Management Accounting Report: J Rotherham Limited Case Study

This report provides a comprehensive analysis of management accounting practices at J Rotherham Limited, a hand-carved stone manufacturing company. The report delves into various aspects of management accounting, including cost accounting systems, job costing, inventory management, and price optimization. It examines different methods used for management accounting reporting, such as account receivable reports, inventory management reports, performance reports, and budget reports. The benefits and applications of these systems are discussed, along with the integration of management accounting with organizational processes. Furthermore, the report explores the advantages and disadvantages of planning tools used for budgetary control, including cash budgets. The analysis includes the calculation of costs using appropriate techniques and the application of a range of management accounting techniques. Finally, the report compares how organizations adapt management accounting systems to address financial challenges, providing a detailed overview of the company's financial strategies and reporting methods.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
PART 1............................................................................................................................................1
A Management accounting and basic requirements of its systems..............................................1
B. Different methods that are used for management accounting reporting.................................2
C. Benefits of management accounting system and their applications........................................3
D. Integration of management accounting system and reporting with organisational processes 4
PART 2............................................................................................................................................5
Advantages and disadvantages of planning tools used for budgetary control............................5
TASK 2............................................................................................................................................7
PART 1............................................................................................................................................7
Calculation of cost using appropriate techniques of cost analysis..............................................7
PART 2............................................................................................................................................8
Application of a range of management accounting techniques...................................................8
TASK 3............................................................................................................................................9
Comparison of the way in which organisations adapt management accounting systems............9
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting can be defined as the process of monitoring, analysing,
controlling and measuring performance of the company for a specific period of time. It is very
beneficial for the internal stakeholders because it can help them to analyse actual status of the
organisation. For better execution of the organisational activities it is very important for
managers to keep proper record so that higher profits can be acquired by the enterprise
(Management accounting, 2018). The organisation which is selected for this report is J
Rotherham Limited which was established in year 1927 by Henry Rotherham. It is a
manufacturing company of hand carved stones. Currently the organisation is operating its
business in Yorkshire, UK.
This project report covers various topics such as management accounting its systems,
reports, benefits, requirements, calculation of costs with the help of different costing techniques
etc. Planning tools, their advantages and disadvantages and comparison of the ways in which
organisations use management accounting to respond financial problems are also been discussed
under this assignment.
TASK 1
PART 1
A Management accounting and basic requirements of its systems
Management accounting: It is the process of managing, controlling, monitoring and
analysing organisation's performance so that higher profits can be acquired in future. In J
Rotherham Limited management accounting is conducted on yearly basis so that strategies
decision can be formulated by managers for the betterment of the organisation. Four different
types of systems are followed by management of J Rotherham Limited in order to gather detailed
information regarding company's performance (Bennett and James, 2017). All of them are
described below:
Cost accounting system- It refers to framework that is used through organisations to
estimate cost of products for evaluation of inventory, profitability analysis and cost control. The
main requirement of this system is to estimating accurate cost of goods for make the business
operations profitable. It is mainly used through the producers in order to record the production
relates activities by using perceptual inventory system. The J Rotherham Limited use this system
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to capture production cost through assessing input cost of production. Company mainly use the
cost accounting system to take effective decision related to the financial accounting.
Job costing system- It refers to system that company mainly used for accumulating as
well as assigning the production cost of an individual output. It is mainly costing method that is
applied in the industries where production cost is mainly measured through number of the
completed jobs. Under this, information may be needed for submit cost information to consumer
under contract where the cost is reimbursed. J Rotherham Limited uses this system for
monitoring the expense that assigns price of the each product and also enable the manager to
keep track of all the expenses at workplace. On the other hand, it is a technique of costing where
amount of the work dine is on form of job completed (Christ, 2014).
Inventory management system- The inventory management refers to ongoing process
of moving the products in and out of location of firm. It is combination of the technology as well
as process that oversees monitoring of stocked goods. The J Rotherham Limited use inventory
management system for determining the each inventory items and their related information. The
better management of an inventory helps in minimizing the cost which keep finances as well as
accounts in check. On the other hand, there is an inventory software system that track the
inventory orders, levels, deliveries and sales.
Price optimisation system- The price optimization refers to use of the mathematical
analysis through firm identify how consumers will respond to various costs of its services as well
as products by various channels. J Rotherham Limited use this system to identify the costs that
will meet with its set objectives for an instance enhancing operating profit.
B. Different methods that are used for management accounting reporting
Management accounting reporting: The process of formulating management reports is
known as management accounting reporting. It is used to analyse the detailed information
regarding the organisation. In J Rotherham Limited managers generate various reports in order to
keep record of the company (Fullerton, Kennedy and Widener, 2014). Following are the reports
that are created by the management are as follows:
 Account receivable report: Such type of report is generated by those companies which
are dealing in credit with its clients. It helps to analyse the total owed amount that is
required to be paid by the customers. In J Rotherham Limited account receivable report is
generated by the managers to keep a track record of the outstanding amount of clients. It
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is beneficial for the company as it may help to tighten the credit policy by analysing the
owed amount.
 Inventory management report: Such type of report is generated by manufacturing
companies in order to keep track record of inventory. In J Rotherham Ltd. it is generated
by the managers to keep detailed information regarding stocks that are used by the
company to conduct its operations. It is very beneficial for the management as it can help
to analyze the status of stock whether it is in transit or in warehouse. For all the
companies like J Rotherham Ltd it is very important to generate this type of reports as it
can help to run the business in appropriate and effective manner. All type of data related
to inventory is recorded in this report (Hall, 2016).
 Performance report: In most of the companies this type of report is used to monitor
performance of whole organization as well as the individuals who are working for the
company. In J Rotherham Ltd such type of report is formulated by the managers to
measure the efforts that are made by the employees in order to accomplish all the
assigned tasks successfully. This report is also used by the management to provide bonus
and incentives to the workers according to their performance. Market image and status of
the company can also be assessed with the help of it. It beneficial for the organization as
it can guide the managers to analyze that their entity is performing well or not.
 Budget report: This report is generated by the managers to compare budgeted
projections and actual performance of the company. It is an internal report which is
mainly used by the management in order to analyze that organization is able to meet its
targets or not. In J Rotherham Ltd these are generated by the executives of the company
to make sure that all the operational and executional activities are performed in the
estimated budget or not. It is advantageous for the company as it can help the managers
to make appropriate financial decision for the betterment of the organization (Lavia
López and Hiebl, 2014).
C. Benefits of management accounting system and their applications
There are various types of management accounting systems that are used by J Rotherham
Ltd. In order to execute business in an appropriate manner. All of them with their benefits and
uses are as follows:
System Uses Benefits
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Cost accounting
system
It is used by J Rotherham Ltd. To
analyze the cost of each item
which is sold by the company.
Cost accounting system is
beneficial for J Rutherham as it
can help the managers to
determine exact cost of the units
of the organization.
Inventory
management system
It is used by managers of the
organization in order to keep track
record of the stock which is used
for manufacturing purpose.
This system is beneficial for the
enterprise as it may guide the
management to track the
inventory whether it is in transit
or warehouse.
Job costing system Job costing system is used in J
Rotherham Ltd. To analyze the
cost involved in the jobs that are
performed by the company.
It is beneficial for the
organization as it can help the
managers to analyze the cost of
jobs that are performed according
specifications of customers.
Price optimization
system
This system is used by the
managers to set the best suitable
price for the products of the
company.
Price optimization system is
beneficial for J Rutheram Ltd. As
it helps the managers to meet the
expectations of the customers by
deciding appropriate price for the
products.
D. Integration of management accounting system and reporting with organisational processes
In J Rotherham Ltd different types of system are followed and various types of reports
are generated in order to strengthen the position of the company in the market. Price optimization
system is used for the organizational process in which best suitable price for the items of the
company. Job costing system is used by the managers to analyze the cost of different activities
that are performed by the organization according to the specification of the clients. Account
receivable reports are mainly used to strengthen the credit policies of the company by assessing
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total owed amount by the clients. Performance reports are generated by the management to
determine the business entity is performing well in the market or not. It is also used to monitor
performance of the staff members.
PART 2
Advantages and disadvantages of planning tools used for budgetary control
Budget is a tool that calculates the expenses and earning of business within the certified
period and take measures to achieve goals according to planned figures. These are based on the
prediction of managers. It requires knowledge and experience on part of individual to accurately
manage the working of organisation. These helps in guiding them to keep finances under control.
Overutilization of money can cause burden, on the other hand underutilization can affect
efficiency of business (Messner, 2016). Budgetary Control is process of ensuring the
performance of company by comparing present financial situation with estimated revenues and
expenditures. J Rotherham limited is firm of stonemason that builds kitchen interiors and does
other architectural work. It manages it's accounts on daily basis and maintained appropriate
budgets before the production and delivering of it's products. The process of budget
development begins with forecasting situation of market, sales, costs which will incur. It is
important to analyse economic conditions before investing money into something as these affect
directly to condition of business. Sales are being predicted to estimate customer responsiveness
and determining costs will help in understanding how much extra has been put. This helps in the
decision making of managers. J Rotherham takes into account the efforts of entire employees.
Together they make plans on building model by examining the amount required to design and
develop products, raw material, equipments, machinery, labour various cost attached to these
along with resources needed to complete the entire projects. The three main planning tools of
budgets are as follows
Cash budget- This budget helps in the ascertaining the flow of cash within the
organisation as well as outside of it. This is used to analyse the requirement of finance for the
operation of business. J Rotherham maintains this budget to analyse the needs of finances and it
also provides necessary information about various appropriate sources from where the funds are
being generated (Modell, 2014).
Advantages:
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 The main advantage of preparing this budget is that business never ran out of money.
This helps in controlling the organisation's spending habits. It maintains the liquidity of
company. Decisions can be taken to use cash in more productive activities.
 Another advantage of this is availed by the managers as they are in better position to
take decisions. Evaluation of alternatives and adoption of most effective one amongst
them is the most difficult aspect which needs to be considered to achieve profits.
Disadvantages
 This budget suffers from lack of flexibility, business being complex activity requires
changes from time to time.
 Lack of accuracy is one of it's disadvantages as it depend too much estimates based on
future (Nielsen, Mitchell and Nørreklit, 2015).
Master budget- This budget is prepared for various functions performing in the
company. It involved estimation of all budgets related to inventory, selling, cash, financial
statements and other areas. Evaluation of long term plans is the main purpose of creating it.
Advantages
 Equal attention is paid on every department
 Detecting errors is also essential, creating this budget helps in finding the possible faults.
Such mistakes should be removed to ensure the smooth functioning of organisation.
Disadvantages
 Creating this is tedious as it involves preparation of multiple budgets. Making
amendments becomes difficult task.
 Another disadvantage connected to this is that it does not specify the exact amount of
money being spend on each department.
Zero based budgeting- under this type of budgeting after every month or certain amount
of period, budget is prepared from zero base regardless of how much has been earned or spent in
previous time period. J Rotherham uses this to understand it's manufacturing expenditure.
Advantages
 It determines the reason behind expenses this aspect makes it easier for the planning of
concrete actions that needs to be taken at right time.
 This also helps to identify the out of date processes which are not helping in increasing
the profits (Otley, 2016).
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Disadvantage
 Many times employees does not have the required skills to prepare such budgets as it
requires one to have deeper analytical ability therefore it is not preferred.
 It is also rigid in nature similar to master budget.
Analysis of the use of different planning tools and their applications
Managers of J Rutherham are using three planning tools such as operating, master and
zero-based budgets in order to forecast and formulate budget. All of the guide the managers to
analyze requirements of the company and then form the budgets in appropriate manner. It is very
important for the business entity to take all of the in to consideration while forecasting budget in
order to estimate it accurately.
Evaluation of the use of planning tools to solve financial problems
Management of J Rotherham Ltd. are using three different types of planning tools such as
operating, master and zero-based budget. All of them helps to deal with financial problem such
as late payments by clients, unexpected expenses and improper money management system by
forecasting them in advance. All of them helps managers to be prepare for the issues in future so
that these can be resolved appropriately. These planning tools may guide the management to take
appropriate actions at the time of problematic situation so that they can respond them in effective
manner.
TASK 2
PART 1
Calculation of cost using appropriate techniques of cost analysis
Marginal costing: This method is used to determine marginal cost of the company.
While using this method only variable costs are considered and fixed costs are ignored (Maas,
Schaltegger and Crutzen, 2016). Calculation of profits by using this method is as follows:
Particulars May June
Sales (13 per unit) 3900000 3510000
Less: Variable costs
Direct material 450000 450000
Direct labor 600000 600000
Contribution 2850000 2460000
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Less: fixed cost 400000 400000
Net profit 2450000 2060000
Absorption costing: It is used to analyze absorption costs for the organization. All the
variable and fixed costs are taken in to consideration while calculating profits by this method.
Calculation of net profits by using marginal technique is as follows:
Particulars May June
Sales (13 per unit) 3900000 3510000
Less:
Direct material 450000 450000
Direct labor 600000 600000
Fixed overheads 400000 400000
Add: Closing inventory Nil 390000
Gross Profits 2450000 1670000
Less: Selling and distribution expenses 0 0
Net profits 2450000 1670000
PART 2
Application of a range of management accounting techniques
The managers of the organization may use various methods for the purpose of costing.
All of them are as follows:
Standard costing: It is a method which is used to analyze difference between standard
and actual costs of the company. When organization is having higher standard cost as compare to
actual then it results in favorable conditions. If the actual figures are more then budgeted one
then it results in adverse situation for the business.
Normal costing: It is used in the deviation of the cost. All the manufactured products are
valued on the actual cost of the items. In this method the accurate value of labor, material and
overheads are recorded in the books (Malina, 2018).
Production of financial reports and interpretation of data
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While calculating profits by marginal costing method it has resulted in 2850000 for May
and 2460000 for June. The absorption costing technique has resulted in the profits of 2450000
for May and 1670000 for June. The reason behind the difference is fixed cost and closing
inventory because in marginal costing these are not considered and in absorption technique both
of them are considered for the purpose of calculating profits.
TASK 3
Comparison of the way in which organisations adapt management accounting systems
Now a days all the business entities are facing money related problems that are known as
financial issues. When the company is not having sufficient monetary resources to execute
business operations (Renz, 2016). Currently J Rotherham Ltd is also dealing with some of them.
All of them are affecting business execution activities of the company. All the money related
problems of the company are as follows:
Sudden expenses: There are various types of expenses that may take place suddenly and
the managers of J Rotherham Ltd are required to deal with them in appropriate manner. All of
them results in lack of money for business operations. For example, repair of machinery is one of
the unexpected expenses which may take place suddenly and then managers are required to pay
them from the reserved amount. It creates a deficiency of funds for the organisation.
Late payments by clients: Some times clients who buy goods on credit make late
payments which also results in financial issues. It affects the operational efficiency of J
Rotherham Ltd. It is very important for managers to tighten the credit policy so that the
outstanding amount could be recovered by the entity on time (Salterio, 2015)).
Improper money management system: Money management system of J Rotherham
Ltd. is not proper because the managers are not using the right accounting principles. It is very
important for the organisation to hire skilled staff members so that all the accounting related
activities can be conducted in appropriate manner.
The management of J Rotherham Ltd. Are using two different techniques to identify all
of the financial issues. Both of them are as follows:
Benchmarking: It is a technique which is used to compare organisation’s policies with
competitors so that the issues of the company can be analysed. In Benchmarking is used by the
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