statement
including absorption and marginal cost
Cost is defined as an amount that is paid by a person for purchasing a service or product.
It is defined as a monetary value that is given by consumer to the manufacturer or retailer in
return of a commodity. Cost associated with a product include resources evaluation, raw
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material, time required etc. To prepare income statement for Rwolinson Knitwear, two kind of
costs will be used i.e. marginal costing and absorption costing.
Marginal costing: It is a method in which fixed costs and variable costs of a company
are used to prepare income statement. Variable cost is unit cost and fixed cost is considered as
period cost in marginal costing (Nielsen, Mitchell and Nørreklit, 2015).
Absorption costing: This kind of costing captures all kinds of costs which is linked with
product manufacturing. This costing method involves variable and fixed cost as a single entity.
This cost will benefits Rowlisnson Knitwear in providing accurate & correct data for inventory
purpose.
Financial data on assumption basis:
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M2 Apply different type of management accounting techniques and prepare financial report
document
There are different techniques of management accounting which will allow an
organisation to prepare financial reporting & documents like profits and loss statement, balance
sheets etc. by using tools like cost financial system and financial statement analysis, financial
position of company against rivals & marketplace can be identified in a proper manner.
D2 Prepare a financial report that properly interpret information and data for varied business
activities
By implementing LIFO method, units and stocks of organisation are valued at the price
of 3.75. by implementing AVCO, closing stock of company is predicted at 3.45 price. Due to
this, manager in Rowlinson Knitwear is able to take fast and rational decisions. Also, this
financial report will help the manager to find appropriate cost for their services or products.
Comparison in AVCO and LIFO method show that using LIFO will be costly for the company.
Hence, to achieve long term advantages, manager of concerned company can use absorption
costing method. In this method, company will be able to earn high profits and revenues in
comparison with marginal costing (Renz and Herman, 2016).
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TASK 3
P4 Mention the merits and demerits of various kind of planning tools for budgetary control
Budgetary control is an instrument where cost associated about a product is inspected and
planned for upcoming time period. The relation among different plans allow a company to
manage deviations in their budget and expenditures.
Types of planning tools
Cash budget: This budget allow a company to accomplish their work in a specific time
period and within estimated price. It will benefits Rowlinson Knitwear in planning their daily
expenses in a systematic manner. Main intention of manager to use this budget is to plan their
daily expenses without harming the profits of company (Senftlechner and Hiebl, 2015).
 Merits: This budget will benefits Rowlinson Knitwear in completing their work without
any extra expenses and cost. By this, company will not face shortage of cash while
performing business activities. Due to this, overall profitability of firm will rise.
 Demerits: Main disadvantage of this budget is that it involves only those transactions
that can be completed via cash. Online transactions and digital payments are not
considered by this budget.
Master budget: This budget of a business firm involves information associated with
investment, expenses, production level, sales, future expenses etc. other than this, information
related with loans and other transaction are also included in this budget. Rowlinson Knitwear can
use this budget to involve content associated with income statements, financial transactions and
balance sheets so that strategic plan for future can be prepared effectively.
 Merits: This budget will benefits the cornered company in delegating duties and work
efficiently in different department of company so that organisational work can be carried
out in a systematic way (Spraakman and et. al., 2015).
 Demerits: Disadvantage of this budget is its rigid and complex structure due to which
managing and modifying it is a time consuming task. Preparing this budget is very time
consuming.
Flexible budget: It is an organisational budget which flexes with required changes in a
comfortable manner. This budget is highly sophisticated in nature and more appropriate &
beneficial than a strategic budget. This budget involves a variable rate for each activity unit
rather than having a fix single amount.
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 Merit: This budget forces the manager to consider different scenario and frameworks.
Hence, for a single situation, manager have several choices. Flexible budget helps in
reducing stress of company as carrying out changes in budget are very easy.
 Demerit: This budget do not provide one outcomes and remain variable through out the
time. This budget assists a company in spending more than their limit due to which
overall profits of company are compromised.
M3 Evaluate the use of planning tools along with their applications in preparing and forecasting
of budget
There exist various planning tools like master budget, cash budget etc. which helps a
business firm in taking right decisions linked with finance. By this, a firm is able to attain its
organisational objectives and goals in a proper manner. For example, master budget will cover
all the statements and transactions of Rowlinson Knitwear due to which if a firm is needed to
carry-out change in one report, its impact on other processes can also be identified. Hence, an
appropriate budget can be prepared by using these tools.
TASK 4
P5 Comparison how business firms are adopting systems of financial accounting to solve their
financial problems
Financial problems are issues that are faced by a company due to shortage of money and
funds. Below are mentioned some financial problems that are faced by Rowlinson Knitwear:
Lack of cash flow: Rowlinson Knitwear faces this issue when company Spends more
income than their earning. Due to which, shortage of capital is faced by company.
Unexpected expenses: This situation is faced by a company when budget of a company
is inappropriate and do not add all the costs and expenses which are required to accomplish a
work (Turner and et. al., 2017).
To solve these problems, below are mentioned some management accounting techniques
which can be used by the manager in Rowlinson Knitwear:
Key performance indicator: It is an effective tool which helps a firm in determining
performance level of workers. By using this tool, a company can do monitoring and decision-
making in a proper manner so that strategically advantageous business decisions can be taken.
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By this, company is able to evaluate and compare its present & past performance. Also, KPI will
allow the staff of Rowlinson Knitwear to accomplish their work with more efficiency.
Bench-marking: Here, a company perform their work by considering performance of
other company as a standard mark. This will allow the concerned company to gain advantages
over market leader with the help of business strategies and tactics. With the help of
benchmarking a company can compare quality, costs, time needed to complete work and
customer satisfaction with the results of market leader. By this, Rowlinson Knitwear will be able
to accomplish their goals and targets in effective manner.
Financial governance: It is defined as the manner in which an organisation gathers,
monitors, manage, and control the financial information in an appropriate manner. It includes the
basic procedure through with manager in Rowlinson Knitwear will be able to track their fiancnail
performance, control data and manage their performance in a proper manner. By this, overall
productivity and profitability of firm will improve.
Rowlinson knitwear Aston Martin
 It is a cloth manufacturing company
which faces financial problem of
unexpected expenses due to
improper budget formulation.
 This company manufactures luxury
sports car and grand tourers. Firm
offers financial services to their
customers. This firm is facing the
issue of lack of cash flow while
managing their business operations.
 To overcome this issue, manager of
firm can adopt KPI so that
performance of employees and
organisation can be monitored in a
proper manner. To eliminate this
issue, job costing system can be
used so that costs can be allocated
 To overcome this issue, manager in
company can adopt Benchmarking
technique so that performance of
company with other manufactures
can be measures and extra expenses
can be eliminated. Manager can use
inventory management system so
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for different jobs in a proper manner
(Van der Stede, 2017).
that tracking of required material for
production can be performed
properly.
M4 Analyse how, management accounting system deals with financial problems to gain
organisational success
KPI which is a management accounting approach benefits a firm in monitoring of their
non-financial and financial performances so that high business growth can be acquired.
Benchmarking technique assists in searching for best practices so that business activities can be
evaluated properly. Manager in Rowlinson Knitwear needs to implement these processes so that
issues of spending more amount than earning can be resolved. Also, these approaches will allow
the company to earn profits by reducing expenses due to which achieving organisational success
will became easier.
D3 Evaluate how the planning tools of accounting responds to resolve financial issues to achieve
sustainable success for organisation
Planning tools benefits a firm to produce programmes and strategies so that future
situations and uncertainties can be dealt in a proper manner. There are different planning tools
which helps a company to overcome their financial issues so that sustainable success can be
gained by company. Planning tools like cash budged, zero budget helps in reducing excessive
expenses due to which overall cost of company can be managed. By this, a firm can resolve their
financial issues in a proper manner (Weetman, 2019).
CONCLUSION
As per above given report, it can be comprehended that there exist different kind of
management accounting systems like Job cost system, inventory management systems which
allow a firm to prepared different reports like job cost report, inventory reports etc. so that
organisational work can be performed systematically. Marginal and absorption are two types of
costs which benefits in formulation of income statement of company. Planning tools like master
budget and cash budget allow a company to forecast their budget. Tools like KPI, benchmarking
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etc. helps a company to resolve their financial issues with the helps of management accounting
systems.
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