Valuing Assets & Strategic Management Accounting

This assignment focuses on determining the value of assets using various techniques, exploring strategic management accounting practices, and analyzing their relationship with business strategy. It covers topics such as cost accounting systems, job costs reports, income statements, cash flow reports, budget reports, inventory reports, and planning tools for budgetary control. The assignment aims to provide a comprehensive understanding of these concepts and their application in real-world scenarios.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Report on meaning of management accounting and requirements of different types of
management accounting.........................................................................................................3
P2 Methods of management accounting reporting.................................................................5
TASK 2............................................................................................................................................9
P3 Calculation of Income statement using marginal and absorption costs............................9
TASK 3..........................................................................................................................................12
P4 Report on advantages and disadvantages of different types of planning tools for budgetary
control...................................................................................................................................12
P5 Use of management accounting system to solve financial problem...............................14
CONCLUSION.............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Managing accounting system or MAS is a process of continuous organisational learning
and transformation (Anandarajan and Srinivasan, 2012). It is the practical application of
management techniques to report on financial health of a business. This process involves
analysis, planning, implementation and control of designed programs to give financial status
through reporting for management decision making (Bebbington, Unerman and O'Dwyer, 2014).
Rotork plc is a manufacturing company located in British. It's major role is to
manufacture industrial flow control equipment.
In this assignment, different types and methods of management accounting systems has
been explained. Advantages and disadvantages of different types of planning tools for budgetary
control will give the clear picture of how to make proper budget. In this assignment, two
different scenarios has been discussed. In first scenario, as a management accounting officer,
report is made for implementation of different cost accounting techniques. On the basis of
second scenario, a valuable report is written to General manager about how to response to
financial problems.
The purpose of this assignment is to generate report through application of management
accounting techniques such as profit analysis, marginal costing and absorption costing.
TASK 1
P1 Report on meaning of management accounting and requirements of different types of
management accounting
From: Management accounting officer
To: General manager of Rotork plc
Sub: Management accounting system
In this report, as a Management accounting officer, I have explained about types of
management accounting systems which will help Rotork plc in making decisions in choosing
best systems. Traditional, Lean, Throughput and Transfer accounting has been explained as a
types of accounting systems of management.
Meaning of Management accounting system:
Management accounting systems contains of all provisions which provides accounting
information to managers. This informations helps them in deciding issues within organisations.

Overall it is guidelines for financial and non-financial decision making informations process
which supports managers (Chapman, 2011). The main users of management accounting
systems are Investors, creditors and operational managers. Each users have different motives
according to their requirements of accounting informations.
Some of the essential requirements of different types of management accounting are as
follows:
 Cost accounting system: According to this particular costing system management can
be able to determine total costs and expenses they are going to incur during the period of
time. It is used specially by managers to record of costs related data is become easy for
individual projects (Damodaran, 2012). Process costing method is suitable for only
those projects which are in the production of homogeneous products.
 Inventory management system: This type of management accounting system, involves
revolutionary techniques in which it focuses on strategies to maintain overall stock that
are being kept by an organisation. This system provides immediate informations to
accounting managers whenever it is required for decision-making.
 Price optimisation system: This particular system is done to analyse various price of
the products which are being set by the company. This can easily be helpful to
determine overall perception of customers about total products cost which are being set
by the company during the time.
 Transfer Pricing method: Here price is added to a product, when there is movement
from one department to another. This method explains that product will become costly,
if it transfers from one department to other.
Application of this types on Rotork plc
 Cost accounting system: This type of accounting system is essentially required for
Rotork plc because after application of this method, it can determine allocation of its
costs related to cost of goods sold. For example, It can apply this method in distributing
the cost of raw materials, direct labours and manufacturing overheads separately.
 Inventory management system: Rotork plc can apply this method in reducing the costs
of its material by eliminating wastes. For example, companies present revenue is 500000
pounds but profit is only 9300 pounds. This reflects that there are huge unnecessary
expenses. The main reason behind this increases expenses could be wastage of resources

like labour hours, money and raw materials. Hence, it can improve its overall profit by
reducing these costs of productions.
 Job costing system: This accounting method could help Rotork Plc eliminating pitfalls
in production process after application into business (David, 2011). For example,
Companies budgeted and actual costs and demands were varied. Which indicates that it
has not done analysis of demand properly or it has not estimated for unexpected costs.
 Transfer Pricing method: Rotork Plc's net profit very low as compare to its revenue.
Because company has gone through many departments to deliver its product for sale.
This is necessary to a company to add this cost into pricing method otherwise it could
face loss. For example, suppose company has not considered fixed and variable costs
while calculating its net profit, than this could effect business by running out of cash as
it hasn't include costs of different departments in calculating its net profits.
P2 Methods of management accounting reporting
From: Management accounting officer
To: General manager of Rotork plc
Sub: Management accounting report
In this report, different methods of accounting reporting for helping Rotork Plc in decision-
making process have been explained. Also, the uses of this methods according to the
requirement of company is also mentioned.
Meaning of Management accounting report
Management accounting reports helps business in monitoring company's performance (Fowzia,
2011). It is made at the end of every accounting period or it can be present at the time of
requirement of it like managers may request for quarterly, monthly, weekly or even daily
reports.
Importance of Management accounting report
 It helps in forecasting the future.
 It helps in Make or buy decisions.
 It forecasts future cash flows of business from different sources.
 It helps in understanding the variance in performance of labour, materials and assets.

 It supports business in analysing required rate of return to run a business.
Types of methods of management accounting report
 Budget Report: Through this method of management accounting reporting company
can know its company's performance through analysing budget reports. This report helps
in controlling excess costs bear by company on some departments. Budget reports
compares department's performance with its costs. In this method estimated budget for
that particular period is made, this estimation is based on trends of its actual expenses.
Owners and managers can also use budget reports to allocate incentives among their
employees. Budget reports needs strong analytical and analyses skills to make useful
management accounting reports. Overall it is the most fundamental report in managerial
accounting. It helps business in control costs across enterprises.
 Accounts receivable Aging Report: This reporting method of management accounting
is very important for any business that sales their products on credit. Usually credits are
given into different categories like 30, 60 and 90 days (Goetsch and Davis, 2014). This
method is a critical tool for managing cash flow for companies while giving credit to
their clients.
 Job costs Reports: This method of management accounting provides a reports which
shows expenses for a specific project. These costs is matched with an estimate revenue
to analyse profitability of the job. This method classifies the higher earning areas of a
Methods of Management Accounting Report
Accounts receivable
Aging Report
Job costs Reports
Income statement
report
Cash flow reportBudget Report
Inventory reports

business which helps company to focus on allocating its funds among these areas instead
wasting its money and cost in using funds in less earning areas. Job Cost Report is also
used to analyse expenses of work-in-progress projects to control waste before
completing it.
 Inventory and manufacturing reports: This method of management accounting is
useful for those companies who produces physical products like manufacturing
industries. Inventory and manufacturing report helps in collecting data's on inventory
costs, labour and other overheads of production process. Manufacturing companies can
use managerial accounting reports to make their operational process more efficient.
 Income statement report: This reporting methods helps a company in analysing overall
net profit remaining with the business after payment of all types of expenses like fixed
and variables (Granlund, 2011). This net profit is also concerned as net earnings which
is added to capital of the company.
 Cash Flow statement report: This report helps a business in knowing how much cash
is available with a company and how much it can earned in future. Overall it tells about
liquidity of a business.
Application of above reporting methods to Rotork plc
 Budget Report: Rotork plc could use budget report in analysing the variance between
estimated and actual figures. More variance reflects inefficiency of a company in
managing its costs where less variance implies that company is effectively utilising its
resources without wasting its resources. For example, in the given illustration, Rotork
Plc's budgeted sales is 450 units while its actual sales if 600 units. It can be called under
budgeted sales. This situation impacts business in facing difficulties in fulfilling the
demands on time.
 Accounts receivable Aging Report: Through the application of this type of reports
company can know about duration required to receive amounts from its debtors (Linoff
and Berry, 2011). For example if debtors are increased from previous year than
companies efficiency of working capital would affected due to less cash available to a
business. Hence, this report could be applied to control excess blockage of cash among
debtors.
 Job costs Reports: After application of this method, Rotork Plc may know which

activity consumes much cash. Like for example, in the given illustration, company has
production, selling and distribution costs. These different costs would generate job
costing reports for the company.
 Inventory and manufacturing reports: This reporting method could be applied to
know how much capital of Rotork Plc has been blocked in manufacturing process.
These reports represents the statement of working capital and work-in-progress of a
company. For example, information through reports about opening stock and closing
stock of a company is required to meet the demand of a product.
 Income statement report: This report is considered to know how much profit is left
with Rotork Plc after paying all expenses, interests, taxes and payments. For example
company records net profit amount £9300 during a year. Which implies that it has only
managed to earn that much amount.
 Cash flow statement report: Rotork Plc can applied this method to find liquidity of its
business through analysing cash flow statement reports. For example, Company's net
profit is £9300 which is accrued. Means it is not earned by business in cash. So, business
could know how much actual cash is left with this report.
CONCLUSION
It's depend on the requirement of Rotork Plc upon which report it requires. Each
reporting methods has its own uses and importance. Cash flow statement report is useful to find
liquidity of a business. Income statement helps business in knowing how much earnings left
with it to invest in expansion activities and maintenance of business. Budget reports are the
forecasts which is based on the estimation. It requires for a Rotork Plc to allocate its funds
among different department accordingly.
TASK 2
P3 Calculation of Income statement using marginal and absorption costs
Marginal Costs: These costs also known as variable costing. In this costing method,
decisions can be taken on the basis of uncertainty of total costs (McNeil, Frey and Embrechts,
2015). For example, determination of fixed and variable cost is done to find out products for
production. Identification of marginal costing is required to know the impact of profit due to

change in output units. It also refers to as a movement in total cost with producing additional
output units.
Absorption Costs: It is a method for valuation of inventory. Here, manufacturing
expenses are distributed among different departments to know exactly how much cost of each
department is. For example, suppose Rotork Plc has two departments which is selling and
distribution and production. Let's assume that the employees of these two departments eat in a
canteen. The cost of canteen is bared by company itself. Hence, the cost of canteen is not a direct
cost but it supports both departments to run a business. Therefore, absorption methods suggests
to distribute canteen expenses among these two departments to get actual value.
Below is the calculation of Income statement on the basis of marginal and absorption
costing methods:
Calculation through marginal costing using
Income statements
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2 - 7800
Closing stock: 100*13 - 1300 -6500
Contribution 11000
Less:
Variable sales overhead 500*1 500
Fixed overhead -1800
Selling and administrative cost expenses (800+400) -1200 -3500
Total Profit / Loss 7500
Computation of Net profit by using absorption costing
Income statements
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2+3 = 16*500 8000

8000
Gross profit 9500
Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
Total Profit / Loss 7800
Hence, net profit in both techniques are same because there's no opening and closing
stocks. As absorption costs varies with the labour hours, change in inventories and overhead
estimated and actual costs. The basic difference between both techniques is, gross profit and
contribution.
Marginal costing considers two types of costs viz. Variable and fixed costs but in
absorption costing method, it considers production and selling & distribution costs which means
it doesn't show fixed costs separately (Papaspyropoulos, 2012).
Below is the difference between Marginal costs and Absorption costs:
Basis for comparison Marginal Costing Absorption Costing
Meaning Techniques used for finding
total cost of production for the
process of decision-making is
known as Marginal costing
(Renz, 2016).
Division of total costs to the
cost centres to find total cost of
production is known as
Absorption costing
Cost Recognition In marginal costing, product
cost lies under variable cost
and fixed cost is considered as
a periodic cost.
Here both fixed and variable
costs considered as cost of the
product.
Classification of Overheads Costs are classified into
variable and fixed in marginal
costing. To find contribution
and net profit separately.
In absorption costing, there's
different classification for
Production to find gross profit
and selling & administration

costs to find net profit.
Profitability In marginal costing,
profitability is calculated
through cost-volume analysis.
In absorption costing, due to
deduction of fixed costs
profitability get affected.
Cost per Unit There's no affect of opening
and closing stock on cost per
unit calculation of Marginal
costing.
It directly affects variances in
opening and closing stock on
cost per unit calculations of
Absorption costing.
Highlights Calculation of contribution per
unit is important
Calculation of both gross profit
and net profit per unit is
considered as important.
Cost Data Cost of data is presented to
outline the total contribution of
each product.
It is presented in conventional
way to show the cost of data.
Absorption Costing : It accepts only those costs which can be fully absorbed in
production process. The aim of absorption costing is to recover overheads so that it can reflects
total time and effort consumed in making a product and services. Absorption costing can be
calculated by following below steps:
 Allocation and appointment of overheads: In this stage, allocation and apportioned of
overhead is done. It involves charging overhead expense directly to production
department separately.
 Reappointment of service cost centre overheads: Service cost centres or departments
are not involved in the activity of production of products directly, thus their fixed
overhead charges could be distribute among production departments on the basis of cost
(Uyar, 2010). Some of the examples of cost centres are as follows: Stores, Canteen,
Maintenance department and payroll department.
 Absorption of overheads: Overhead absorption is a method in which overheads
expenses are included in the total cost of a product. It is defined as charging per unit cost
of production by calculating on the basis of total no. of units to be produced. Overhead

absorption rate can be identified by dividing total overheads from number of units of
absorption products available. Sometimes number of units is estimated on the basis of
demand or previous trends.
TASK 3
P4 Report on advantages and disadvantages of different types of planning tools for budgetary
control
From: Management accounting officer
To: General manager of Rotork plc
Sub: Types of accounting tools
In this report, issues in management accounting functions like budgeting and budgetary control,
performance indicators and variances have been explained. This report contains advantages and
disadvantages of different types of planning tools to be used by management for budgetary
control.
Meaning of Budgetary control
Budgetary control is a process of managing funds through controlling them in advance on
the basis of future forecasting of sales and expenses in advance (Van Deventer, Imaiand
Mesler, 2013). Here, management controls actual income and expenditure by comparing it with
with their estimated figures for the same. It gives the value that varies with actual figures.
There are different types of tools in budgetary control process, these tools are Financial
Budgets, Operating Budgets, Non- monetary budgets and Fixed and variable Budgets. Below is
the diagram and explanation of these different tools:
Types planning tools of Budgetary
control
Financial Budgets
Fixed and variable
budgets

 Financial Budgets: In this budget, how much cash will come in and how to allocate
these cash is estimated. The sources of estimations are sales revenue, sales of assets,
stock and loans of previous years. This budgets as an effective tools could help Rotork
Plc in analysing all past and current trends in estimating budgets for future.
 Operating Budgets: This budget is an estimation which is done on the basis of
allocation of funds on operational activities of a company. Rotork Plc could be used for
making budgets in three types: Sales budget, Expense budget and Project budget. It
could benefit business in meeting demand of customers this season.
 Non-Monetary Budgets: These types of budgets includes expenses of non-financial
sales or revenues. Company requires non-monetary budgets to track all activities which
doesn't affects cash but it can impact operations of a business after ending life span of a
machines for example depreciation on machines.
 Fixed and variable budgets: These budgets are the estimation done on fixed and
variable expenses of a company on the basis of past trends (Yeshmin and Hossan, 2011).
These budget would help Rotork Plc in making budgets on Fixed costs, variable costs
and semi-variable costs of a company.
Advantages of different types of planning tools used in budgetary control:
 This tools facilitate effective tools to business: Different tools of budgetary control
helps Rotork Plc in effective functioning of a business. Financial budgets would help a
company in knowing how future cash inflows and outflows into the business in advance.
It would also help in getting the answer of where to allocate these funds.
 This tools facilitate co-ordination and communication: This tools would support
various department in getting information about all the activities they requires to execute
in advance. For example Rotork Plc's Marketing department will know in advance about
how much fund is allocated to them and they can co-ordinate and communicate these to
their employees accordingly.
 It facilitate record keeping: It motivates company to keep past records because all past
entries are basis for budgetary planning.
Non-Monetary
Budgets
Operating Budgets

 These tools are natural complement to planning: Making budget is substitute of
planning, because both planning and budgets works on estimation. Through planning,
Rotork Plc can know its strength and weaknesses.
Disadvantages of different types of planning tools used in budgetary control:
 This tools are rigid: Tools of budgetary control are rigid in nature because management
can't change anything after budget is made.
 It is time consuming: It is not a short process, it requires analytical assessment of
whole data's available. Expert team is required in making budget. It takes years to make
a budget.
 It limits innovation: Budget is only made on the behalf of past data's. Hence,
innovation and modification is totally ignored by tools of budgetary control.
 Future is uncertain: Tools of budgetary control makes future estimation, and future is
not certain. Like no one can estimated about floods, impact of political changes and
wars.
 It is dependent on the support of top management: Without the support and
supervision of top management, budgetary control process will not work. So, it is
limited to action of top management only.
P5 Use of management accounting system to solve financial problem
From: Management accounting officer
To: General manager of Rotork plc
Sub: Management accounting system to solve financial problem
In this report, use of management accounting system tools has been done to provide feasible
solutions to the financial problems of Rotork Plc. Some of the tools which I mentioned in this
report are Key performance Indicators(KPI), Benchmarking and Budgetary targets.
Explanation
Management accounting tools are useful in providing accounting informations which is to
be used by managers to solve problems and make proper decisions (Management Accounting
Systems Adoption Decisions: Evidence and Performance Implications from Startup Companies,

2004). As a management accounting officer my role is to investigate different accounts in
accounting system and finally analyse critical factors that impacts performance of a company.
After analysing all the problems and their impacts on companies performance, I found that
Rotork Plc can improve its performance through individually control each issues. Through this
system several departments like marketing, finance and productions would get support in
making budgets for their operations. It would also help company in overcome from the conflicts
between these departments.
It was found that major issue is with marketing department as many times they shown
unplanned budget which is the major cause of clash between marketing financing departments.
But I assure you that after implementing this tool, this issue can be solved very easily. Because
when the budget is prepared, it is asked form every department to come up with estimated
budget and at the end of a year variance between budgeted and actual figure is analysed.
Identification of variances helps in making advance provisions for those activities which has
huge gaps.
Thus it is beneficial for our company in improving sales revenues and returns on
investments. In this system, past data's of a company helps in making linear trends over the past
performance of a business. This linear trends would helps management in identification of
future trends through application of regression methods and trend analysis methods while
preparing budgets for a company. It would also help our finance department in modification in
the values of income and expenses according to desired profit required by company. To make it
simple I've explained this below with illustration:
Illustration: Suppose, companies desired profit is £10000. Others data's are as follows;
Amount(£)
Sales price per unit 35
Variable cost per unit 14
Fixed cost 3300
Total Sales unit during a year 600 units.
Thus, Net profit from the above data will be £9300. But desired profit is more than that. Hence,
to gain £10000 as a profit, company has two options either it can increase its sales price by
£1.17 or it can reduce its variable cost per unit by £1.17.

Hence, the importance of adopting management accounting tools in making budgets
could be seen in above illustrations.
Three techniques of management accounting system to solve financial problems has been
explained below:
 Key Performance Indicators (KPI): KPI is the tool, which helps a company in
tracking the performance of different assets and investments. It works on the basis of
return received by a business (Cost accounting systems, 2013). In this procedure, KPI
tracks the performance of debtors, creditors, raw materials, labours, etc. Tracking is
based on weight-age given on the basis of expenses bear by a company to continue that
activity. For example, Rotork Plc could reduce the wages of its labour if KPI of labour is
less as compare to returns received by business. This could solve financial problem of
our company by eliminating wastage of extra cost on labours.
 Benchmarking: It is the process in which performance of a company is measured
through comparing it with previous year of same organisation or different company. For
Example, let's assume Rotork's previous sales revenue were £600000 but this year it
records £500000. This indicates company fails to achieve its previous benchmark and it
should improve KPI's of those factors which reduced the sales revenue.
 Budgetary targets/control: This techniques is all key factors which controls the over
expenditure of cash on irrelevant activities which doesn't put any values to a product.
Rotork Plc could use these techniques to control variances between its estimated and
actual sales. It would support our business in working in more efficient way.
CONCLUSION
After analysing all critical factors in TASK 1, 2 and 3. It can be concluded that
management accounting could help Rotork in gaining competitive advantage. Budgeting process
helps in estimating future funds requires to run a business but it has certain limit like it ignores
assessment of risks to a business, it also ignores opportunities available within a company to
expand business and improve its sales revenues. Several tools and techniques of Budgetary
control support company in tracking all activities and also helps in decision-making process to
decide changes required in these activities.

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