Management Accounting: Principles, Systems, and Techniques

This report explains the concept of management accounting and provides essential requirements of various types of accounting management systems. It elaborates the various methods used for management accounting reporting and calculates the costs with the help of various techniques of cost analysis. It also provides a comparison between two organizations on the basis of the management accounting systems adapted by the organization in order to deal with the financial problems.

Management Accounting
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Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Explain the concept of management accounting and provide essential requirements of
various types of accounting management system. .....................................................................3
P2 Elaborate the various methods used for management accounting reporting.........................5
TASK 2............................................................................................................................................6
P3 Calculate the costs with the help of various techniques of cost analysis. Also prepare an
income statement with the help of marginal and absorption costs. ............................................6
TASK 3..........................................................................................................................................10
P4 Elaborate the various merits and demerits of different types of planning tools that are used
for budgetary control.................................................................................................................10
TASK 4..........................................................................................................................................12
P5 Provide a comparison between two organizations on the basis of the management
accounting systems adapted by the organization in order to deal with the financial problems.
...................................................................................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15
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INTRODUCTION
Management accounting is referred to the practice which involves identification,
measurement, analysis, interpretation and communication of the information in context of
finances to the managers. The aim of communicating the information is to accomplish the
organizational goals. The concept of management accounting varies from financial accounting as
the motive of management accounting is to facilitate the internal users of the organization to
formulate better and well informed decisions in context of business. Management accounting
focuses on improving the quality of the information that is passed to the management in terms of
operational metrics of business in terms of productivity which means that the information which
is material for the organization must only be passed on (Abdusalomova, 2020).
Rowlinson Knitwear is a United Kingdom based medium-scale manufacturing
organization. The organization was established in the year 1935. The organization became
employee owned in the year 2015 and is presently an accredited Living Wage Employer
(Honggowati and et.al., 2017). Rowlinson Knitwear aims to produce and supply garments of
high quality to the independent retailers of school and corporate wear. The study revolves around
the management accounting concepts of Rowlinson Knitwear. The report is divided into two
parts namely, part 1 and part 2. The study focuses upon principles of management accounting
along with the role of management accounting and management accounting systems.
TASK 1
P1 Explain the concept of management accounting and provide essential requirements of various
types of accounting management system.
Management accounting is referred to the practice which involves identification,
measurement, analysis, interpretation and communication of the information in context of
finances to the managers. Management accounting will facilitate effective and efficient decision
making at Rowlinson Knitwear (Azudin and Mansor, 2018).
There are various types of accounting management systems that can be used by an
organization. The management accounting systems that can be used by Rowlinson Knitwear are
explained below-
Cost accounting system
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Cost accounting system is referred to a system which provides an in depth assessment of
the various costs. The various costs that are calculated and assessed in a business are fixed costs,
variable costs, etc. The cost accounting system will facilitate Rowlinson Knitwear to make
estimations for the costs of their products. It will also help the organization to make a
profitability analysis along with inventor valuation and cost control. The cost management
accounting system will help Rowlinson Knitwear to take effective decisions in aspect of the
growth of the organization.
Essential requirements for Cost accounting system
 Costing accounting system requires the organisation to identify various methods and
techniques in order to determine the cost level in an effective and efficient way.
 The cost accounting system requires the organization to identify a set of procedure with
specific steps in order to fulfil the goals and objectives of the organisation (Burritt, and
et.al., 2019).
Job costing system
Job costing system is basically an assessment various types of job costs in an
organization. In case of Rowlinson Knitwear, it is very important for the organisation to apply
the management accounting system that will help in identification and control of the job costs.
Essential requirements for job costing system
 It requires identification of job costs that will help the organization to take suitable
actions in aspect of the organisation.
 Appropriate steps need to be followed in order to enhance the profitability of the
organization.
Inventory management system
Inventory management system is referred to an accounting system which introduces
various methods and techniques in order to assess the level of inventory available at the
organization. This method will allow Rowlinson Knitwear to maintain an appropriate stock of
inventory at the organization.
Essential requirements for inventory management system
 Inventory management system requires an organization to keep a track of stocks that is
stocked in the organisation (Hariyati, Tjahjadi and Soewarno, 2019).
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 Inventory management system requires high level of effectiveness and efficiency in the
management.
Price optimization system
Price optimization system is a management system that will help the organization to
focus upon the identification of right costs. The identification of right cost will help the
organization to achieve better profits. Hence it is important for Rowlinson Knitwear to use prices
optimization strategy in order to determine the prices in a suitable manner.
Essential requirements for price optimization system
 It requires prediction of various prices in accordance with level of demand in the market.
 It requires effectiveness and efficiency during the price identification.
P2 Elaborate the various methods used for management accounting reporting.
Management accounting reports is referred to the reports that help the organization to
analyse and interpret the efficiency of goals and objectives of the organization. These reports
play a significant role in the decision making process at Rowlinson Knitwear in order to make
conclusions and recommendations for the growth of the organization. The various management
accounting reports that can be followed by Rowlinson Knitwear are discussed below-
 Job costing reports- The job costing reports help the organization to determine the job
costs of an organization in a equitable manner. It is suggested for Rowlinson Knitwear to
use Job costing report in order to analyse the job cost of the organization and further
determine the approaches that can be adopted in order to reduce the job cost. It is
important for the organization to reduce its job costs in order to increase the profits of the
organization (Crovini and Ossola, 2021).
 Departmental reports- Departmental reports allow the organization to analyse the level
of performance of the organization. Hence, analysis of performance will help the
organization to take better decisions for future. Departmental reports will help Rowlinson
Knitwear to track the efforts of the organisation that will further help in improving
effectiveness and efficiency (Sisaye, 2021).
 Inventory management reports-Inventory management reports helps the organization
to ensure that the organization is maintaining the suitable level of stocks. It is important
for the organization to maintain the appropriate level of inventory in order to perform
with proper efficiency and effectiveness. Rowlinson Knitwear can use the approach of
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inventory management so that the organization does not lack the inventory level and have
a better performance that will ultimately lead to better profits.
 Performance reports- Performance report will help the organisation to assess the
various steps that are being taken by the organization to enhance the production level of
the organization. Performance report will help Rowlinson Knitwear to assess the
deviations that can abrupt the performance of the organization and further take corrective
actions in order improve the performance (Bufoni, Ferreira and Oliveira, 2018).
TASK 2
P3 Calculate the costs with the help of various techniques of cost analysis. Also prepare an
income statement with the help of marginal and absorption costs.
Calculation of cost-
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It is important for the organization to ascertain and assess the various costs. Various techniques
in order to assess the costs. The techniques are explained below-
Marginal costing
Marginal costing is a technique which allows the organization to calculate the variable
cost of units and to write off the fixed cost against contribution. The technique helps in
ascertaining the actual profits of the organization that will prove to be helpful for the
organization in future. Hence, it is important for the management of Rowlinson Knitwear to use
the technique in an appropriate manner in order to determine the profitability level of the
organization.
Advantages-
 The technique of marginal costing is quite easy to apply in the organization as it is
considered as a simple procedure (Abdusalomova, 2019).
 The technique is helpful in order to formulate decisions in the organisation. It will help
the management of the organization to take right decisions.
Disadvantages-
 It is very difficult to segregate the various types of overheads when the organization goes
for this technique. The technique ignores the fixed overheads. Hence, there is a probability that wrong
conclusions can be drawn.
Absorption Costing
Absorption costing is a technique that helps the organization to assess the right costs in
order to determine the right course of action for the organization. It is important for the
organization to use the technique of absorption costing appropriately so that the needs and
requirements in terms of resources can be assessed in an effective and efficient manner. It will
help the organization to enhance the profit levels. Hence, it is important for Rowlinson Knitwear
to use the technique in an effective manner (Latan and et.al., 2018).
Advantages-
 The technique helps an organization to ascertain the level of overheads in a suitable
manner. It is important for Rowlinson Knitwear to calculate the overheads in an optimum
manner so that the organization can control its cost effectively and efficiently.
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 This technique facilitates apportionment and allocation of overheads in a more suitable
way. Hence, absorption costing will help Rowlinson Knitwear to identify the overheads
needs suitably (Kostyukova And et.al., 2018).
Disadvantages-
 Absorption costing is not suitable in order to draw decisions in the organization.
 Absorption costing does not highlight various costs. Hence, the use of technique will
affect the organization.
It can be concluded that both the techniques are important for the business in order to
take right decisions. These will help in improving the effectiveness and efficiency of the business
organization.
TASK 3
P4 Elaborate the various merits and demerits of different types of planning tools that are used for
budgetary control.
Budgetary control is basically a financial jargon which is used for the management of income
and expenditure. The budgetary control helps the organization to compare the planned income
and expenditure with the actual income and expenditure. This helps in identifying whether the
correct actions have been taken or not. Rowlinson Knitwear must apply the planning tools of
budgetary control in order to take appropriate actions as per the predictions. The various
planning tools that can be used by Rowlinson Knitwear are explained below-
Cash Budget
Cash Budget is referred to a budget that helps the organization to predict the cash receipts
and cash expenditures. The cash budget allows the organization to use the cash in an appropriate
manner. Hence, Rowlinson Knitwear needs to use cash budget as a planning tool in order to
forecast its cash transactions.
Advantages-
 The cash budget will allow Rowlinson Knitwear to formulate the decisions in a suitable
manner (Qian, Hörisch and Schaltegger, 2018).
 The budget will facilitate the organization to have a control upon the cash receipts and
cash expenditures of Rowlinson Knitwear.
Disadvantages-
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 The preparation of cash budget at Rowlinson Knitwear might affect the flexibility of the
organization in terms of cash expenditure. The preparation of cash budget requires a lot of time, cost and efforts and hence has an
impact over the performance of the organization which may decrease the productivity of
the organization (Weetman, 2019).
Sales budget
Sales budget is basically a prediction of sales of a particular organization over a period of
time. It is important for the organization to manage the revenue from sales with the help of a
particular budget. It is important for Rowlinson Knitwear to prepare a sales budget in order to
ensure right management of sales of the organization in an effective and efficient manner that
will help the organization to acquire appropriate revenues.
Advantages-
 Sales budget facilitates an organization to compare the present or the actual sales with the
sales that have occurred previously. It will help the organization to make conclusions and
recommendations that will enhance the productivity of the organization.
 Sales budget will help the organization to determine the actions that need to be taken in
future. This will further help the organization to take appropriate decisions in an effective
and efficient manner.
Disadvantages-
 A sales budget can not be considered fully accurate. The reason behind this, is that future
is unpredictable and any unforeseen circumstances might affect the predictions in terms
of sales. The preparation of sales budget requires a lot of time, patience and efforts. This might
decline the productivity of the employees of the organization and hence the performance
of the organization will also decrease (Hiebl and Richter, 2018).
Master Budget
Master budget consists of all the budgets that are prepared by the organization. It includes
predictions in case of cash flow, financial statement and a financial plan as well. The master
budget provides a broad overview of the finances of an organization. Master budget is
considered as a central planning tool in an organization which allows the organization to achieve
its goals in a smooth manner. (Rikhardsson and Yigitbasioglu, 2018).
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Advantages-
 The master budget helps the organization to make estimations in an appropriate manner
and hence it is termed as beneficial for the organization.
 The master budget will help the organization to forecast various expenditures of the
organization. The forecast of expenditure will facilitate the organization to operate in an
effective manner.
Disadvantages-
 The master budget does not offer a specialisation of a certain area. Thus, it can be
difficult for the organization to draw analysis and interpret in accordance with a
particular area.
 The master budgets require time and patience as these are difficult to read and update
further. Hence, this may decline the productivity of the organization.
TASK 4
P5 Provide a comparison between two organizations on the basis of the management accounting
systems adapted by the organization in order to deal with the financial problems.
Financial problem is referred to a situation wherein an organization faces financial crisis.
Hence, it can be noted that financial problem has an impact upon the positioning of funds.
Rowlinson Knitwear also faces various financial problems in terms of overheads and inventory
management. The various financial problems faced by Rowlinson Knitwear are discussed below
in detail-
 Increase in overheads- Rowlinson knitwear has experiences a rise in their overheads. As a
result, the cost of the organization has been rising rapidly. The rise in cost will directly
impact upon the profits of the organization which are likely to decline (Pavlatos and
Kostakis, 2018).
 Improper inventory management- Another financial problem that is faced by Rowlinson
Knitwear is that the organization is lacking capabilities in order to manage its inventory.
Hence, it is having a negative impact upon the organization as it will decrease the
financial position of the organization (Pedroso and Gomes, 2020).
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It is very important for the Rowlinson Knitwear to solve and reduce the financial problems that
are occurring in the organization. The various solutions that can be implemented by Rowlinson
Knitwear in order to solve the financial problems are discussed below-
 KPIs- Key performance indicators are quite important and plays an important role in
improving the performance of the organization. Rowlinson Knitwear can use the
technique of Key Performance Indicator in order to solve the problem of the
organization in context of solving the problem in context of overheads. With the help of
key performance indicators, the organization will be able to cut down its overheads and
reduce the total cost which will lead to higher profits.
 Benchmarking- Benchmarking is referred to a technique wherein appropriate standards
are set. The organization then has to work upon its objective in context of the standards
set. The technique of benchmarking will be able to help the Rowlinson Knitwear in
order to cope with the financial problems. The problem of inventory management that is
being faced by the organization can be solved with the help of Benchmarking technique.
A comparison has been made between the two organization in terms of management accounting
concepts. The comparison has been drawn between Tesco and Sainsbury's.
Basis Tesco Sainsbury's
Financial
problem
It is noted that management of Tesco
fails to maintain the job orders in a
suitable manner. Therefore, it is
likely to create an impact upon the
organizational efficiency.
The financial problem that is being faced
by Sainsbury's is that the organization is
not able to decide the prices in an
appropriate manner. Hence, this is
resulting in a negative impact upon the
organization (Rikhardsson and
Yigitbasioglu, 2018) .
Application
of the system
Tesco is capable of applying the
system while ensuring that the job
orders are being managed in an
effective and efficient manner. This
will help in increasing the
performance level of the
Sainsbury's is applying the system in order
to ensure that the prices are decided in
context of the level of demand in the
market. It will help the organization to
manage the needs and requirements of the
organization. Basically, it will help in
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organization with the help of suitable
resources.
deceasing the cost of production of
Sainsbury's.
Management
accounting
system used
The management accounting system
that is being used by Tesco is The
Job Costing system. The use of job
costing system at Tesco will help the
organization to get rid of the
financial problems in terms of
inventory management and increased
overheads.
In order to get rid of financial problems,
Sainsbury's is using the price optimization
strategy. The price optimization strategy
will help the organization to keep a check
on overheads.
It can be concluded from the above differentiation that Rowlinson Knitwear needs to take
notes from the management of Tesco and Sainsbury's. The techniques used by Tesco and
Sainsbury's will help in inspiring Rowlinson Knitwear to tackle with their financial problems.
CONCLUSION
It can be concluded from the study that management accounting plays a significant role in
an organization. Management accounting is referred to the practice which involves identification,
measurement, analysis, interpretation and communication of the information in context of
finances to the managers. The study highlights the various accounting systems such as cost
accounting system, job accounting system and inventory accounting system that can be used by
the organization to enhance their productivity. Various accounting reports such as job costing
reports, Inventory management reports, departmental reports and performance reports are
discussed in context of the organization. The report shows calculation of costs with the help of
various techniques such marginal costing and absorption costing along with the various planning
tools of budgetary control such as cash budget, sales budget and master budget that help in
avoiding unnecessary costs in the organization. The report highlights the concept of financial
problem along with the financial problems such as rising overheads and inventory management
that are being faced by the organisation.
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REFERENCES
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Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
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