Analysis of Management Accounting Systems for R. L. Maynard Limited

This report provides an in-depth analysis of management accounting systems applicable to R. L. Maynard Limited, a property construction and development company. It explores various types of management accounting systems such as cost accounting, inventory management, job costing, and price optimization. The report also delves into specific systems like traditional cost accounting, lean accounting, throughput accounting, and transfer pricing, detailing their applications and benefits. Furthermore, it examines different methods of management accounting reporting, including cost reports, job cost reports, sales reports, and budget reports. The report also touches upon the benefits and limitations of planning tools used for budgetary control and the adaptation of management accounting systems in response to financial problems. The analysis provides a comprehensive overview of how management accounting principles are applied within R. L. Maynard Limited to aid decision-making, performance control, and financial reporting.

Unit 5. Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
P1 Types of Management accounting Systems that are required for R. L. Maynard Limited4
P2 Different methods of management accounting reporting..................................................7
M1...........................................................................................................................................9
TASK 2............................................................................................................................................9
P3 Income statement according to absorption and marginal costing.....................................9
M2.........................................................................................................................................12
TASK 3..........................................................................................................................................13
P4 Benefits and limitation of planning tools used for budgetary control.............................13
Capital Expenditure Budget:...............................................................................................19
M3.........................................................................................................................................19
P5 Adaption of management accounting systems for responding to financial problems.....20
CONCLUSION..............................................................................................................................22
M4.........................................................................................................................................22
REFERENCES..............................................................................................................................23

INTRODUCTION
The procedure of analysing, interpreting and presenting data related to accounting, that is
usually gathered with help of cost and financial accounting, to provide further assistance to
management in field of making decisions, creation of different policies and regular commercial
activity of organization is termed as Management Accounting (Management accounting - What
is management accounting? 2017). It measures the performance, provides assessment of the risks
involved, allocates the resources and gives presentation of different finance related statement to
the managing staff.
It allows to taking of corrective decisions for performance improvement. In the following
assessment R. L. Maynard Limited Company has been taken into consideration. The company
was incorporated on March 22 in year 1973. In Buckinghamshire its registered office is situated.
The organization has been flourishing efficiently for the past 43 years and 11 months. At present,
there are 3 progressive directors and 1 active secretaries as per the modish yearly return proposed
on June 10 in the year 2016. It has been engaged in the construction of property and
development. Emphasis is laid on the provision of employment agency services and on dwellings
which are private. The ultimate purpose of this assessment is to analyse information that how
Management Accounting will be applied to the wider business environment of R. L. Maynard
Limited.
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TASK 1
P1 Types of Management accounting Systems that are required for R. L. Maynard Limited
Management Accounting is the process of evaluating, analysing, measuring, interpreting
and communicating information in order to pursue organisational objectives. The
objectives/benefits of Management Accounting are described below:
 Help in planning and establishing future policies: The first objective of
management accounting is to plan in advance to eliminate future obstacles. It
includes forecasting on the basis of present and past conditions and framed future
policies and targets on the basis of it.
 Assist in interpreting financial information: It helps management of R. L.
Maynard Limited to interpret financial and technical data in efficient way, so that
it can benefit in decision-making policy of company.
 Assist in performance control: Management accounting of organisation aid in
controlling performance of different responsibility centres and departments of R.
L. Maynard Limited.
Management accounting system is the process of gathering financial data from various
departments such as sales, inventory, production, etc. Than converts the information to formulate
reports. There are many type of management accounting systems are available, such as:
1. Cost Accounting System: Used for estimation of cost of products, raw materials,
inventory valuation and cost control.
2. Inventory Management System: Assist in tracking and estimating level of inventory,
orders and sales.
3. Job costing System: This system is used by R.L. enterprise to value the cost of
manufacturing of commodities in accordance to competitors and market demand
4. Price Optimisation: It is analytical and mathematical method that provide idea to
company that how customers will react on different pricing methods.
Management Accounting encapsulates those accounts which serve managerial purpose.
They provide timely piece of data in accordance with financial status of the organization on a
day-to-day basis (Brandau, Endenich and Trapp, 2013). The departmental managers make short
term decisions with the help of these. It is an accumulation management, finance and accounts.
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All the kind of information that is related to tasks like business strategy, financial accounts, etc.
It provides great boon to the small-scale business.
The company R. L. Maynard Limited is basically a property construction company and
management accounting system is followed in their organization. This has caused efficient and
effective running of the organization. For the sake of company's internal people such as
functional or departmental heads, operational officers and board of directors, management
accounting needs to be done on a daily, weekly or monthly basis.
Management Accounting systems require some necessities that are followed by R. L.
Maynard Limited:
The costings which are related to the production of different types of goods and services
provided by company have been covered in management accounting. The frequently preferred
management accounting systems are mentioned below:
 Transfer of Pricing
 Throughput Accounting
 Traditional cost accounting
 Lean accounting
The above-mentioned accounting systems have been further discussed below: Traditional cost Accounting System: The costs of production overheads are allocated to
the products that are generally manufactured by the company in this system. This
traditional method is often referred to as Conventional method. Per current statistics
mostly traditional way of cost accounting is preferred by companies like R. L. Maynard
Limited. The indirect costs of the manufacturing units get distributed over the units of
production. This procedure is carried out based on criteria involving volume or quantity
of the units that are produced, over-head production and direct labour over-head. It
considers Process and Job Order costings (Salehi, Rostami and Mogadam, 2010). Where
costings can be easily identified for individual projects in case of large or big projects,
there the Job order costings finds applications. But allocating the costs individually on
homogeneous products, which undergo through various processes, becomes difficult to
handle. Lean Accounting: It’s a fresh term or one could say that it serving as a revolutionary to
the management accounting system. This is so because management accounting only
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takes costings into consideration but this brand-new concepts puts focus on cost reduction
methods by excluding the waste material caused in production. Accounts coming under
this category provide data that is related to value streams assessing, profits measurement
and making of decisions to the assigned officers. Excess of any of the costs provided will
be cut down in system based on information provided through above mentioned
categories. Increase in sale revenue by reduction of cost of wastage materials, eliminating
the waste generated availability of plant's capacity, money saving by cost step-down; are
included in the advantages provided by Lean accounting. Throughput Accounting: The volume of the raw material or the product that is passed
through a system or process is usually termed as throughput. In management accounting
system, the throughput accounting cannot be seen as a activity for costing. This happens
because it mainly lays its focus on determining the constraints that arise when units are
being manufactured (Abrahamsson, Englund and Gerdin, 2011). Constraints are not
enough in relation to raw material, turnover of labour, waste of plant's capacity
requirement; and are provided from organization. Therefore, this category of accounting
system eliminates such type of constraints in organization and lead to insisting of more
throughputs for enhancing the quantity and quality of production. This will ensure that
for each of the units produced, the costing will remain low through these ways.
 Transfer Pricing: When the commodities are being transferred from one department/ to
another or from holding company to subsidiary one, then transfer pricing is evaluated.
Moving and transferring of products from one place to another generally adds up some
extra costs to it for every single process of transfer. The costs that are being generated in
transfer pricing are generally shifting price and opportunity price. Amount of money that
will be bared by company in the case of outsourcing of goods to firm outside, comes
under the category of opportunity cost (Frezatti, Guerreiro and Gouvea, 2011). While
dependence on production cost is shown by variable cost. This type of management
accounting system provides flexibility to the company and hence this is a benefit
provided through it.
Essential requirements of different types of management accounting systems
 It is necessary for RL Maynard to implement management accounting system in its retail
stores in order to establish stability between management and workforce.
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 It is not bound by accounting standards and therefore helps R.L Maynard in analyzing
past data in accordance to make changes in current business operations to make them
more effective and efficient.
 It will help the enterprise in serving best services to its customers.
 The system helps the management in gathering specific and appropriate information
regarding plant, product, process and all the organisational departments.
 It benefits in making effective planning and decisions regarding business operations.
P2 Different methods of management accounting reporting
Management accounting is termed as the process preparing management and accounts reports
which provides timely and accurate information on financial and statistical matters which are
required by the managers to make decisions on short – term or on day to day basis. There are
various methods used by the cited organisation for management accounting reporting such as
cost accounting, job costs reports, sales report, budget report and payroll report. These are
explained as follows: Cost reports: Cost accounting is determined as a process in which information related to
cost is provided to the management which monitors the future costs. It calculates costs of
items produced by considering costs of raw material, labour, overheads and any other
additional costs. The total amount is divided by number of products produced to get cost
per unit (Merchant, 2012). All this information is summarized in the cost report. It aids in
decision – the internal report system represents the per unit cost of manufactured
products This assists the managers of R.L. Maynard Ltd. to compare the cost prices of
goods with that of the selling price. Moreover, it facilitates them to report on cost of
goods in firm's balance sheet and cost of goods sold in Profit & Loss A/C. Thus, cost
accounting provides, Standard costing, transfer pricing, variance analysis, marginal
costing, activity-based costing, etc. which aids the manager in planning and controlling
profit margins. Job cost reports: It provides an overall statement of the firm's profit and loss in relation
to specific jobs which are assigned to the individuals. Moreover, it makes it easier to get
relevant data in context of job costs that enables greater efficiency for long term period.
In this report, direct costs and overheads related to job are allocated, recorded in the
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ledger accounts and then they are summarized in trial balance. This helps the
management in preparing batch manufacturing statements. Sales report: It helps in determining the increase or decrease in sales of a company that
enables the managers in identifying areas having market opportunity to increase the sales
volume (Hiebl, 2014). A sales analysis report shows sales for a specific period that may
be on quarterly basis or yearly basis or any other time frame which management
considers significant. Typically, this report may contain data relating to – volume of sales
for per item or group of item, number and place of new and current accounts and costs
incurred in promotion or sale of products. Sales manager of R.L. Maynard Ltd. can
analyse the trends in the report at any time during the fiscal year and determine the best
course of action. This type of management report assists the management to ascertain the
buying behaviour of customers in relation to products or services which enables them to
evaluate the turnover of company as well as discount offers to the clients. Budget report: Preparation of budget is one of the main elements of managerial
accounting. The budget report is an internal part which is used by the management to
make comparison between the actual and estimated performance to ascertain the
company’s achievements over a period. It is prepared by using budgets of previous years
and adjusting them as per the future projections (Jansen, 2011). It helps the management
of cited organisation in comparing the related to the sales data so that various decisions of
the company can be taken. It is essential for the firm to keep a control over its activities
and make decisions regarding financial resources so that it can operate effectively and
smoothly. Along with this, a budget report aids the management to find out deviations
and identify the cause and effect relationship. The cited firm tries to achieve its objectives
while staying within the amounts specified in the budget. Payroll report: This report is prepared in relation to compensation salary of employees
that help management to ascertain financial position of the company. A payroll report
shows reputation of the firm and assists the managers in evaluating of employee's
performance by analysing increment in salary and number of bonus. R.L. Maynard Ltd.
uses software which is updated with the legislative changes and automatically generates
the reports which saves costs of the organisation for a longer period.
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 Performance report: A performance reports list out differences calculated in the budget
and this information is analysed for developing the new budgets. Generally, these reports
are calculated on a yearly basis but companies may create them quarterly or monthly. It
helps the managers of the cited organisation in planning for future demand in production
and increment in costs.
M1
Benefits of different management accounting systems are given below. Cost accounting: There are number of benefits of cost accounting system and one of
them is that by using cost accounting systems overall costing of product is done in
different manner. Thus, overall reporting quality is better in case of cost accounting. Lean accounting: Main advantage of lean accounting system is that it is less complex
and costly than traditional accounting system. Due to this reason lean accounting is
adopted by most of firms. Throughput accounting: It is another management accounting system and have its own
strong points relative to other accounting systems. Throughput accounting system help
managers in measurement and making business decisions. This accounting system
changes the way in which organization think about determining revenue and costing as
well as profitability of product. Thus, it can be said that throughput accounting give
different and better picture of costing and revenue that is associated with product. Transfer pricing: Transfer pricing reflect pricing of product that happened when it is
transferred from one department to another. Usually, such kind of transfer cost is not
included in cost accounting systems but this accounting system consider it and it is its
major advantage.
TASK 2
P3 Income statement according to absorption and marginal costing
Income statement is a form of financial statement which shows profitability of an organisation at
the end of specific time (Setthasakko, 2010). Such performance is assessed by analysing
revenues generated and expenses incurred because of operating and non-operating activities. In
this context, income statement is prepared and presented below based on marginal and
absorption costing method:
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M2
Figure 1 Profit by marginal costing method
Figure 2 Profit by absorption costing method
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It can be articulated from the above income statements that better net profits are generated by the
company at the month end. The value of net profit calculated under these two methods is
different – net profit as per marginal costing is £12600 which is higher as calculated under
absorption costing i.e. £9300. The main reason of difference in net profit amount is that both
methods take into consideration different types of costs (Sánchez-Rodríguez and Spraakman,
2012). Further, it can be interpreted that as per P&L a/c under marginal costing expenses are
£1800 as it considers only variable costs while under absorption costing it is £5100 as it takes
into account both variable as well as fixed costs.
Most of the companies use absorption costing method as it covers all the expenditures incurred
by the firm as against marginal costing which takes into account only variable expenses. Thus,
an appropriate and clear financial performance in terms of profitability at the end of the period is
provided by absorption costing.
Differentiation between marginal costing and absorption costing
The comparison between both the techniques for calculation and analysis of net profits
can be described as follows:
Marginal costing method Absorption costing method
It is the method of costing in which only direct
costs and variable costs within the production
process are taken into consideration.
In this method, all the costs and expenses
incurred by a firm are used to derive net profit.
Marginal costing is a decision-making
technique which helps to ascertain total cost of
production.
Under absorption costing, total costs are
apportioned to the cost center which helps in
determining total cost of production.
As per marginal costing, fixed cost is a period
cost and variable cost is a product cost (Quinn,
2011).
It considers both variable and fixed costs as the
product cost.
The output as cost per unit does not get
affected due to variances in the closing stock
and opening stock
Variances in closing stock and opening stock
influence the cost per unit.
In marginal costing, value of stock is
considered as total variable expense of
Under absorption costing, stock remaining at
the end of the year is carried forward in the
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production cost so; it is not carried forward in
next financial year.
next accounting period because inventory is
valued as total cost of production at the end of
financial year (Meer-Kooistra and Vosselman,
2012).
Overheads are classified on the basis of fixed
and variable cost.
The basis of classification of overheads is
under administration, production, selling and
distribution heads.
The amount of net profit is higher under this
method as compared to other methods.
As all expenses and costs are considered in this
costing method, so net profit is comparatively
low.
When variable expenses are involved , per unit
cost of fixed overhead differs at every level of
production. So marginal cost method serve this
purpose of determining any sort of additional
costs required at every level of production.
On the other hand, the main purpose of
absorption costs is to determine the overall
expenses in accordance with a particular
product or more. It includes the direct as well
as overhead costs.
M2
There are different type of management accounting system some of them are as follows:
Capital budget: This can be determined to be the techniques or the process through which
business plans for their long term investment. R.L. Maynard Ltd. is able plan their future so that
they will be able to make investment for their business. Capital budgets are maintained and
documented by the finance and account manager of the organization efficiently.
Ratio analysis: It is beneficial for R.L. Maynard Ltd. to make evaluation of various
aspects of financial performance and operations. In this context, it includes liquidity, solvency,
etc.
There are financial reporting documents that are helpful for the firm to determine the
business position. In this context it consists of profit and loss account, balance sheet in which
assets and liability are determined.
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