Management Accounting: Methods, Budgetary Control, and Pricing Systems

This report discusses management accounting and its essential requirements, different methods used for management accounting reporting, calculation of cost using appropriate techniques of cost analysis, budgetary control with their advantages and disadvantages, and management accounting systems and their response towards financial problems. The report also covers various pricing systems and the balance card approach. The subject is Management Accounting, and the course code and college/university are not mentioned.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Management Accounting and their essential requirements...................................................3
P2 Different methods used for management accounting reporting.............................................4
TASK 2............................................................................................................................................5
P3 Calculation of cost by using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................5
TASK 3............................................................................................................................................9
P4 Budgetary control with their advantages and disadvantages.................................................9
TASK 4..........................................................................................................................................11
P5 Management accounting systems and their response towards financial problems..............11
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
The term accounting process relates with summarising, classifying and recording all
business transactions which are related with the financial accounts or monetary policy. Journal,
Ledger, trial balance, etc. are prepared which are easy to understand and this aids stakeholders to
compare them in order to monitor and check the account and profits of business. In simple terms,
management accounting is the process for summarising all details related with financial
statements of company. Rowlinson Knitwear is selected as an organisation for this report and
this is a well-known UK based cloth manufacturing business (Bleyen and et. al., 2017).
Moreover, this project will highlights on different types of management accounting systems with
their essential requirements and also different methods used for management accounting
reporting. In the present scenario, organisation is well-known for manufacture large corporate as
well as school wear so cost calculation method will also included in this report.
TASK 1
P1 Management Accounting and their essential requirements
The term management accounting is explained as the process of formulating management
accounts, reports and financial factors which provide accurate and reliable information related
with costing of data. Moreover, this is used by manager for control and manage constant
operations related with business. Management accounting also translate financial information
and data into useful information that are used for appropriate decision-making of business. In the
context of Rowlinson Knitwear, management is engaged in bulk production activities so it is
important for organisation to make accurate and effective decisions. Some types of management
accounting systems with their essential requirements are mention as follow:
 Product costing- The term product cost management accounting aids to identify all cost
which is related with formulation of products so this aids the manager for understand and
analyse all cost and expenditures related with production of products (Bruno and Lapsley,
2018). From the perspective of Rowlinson Knitwear, product costing is used to manage
overheads of business through monitoring and allocating the raw-material as well as
financial resources in an organised manner.
Essential Requirements

◦ To consider overall market- With include overall revenue management consider
that all cost factors related with market are included and this aids an organisation to
manage expenses in the decided budget. By engage of all valuable factor management
compute cost as per item requirement.
◦ To divide expenses- Management of Rowlinson Knitwear perform an important rile
to understand and identify the diversified expenses related with business. This refers
that product costing help to identify both fixed and variable cost related with
business.
 Cost accounting system- This is also explained as product costing system and it provide
the framework related with estimation of future cost (Grossi and et. al., 2019). From the
perspective of Rowlinson Knitwear this is understand that management accounting
analyse overall future cost and profitability of business. Within this cost accounting
accounting system provide appropriate costing and also budget cost that helps to allocate
various overheads of business.
Essential Requirements
◦ Forecasting- Future cost perform an important role for business because this aids an
organisation to formulate appropriate budget. From the perspective of Rowlinson
Knitwear cost accounting perform an important role to formulate budgets because this
helps by analyse cost of inventory, direct-material cost, fixed-cost, etc.
 Job-costing- The term job costing is explained as a method of determining cost related
with each manufacture units. In the present scenario, organisation that are engaged in the
manufacturing of single units easily estimate or calculate cost of business. One of the
most effective process of job-costing is to deliver all products as per their task
requirements and order request.
Essential Requirements- One of the major benefit related with job-costing system is to
manufacture and engage all those factors which are important to manufacture the task according
to the order request (Hadiyanto, Puspitasari and Ghani, 2018). This aids Rowlinson Knitwear for
utilise all resources in an optimise manner.
P2 Different methods used for management accounting reporting
Management accounting plays a crucial role for the internal management of the
respective organisation. This is because they are used for formulate policies and also define all

objectives according to the efficient functions of organisation. Moreover, management
accounting methods perform an important role for business because they include both financial
and non-financial transactions and this helps authorities to define and achieve all objectives in an
organised manner. Some methods of management accounting are mention as follow:
 Budget Reports- In the present scenario, budget reports are formulated by organisation
in each aspect because it aids each departments to perform their work with decided cost
(Harris and et. al., 2020). In addition to this, Budget reports are very crucial for the
respective organisation because it aids management for achieve all task according to
decided knowledge. Also, budget report is formulated with motive of improving financial
factors of business and this helps to understand how an organisation deal in the upcoming
period.
 Account Receivable Reports- This type of report are formulated by the financial
departments for analyse and identify the overall number of debtors which exists within
the current period. Rowlinson Knitwear formulate report because it helps to keep check
and monitor when the amount is received from debtors and which debtors are not clearing
their dues. In simple terms, account receivable report keep track and record the number of
doubtful debts.
With understand all systems or methods related with management accounting this is understand
that they are numerous relevance factors formulated and they relates with management
accounting methods. Decision-making is the first relevant factor related with accounting method
and this is used by internal organisation for make effective and appropriate decisions for business
(Koolmees, Bernstein and Makhni, 2021). Moreover, both budget and account receivable report
control the cost of business and this supports financial departments to improve overall
profitability of business that supports to achieve all objectives with no hindrance related with
monetary factors of business.
TASK 2
P3 Calculation of cost by using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs.
COST- The term cost is explained as an amount which is charged by organisation from
their buyers for their products or services. In the present scenario, one of the major task

performed by management is to manufacture their products with minimum cost. Furthermore,
this include all process and production values related with business.
Marginal Costing- This is included as the cost which is incurred by the organisation
when they are focused towards additional production factors. Moreover, with change in
production capacity such as addition of one more product aids towards additional of more units
and this aids an organisation to add high number of units. It is also beneficial because this aids to
produce more additional products until marginal revenue is more as compare to marginal cost.
Marginal costing method
Particulars Product X Prodct Y
Sales (units) 4600 3200
Selling Units 180 150 828000 480,000
Less:
Direct labour 36 24 165600 76800
Direct Material 30 24 138000 76800
Opening stock
-Closing stock
less: Variable production 24 16 110400 51200
Variable selling overhead 2 2 9200 6400
Contribution (A) 404800 268,800
Less: Fixed cist
Prduction overhead 210,000 210000
Administration overheads 54000 54000
(B) 264,000 264,000
Profit (A-B) 140,800 4,800
Absorption costing- According to the absorption method of costing actual amount of
cost which is included among the production process includes both fixed and variable cost
(Kudlák and et. al., 2020). Moreover, profitability cost as compare to marginal costing is less
because this includes both factors related with production.
Both techniques of the management accounting which includes the marginal costing as well as
absorption costing induced by companies because this helps them to calculate overall income
and profitability of business. Along with this net income that is calculated with use of marginal

costing techniques is high as compare to the absorption costing. This is because in marginal
costing only variable cost of production is considered. While, in absorption fixed-cost and
variable-cost both are engaged. Rowlinson Knitwear manufacture products in bulk so this is
important for management to engage both absorption and marginal costing methods.
Absorption costing method
Particulars Product X Prodct Y
Sales (units) 4600 3200
Selling Units 180 150 828000 480,000
Less:
Direct labour 36 24 165600 76800
Direct Material 30 24 138000 76800
Opening stock
-Closing stock
Contribution (A) 524400 326,400
Less: Fixed cist
Prduction overhead 210,000 210000
Administration overheads 54000 54000
(B) 264,000 264,000
Profit (A-B) 260,400 62,400
TASK 3
P4 Budgetary control with their advantages and disadvantages
Budget perform an important role for an organisation because it aids them to control the
overall cost of products and also profits of business. Internal management of the Rowlinson
Knitwear formulates budgets for maximise the productivity of business and it includes,
operational budget, master-budget, cash-flow budget, etc. Some of the major factors related with
types of company budget are mention as follow:
Operational Budget- The role of operational budget is to monitor and control all expenses
related with daily or routine activities of business. In simple terms, day to day operations of
company are managed by the operational budget of business and they are also required by
management to minimise additional expenditures (Liu and Wang, 2017).

 Advantages- One of the main advantage related with operational cost is that this
includes both cost and revenue which is incurred among daily operations. It aids to
control expenses that are not useful for business.
 Disadvantages- Sometimes daily expenditures are uncertain in nature and also important
to implement. Also, manufacturing organisation such as Rowlinson Knitwear perform a
lot of activities so formulation of operational budget is a time-consuming process.
Cash Flow Budget- Cash of an organisation is managed and controlled through utilise the cash
flow budget and this is also used for determine the inflow as well as outflow of organisation.
This results it is easy for management to control the overall cash and business factors related
with daily operations of business. Also, for managing daily cash requirements in an organised
manner cash flow budget are used to acquire and utilise all funds in a proper manner.
 Advantages- Budget aids an organisation for maintain the sufficient amount of cash
within the organisation and this results operational of company are not impacted due to
the monetary transactions of business.
 Disadvantages- This is difficult for business to maintain the inflow and outflow of cash
because of different small transactions which are done on daily basis among company.
Fixed Budget- This types of budget are formulated in the initial period of year and they are
utilised by management for record the cost or expenses that are fixed or permanent in nature.
Furthermore, fixed-budget are complex to modify in those cases in which organisation want to
change their production capacity (Nikitina, Litovskaya and Ponomareva, 2018).
 Advantages- With this budget an organisation is able to measure their overall growth
and profitability because of rigid or fixed nature of budget.
 Disadvantages- The major drawback of fixed-budget is that they are not modify as per
the requirement of production due to this they are not effective in future.
Master-budget- This budget are formulated by the manager for forecast overall amount of sales
within decided factors and it is also useful to gather the overall capital which is required to invest
and execute. Moreover, master-budget are formulated with purpose of deciding the performance
standards and plans related with business operations.
 Advantage- Budget perform an important role to determine the overall cost which is
related with the production process and it improves the total productivity of business.

 Disadvantage- Master-budget are prepared for achieve the specific production process
so after target overall accuracy and reliability of the information is minimised.
Various Pricing system Full cost pricing- According to the strategy of full cost pricing an organisation
determine the overall value of services or products which engage the direct-material,
direct-labour, etc. and also, all those systems cost that is incurred in process of
production.
 Cost plus pricing- This pricing method is considered as all those cost related factors that
includes overall cost and also all those basis which helps to add more unit of products.
In addition to Rowlinson Knitwear cost plus pricing aids for calculate overall overheads
of business.
TASK 4
P5 Management accounting systems and their response towards financial problems
Balance Card Approach- The main role of balance card approach is to align all
activities of the business and they are related with policies and objectives. With induce of
balance card approach each activity of the organisation is coordinated and evaluated by the
authorities in an organised manner (Patterson, McDonald and Hardy, 2017). Furthermore,
Rowlin Knitwear and other organisation arrange training sessions for the engaged workforce and
this helps the company for perform their task or project with more efficiency.
Some perspective of balance card approach are mention as follow:
 Customer and stakeholders- This relates with obligation of each organisation that are
performing their operations in the market. One of the main motive of the engaged
workforce is to offer good quality products that enhance overall wealth of stakeholders or
shareholders who are engaged in company operations.
 Financial- The main purpose or goal of each organisation is to enhance their overall
profits of business. In the context of Rowlinson Knitwear the current focus of the
financial manager and authorities is to attain a strong financial position among the
market. This aids management to enhance their overall profits by engage profitable
projects.

KPI- Key performance indicators are identified as one of the most effective tool to
measure the performance and also to compare them with actual performance of employees. In
the present scenario, management of each organisation compare their actual outcomes or
performance with the decided standards (Wang and et. al., 2018). Moreover, internal
management of each organisation analyse all variations in order to take corrective actions that is
required for rectify the current challenges or problems related with business. Along with this KPI
is used in different stages to evaluate the capability and success for accomplish the desired goals
and objectives of business.
ISSUE
To deal with all financial issue manager of the Rowlinson Knitwear utilise management
accounting systems. One of the major issue faced by authorities is that the number of profits is
constantly reducing and the rational behind this is not use of company resources in an optimise
manner. Therefore, the main focus of organisation is to learn and induce KPI methods because it
helps for evaluate overall capability related with each department of organisation.
CONCLUSION
With the discussion of above report this is concluded that management accounting
perform an important role for internal management to formulate all those policies that define and
accomplish company objectives and goals. Financial positions and trends of the market are also
analysed through induce appropriate management accounting techniques. Furthermore, the report
also conclude about different budgets and this assist the manager of an organisation to decide
appropriate performance standards of business. Budget report, job-costing report, etc. perform an
important role to formulate policies and it support internal management to enhance overall
performance. In the last, absorption and marginal costing method are used for generate the
accurate income statement for business.

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