Effective Management Accounting Systems: A Case Study of R.L. Maynard Limited

R.L. Maynard Limited uses various management accounting systems, including high-quality materials, lean accounting, transfer pricing, and budgetary control, to reduce financial problems and improve the company's performance. The use of these systems enables the company to utilize raw materials effectively, eliminate extra expenses, and make informed decisions. By adopting these management accounting approaches, R.L. Maynard Limited can overcome financial constraints, enhance its productivity and efficiency, and ultimately increase its revenue and profit levels.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is a process where different kinds of reports as well as accounts
are prepared with help of various financial transactions. Further, by this the entrepreneur able to
decide that whether the company is performing well in the industry or not and take corrective
actions if it generates negative return. In the present case study, there is R.L. Maynard Limited
organisation is selected which is UK based small enterprise as well as operating in the
construction segment. It has 24 number of employees along with 10.00 GBP sales at the end of
financial year. The report shows numerous kinds of systems and approaches of management
accounting which are required for the R.L. Maynard Limited in order to give response to the
financial obstacles. Further, it describes that what are differences among the absorption as well
as marginal costing method. Beside this, current study focuses on different tools of financial
planning used by the company to make it more profitable in the UK's construction sector.
TASK 1
P1 Explanation of different management accounting systems along with requirements in R.L.
Maynard Limited
Business Report
To,
Board of Directors,
R. L. Maynard Limited
Date: 20th April 2017
Subject: Management accounting systems
Throughput accounting system: It is a term of management accounting which are used
for the performance measurement. Throughput accounting is way to measure all financial aspect
in R. L. Maynard Limited. It mainly discusses on cash factor. Throughput accounting is differed
from the cost account in cost accounting we measure overall cost investing in company but in
throughput account mainly focus on cash, which means mainly focus on what revenue ratio is
generated and how much we loose (B Douglas Clinton CMA and CFM, 2012).
Lean accounting system: Lean accounting is a term of management accounting where
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managed all over the manufacturing environment. And in this accounting system management
will focus on the cost factor. Like indirect cost or direct cost. In this accounting system measure
all the occurring cost in R. L. Maynard company. This accounting system is less complex
accounting system. Lean accounting is managed by the managers and make sure about the
reduce all in direct expenses in an organization. Lean accounting is focus on reducing indirect
cost and increase productivity. Control over the lean production company increase their
performance and increase revenue.
Transfer pricing: In this type of accounting system company transfer its product to
subsidiary company, whereas company transact with the other subsidiary company. Transfer
price is also known as transfer cost (Otley, 2016). Most of the time transfer cost increase
addition cost and time consuming which is negative for R. L. Maynard. Extra manpower will be
required to execute this system. Moreover, transfer prices some times creates dysfunctional
behaviour between among employees and organisations. Transferring cost accounting system is
expensive system rather than others.
Budgetary control: It is a process of determine actual budget of the organisation and
control over the all costing. Budgetary control is established for future planning forecasting and
requirements expected performance of the R. L. Maynard in construction industry. Budgetary
control is helpful to elimination of wastes and increase in profitability. Budgetary control is a
way to difference between actual costing to estimated costing. Budgetary control is a process to
control over the all expenses such as indirect expense or direct expenses. Reducing all those
expenses are help to increasing productivity and generating revenue. One of the main
disadvantage of budgetary control for R. L. Maynard is uncertain future, whereas sudden
changes are greatly high impact on estimated budgets.
Inventory accounting: Inventory accounting system is based on properly control over
the manufacturing system as well as production system. Inventory control system is an internal
system of control, where check internal all stock inventory, along with reducing over
manufacturing. In this accounting system company has to be information about the inventory
control system (Boyns and Edwards, 2013). Inventory control system is beneficial for the R. L.
Maynard whereas less stock wasted. Inventory control system is relay on LIFO and FIFO
system, where product manufacture in last but sale at their first. On other side product would be
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manufacture at firstly that it will be sale out firstly. In R. L. Maynard inventory control system
is check periodical in specific time. Inventory control system is less expensive and beneficial
for an organisation.
P2 Various methods of management accounting reporting in R.L. Maynard Limited
Business Report
To,
Board of Directors,
R. L. Maynard Limited
Date: 20th April 2017
Subject: Different methods of management accounting reporting
Reporting to management about the companies financials is used to take suitable actions
towards the growth of the organization. These report helps R. L. Maynard to make decisions for
the future of the organization. Also, to access the financial nature of organization. It includes
findings with supporting evidences in the form of other reports. Some of these reports are:
 Job cost report: job cost reports provides information about the status of a job that in
how much time it will get completed and also helps to figure out the time it will take to
finish the task from a cost and revenue perspective. Talking in context with construction
company like R. L. Maynard job cost report includes every cost incurred on the project
from its actual to standard cost (Abdel-Maksoud, Abdallah and Youssef, 2012). Through
job cost report a company can evaluate the job's profitability. This helps identify earning
areas of business.
 Payroll report: A payroll report in the construction business of R. L. Maynard includes
calculation of overtime, job hour tracking, workers compensation, new hire reporting,
bonus pay, double-time pay, commission pay, sick pay, etc. It is basically related to the
payment for the services that are taken from the workers. Managing workers'
information is also a part of payroll report within workplace of R. L. Maynard .
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 Cost accounting report: This report consists of various costs which is allocated on
different tasks in the particular project. This particular report helps R. L. Maynard to
analyse the allocation of costs likes direct cost, indirect cost, etc. Cost accounting report
gives the broad view of what budget was and how much actual expenses will have
incurred in the firm. In cost accounting report R. L. Maynard measures actual cost with
the standard/expected cost.
 Report of budget: Budget reports are made to analyse the performance of the
operations of the R. L. Maynard. Mainly consist of those expected expenses which are
based on the historical data i.e previous projects expenses. Budget report helps R. L.
Maynard to go according to the budget we have. It shows the funds we are remaining
with to complete the project. In budget report we compare actual expenses or cost with
the expected one's (Sleihat, Al-Nimer and Almahamid, 2012).
 Report of revenue: While it is necessary to perform quality operations to run a business
it is also necessary to generate revenue from those operations as well as to grow the R.
L. Maynard in the construction industry of UK. So here these reports helps us to know
that our business is earning sufficient revenue to meet the cost of other projects as well
as the other petty things. Revenue report helps management of R. L. Maynard to identify
the financial position of the organization.
 Manufacturing report: Manufacturing report includes the purchase of raw materials,
how much allocation of raw materials have been done, cost incurred on the production,
expenses related to repair and maintenance, labour related issues-bonus provided,
overheads, etc. All those tools which are used in manufacturing unit of R. L. Maynard
are covered in manufacturing report. Here in manufacturing report budgeted material,
budgeted production cost is compared with actually incurred material and cost in the
projects within working environment of R. L. Maynard.
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TASK 2
P3 Preparing income statement as per absorption and marginal costing methods
Income statement (I/S) shows that the company is generating profit or loss at the end of
an accounting year. With this management able to derive net income position of the R.L.
Maynard and compare with construction industry as well (Ward, 2012). In this regard, there are
mainly two methods used by the firm such as marginal and absorption costing. On the basis of
such techniques net profit is computed as below:
Statement of profit and loss as per the costing method marginal:
Statement of profit and loss as per the costing method absorption:
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Interpretation
The aforementioned income statements show different value of net profit in the same
company by using different methods. In one table net profit is worth of £12600 which is
computed by the marginal costing tool. Further, another income statement provide net income
worth of £9300 due to using costing method absorption. Very basic reason behind arising such
different is that ways to include cost of production while calculating net profit. In the marginal
method only direct and variable expenses are used. On the other side absorption method uses
direct, variable as well as fixed overhead costs of production in order to determine net profit at
the end of year.
Differentiate two costing methods of determining net profit
Absorption costing technique Marginal costing technique
The method by which the management of R.L.
Maynard able to determine net income by
using variable and fixed costs is known as
absorption costing method (Parker, 2012).
According to the respective costing method the
management uses for assessing net profit by
using only direct and variable overheads costs.
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In this, various expenditures are included
which are given as below:
 Direct wages or labour
 Expenses of raw material
 Cost of variable overheads
 Cost of fixed expenses such as
◦ Administration costs
◦ Cost of sales and distribution
◦ Rent, premium, tax etc.
Various costs which are considered in
absorption method are such as follows:
 Direct wages or labour
 Expenses of raw material
 Cost of variable overheads
As per this method level of expenses as well as
cost of productions are higher compare to
another method because it includes all the costs
incurred in R.L. Maynard firm.
Under the respective method level of cost and
expenses are comparatively lower due to using
only variable and direct cost of production
(Lambert and Sponem, 2012).
According to absorption method level of net
profit and profitability ratios are lesser at the
end of financial year.
When the R.L. Maynard uses marginal method
of costing then net income at the end of year is
higher compare to another costing technique.
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TASK 3
P4 Benefits and disadvantages of various planning tools
Business Report
To,
Board of Directors,
R. L. Maynard Limited
Date: 20th April 2017
Subject: Different planning tools of budgetary control along with the
The business entity whether it operates in construction industry or any other needs to
make effective planning of finance, production or another function as well. In context to this,
financial plan plays a key important role in the business environment which helps to the
entrepreneur in order to maximize level of profit. There are different kinds of tools and
techniques of planning are very helpful and adopted by the selected construction company
(Bebbington and Thomson, 2013). The tools are such as budget, financial or investment
appraisal tools as well as financial ratio analysis which are described as below:
Budget: Key planning tool used by the company such as R.L. Maynard is budget which
is the most helpful in order to determine values of financial data for further accounting period.
There are different types of techniques are used for prepare budgets which are such as zero-
based, incremental, traditional etc. While using different budgeting methods values or outcomes
are differ. The reason is that one method takes base value which is past financial data, another
takes zero value and start without analysing past informations. In this regard, there are various
kinds of budgets are to be prepared for make effectual plan which are like as cash, sales,
production, material purchase, material usage etc. Among them cash and sales budget along
with example are shown below:
Budget for cash amount
Particulars Amount (in GBP)
Inflows of cash
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Sales or revenue 8900
Loan amount from bank 5600
Cash from debtors 5500
Total inflows of cash (A) 20000
outflows of cash
Cost of rent on property 3600
Insurance amount 1580
Cost of maintenance 2560
Utility expenditures 1850
Miscellaneous costs 980
Total outflows of cash (B) 10570
Net Cash balance (A-B) 9430
Material purchase budget
The above example of budget for cash as well as sales shows that the R.L. Maynard firm
needs to generate incomes worth of 20000 GBP in next month and outflows worth of 10570
GBP in same period. These will helps to generate net cash balance at the end of month in
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positive manner which will 9430 GBP. Apart from this it requires to produce at least 18000
number of units and sell them at the price of 23 GBP by which it able to generate sales worth of
414000 GBP.
Benefits:
 Very key benefit of the budgeting is that to estimate or forecast financial data and
informations for the current as well as future month or period of accounting.
 It helps to allocate and distribute available financial resource in adequately and
effectually manner to make the firm highly profitable (Pondeville, Swaen and De
Rongé, 2013).
 By this it able to find lack of costs as well as obstacles related to finance in the firm.
Further, can take corrective actions against it.
 Moreover, budget is the most helpful for R.L. Maynard in order to improve cash balance
at the end of specific period of time.
 It helps in order to manage risk of firm as well as control over the extra expenses which
incurred in production or operation process. Helpful for managers of the firm in order to make effectual plan for maximize profit and
minimize cost level in effectual way.
Disadvantages:
 To make or prepare different types of budgets company such as R.L. Maynard needs to
appoint highly skilled employee or finance manager who charges higher cost which
leads to increase expenses.
 Further, there are lack of accuracy in data because it is overall based on assumptions and
past data as well.
 In the firm when there is an experienced person making budget every year then it leads
to create manipulation in accounting informations (Chenhall and Moers, 2015).
 This method is very lengthy and time consuming for estimate data for the future as well
as it is costly tool.
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Sales Budget: The budget statements in which revenue is to be expected and forecasted
by the company and make strategies according to this is called as the sales budget. Every firm
has the key objective and purpose behind operating in a particular industry or market which is
like profit maximisation. In order fulfil this specific goal and meet with this, revenue must be in
the increasing trend over the various accounting periods. When sales of the company will
enhance on consistent basis then it can be said that R.L. Maynard generates profit in every year.
The reason is that, income of an enterprise always depended on the revenue generation up to the
greater extent. Hypothetical example or illustrations of the sales budget is stated below:
Budget for sales and revenue
Particulars Units
Estimated sales units 18000
Price of every product for sale 23.00
Total amount of sales require for upcoming month 414000
Advantages of sales budget:
 Very basic and key benefit of sales budget for the R.L. Maynard business is to set
standard and benchmark for the upcoming years. Further, in this respective budget
system it able to determine that how much amount of revenue needs to generate for the
next year. On the basis of this, it will able to frame effective kind of proper strategies
which is supportive in order to achieve the targeted sales data.
 Apart from this, it is helpful for the R.L. Maynard in terms of making effectual
cooperation and relations between two or more functions of the organisation. When
among all the functions proper relation is established at the workplace then problem and
issues of arising dispute resolve up to the higher level. Moreover, it will be able to meet
with the objectives which are predetermined at this budget. In order to make the goal for selling of particular number of units, the sales budget is
highly important tool. Further, management able to determine effectual kind of business
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tactics and strategies which are suitable for it.
Disadvantages of sales budget:
 The sales budget is made on the basis of past performance, predictions as well as
assumptions. Further, management predict wrong value and manufacture determined
number of volume which lead to reduce business performance in the overall industry of
construction.
 The function of sales budget lead to create negative impact on the overall company
because of having knowledge and determination about the next financial year in proper
manner.
 Along with this, if sales units and volume of the products and services are estimated in
the wrong ways or higher and lower number then it will hamper the smooth functioning
of the R.L. Maynard. Therefore, it can be said that, inventory of the entity affects which
lead to create impact on the revenue and profitability.
Production Budget: It is another tool of controlling and managing over the budgetary
system of the organisation where number of units are predetermined bt the R.L. Maynard.
Under the production budget, management able to forecast that how much number of houses
and buildings need to construct for the upcoming. Generally it is made after considering all the
data of past financial statements and performance. Further, sometimes level of the next
production units are predetermined with the help of doing proper and effectual market research.
Illustration of the production budget statements is prepared and stated below:
Production Budget
Benefits of production budget:
 When the R.L. Maynard prepare and focus on the production budget statement then
easily able to utilise all the available plan and machinery. Due to this, number of units
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will be enhance up to the higher extent and reduce the total cost of production and
operation at the workplace.
 After setting and determining specific number of units, the R.L. Maynard able to
increase labour utilisation power which helps to enhance productivity.
 In addition to this, expenses of the operation and production department will be declined
up to the greater level with the help of such mentioned budget statement. When it will able to use production budget in effectual manner then stock or inventory
level of R.L. Maynard reduced which is sign of revenue enhancing;.
Limitations of production budget:
 Number of production units for the future financial year are to be predetermined with
the help of market research and predictions of the demand level. When the products are
to be produced accordingly then stock level affects in different ways like favourable or
adverse. In case, market researcher forecast that demand will be increased in the future
year but due to some reason demand decline. Further, because of wrong assumptions
stock level will increase at the workplace which lead to decline the revenue generation
capability at the end of year.
 Along with this, production volume determines by making several market prediction and
due to this R.L. Maynard not able to make effectual kind of business strategies for
achieving targets.
 In this, management of the selected entity focus on the past trend of demand and
production units also. Further, it is not compulsory that R.L. Maynard will generate or
construct same volume of the products and houses. Therefore, prediction can be
considered wrong which lead to reduce the effective business decision making.
P5 Analysis of management accounting systems that how R.L. Maynard firm respond to
financial problems
Business Report
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To,
Board of Directors,
R. L. Maynard Limited
Date: 20th April 2017
Subject: Different systems of management accounting reporting
In each and every enterprise there are different types of problems and obstacles related
to finance are occurred and influence business performance in adverse manner. In order combat
financial related problems and constraints there are different management accounting systems
are used by the R.L. Maynard which are enumerated below:
Throughput accounting: It is one the most used accounting system which is more or
less related to the raw material which are needs to produce finished goods. The system is not
that much relies with the cost and expense factor incurred in operation process. In this raw
materials are utilized in proper as well as highly effectual manner where R.L. Maynard can
construct building by using high quality of materials (Sleihat, Al-Nimer and Almahamid, 2012).
Here respective business entity able to use the raw products at the better way and can insist the
production process in order to utilize such material in effectual manner. By this, materials will
be uses in appropriate way and constraint of reducing efficiency of the firm will be overcome.
Effective utilization of raw material directly impact on the productivity and efficiency of the
enterprise in the construction industry.
Lean accounting system: The system of management accounting i.e. lean accounting is
used by the entrepreneur in order to eliminate extra expenses which creates more burden on the
firm and reduce profit level. When the cost of products and services is to be reduce then it will
directly affect to the financial position in very positive manner. Along with this, the respective
accounting approach is highly used by the firm which helps to eliminate extra cost as well as
wastage products and services occurs in operation process. When problems such as incurring
more miscellaneous expenditures, enhance wastage etc. then such system is useful for R.L.
Maynard (Management Accounting – Introduction, 2017). Further, it can be said that the system
is help to increase efficiency and overcome financial problems.
Transfer pricing: A price on which the parent company sell processed and finished
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products and services to its own subsidiary business entity is known as transfer price. When the
R.L. Maynard purchase raw material and products from the parent company then it will allow at
the low cost compare to another firms. Further, it helps to reduce total cost of purchasing raw
materials and impact on the business performance in positive way. Financial sound of an
enterprise is depends on the cost and expenses which are incurred at the operational process.
With help of lean accounting the R.L. Maynard able to reduce the extra and unused cost which
lead to enhance level of sales and revenue at the end of an accounting year. Ultimately financial
problem of enhancing revenue and profit will be raise in highly appropriate way.
Budgetary control: Moreover, another management accounting system to reduce
financial problems is budgetary control where the manager of R.L. Maynard utilizes its raw
material by analysing budget. In the budget if there are inflows are higher compare to outflows
then it will take decisions in that accordance. Along with this, it helps to analyse business
performance by comparing actual results and estimated financial data. If it found that there are
adequate financial resource are available then it will make strategies in order to that. Further, if
business performance is not sound and it requires more capital, then formulate strategies that
how to raise fund (Venkatesh, 2016). Hence, it can be clearly identified that these all the
systems of management accounting are helps to R.L. Maynard in order to combat shortfalls and
eliminate financial obstacles up to greater level.
CONCLUSION
From the above management accounting report it has been assessed that in the costing
there are two methods are used by R.L. Maynard Limited in order to determine net profit and
prepare income statement as well. Both the methods provide different value of net profit at the
end of particular period of time. Further, it can be concluded that management accounting
systems such as throughput, cost, lean, inventory, transfer pricing etc. helps to R.L. Maynard
Limited for reducing financial problems which sometimes occur in the entity. Moreover, budget,
financial techniques as well as ratio analysis these three tools are very useful for the company
which helps to make effectual financial plan for current and future as well.
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