Management Accounting Report: R.L. Maynard's Financial Analysis

This report delves into the realm of management accounting, tailored for a company named R.L. Maynard. It begins by defining management accounting and outlining its essential requirements, including job order costing, cost accounting systems, inventory management, performance management, traditional cost accounting, and transfer pricing. The report then explores various management accounting reporting methods, such as job cost reports, sales reports, cost accounting, and budgetary reports. A significant portion is dedicated to calculating costs using appropriate cost analysis techniques to generate income statements, along with a comparative analysis of marginal and absorption costing. The report further examines the advantages and disadvantages of diverse planning tools used for budgetary control, offering a comprehensive overview of financial management practices and decision-making processes within a business context. The report is well-structured with tables and illustrations to explain the concepts.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explain management accounting and give essential requirement of various type of
management accounting system..................................................................................................1
P2 Explanation on different types of method used in management accounting reporting..........4
TASK 2............................................................................................................................................5
P3 Calculate cost by adopting appropriate techniques of cost analysis to prepare an income
statement and also explain difference among marginal as well as absorption costing...............5
TASK 3..........................................................................................................................................10
P4) Advantages and disadvantages of various type of planning tool used for budgetary control
...................................................................................................................................................10
CONCLUSION .............................................................................................................................16

INDEX OF TABLES
Table 1: Difference among marginal and absorption costing method............................................8
Table 2: Variance analysis.............................................................................................................11
Table 3: Responsibility accounting...............................................................................................11
Table 4: Adjustment of funds........................................................................................................12
Table 5: Zero-based budgeting.....................................................................................................12

ILLUSTRATION INDEX
Illustration 1: Income statement through marginal costing.............................................................6
Illustration 2: Income statement through absorption costing system...............................................7

INTRODUCTION
Management accounting is the most important for each and every company as they are
used by managers for the purpose of make decisions regard to business activities. The report are
generated by the accountant on the weekly as well as monthly based that are regard to each
department are finance, marketing, human resource and production. It assists management to
make the effective decisions as it show the company performance and profitability over a
specific accounting period. The present research project report are context to the R.L. Maynard
in which there are less than 50 employees work and they generate profit annul turnover that is
less than £500,000 (Shah, Malik and Malik, 2011). There is mainly discussion on management
accounting as well as also study on the different type of management accounting system that are
essential for the company. Thereafter, there is an explanation on various management accounting
system and discussion on marginal as well as absorption costing. It shows that which techniques
is better to determine the net profit or loss among these two costing. Furthermore, there is also a
discussion on the various type of management system can respond the financial problem.
TASK 1
P1 Explain management accounting and give essential requirement of various type of
management accounting system
General Manager
R.L. Maynard
Management accounting is used by manager to make short-term decisions in which it
involves management report and accounting information that provide accurately on right time
when required. It usually generates weekly or monthly basis reports for the internal audience
within the organisation that involve managers of department and CEO. Thus, in these
managements accounting reports indicate that cash inflow, revenue generated through sales,
account payable, stock, raw material and it also shows variance analysis. It is a just opposite of
financial accounting which produce reports for the internal stakeholder of an organisation. The
information presents in management accounting are used by manager for the purpose of making
decisions are related to future time period whereas, financial accounting are show historical
data. Therefore, it has some advantages that help companies by getting information they analyse
quality of product in which the reduce expenses (Harris and Durden, 2012). The R.L. Maynard
1

used this information in which they develop master budget that reduce unnecessary expenses
and enhance cash flow. The main benefits from these accounting they can easily forecast related
to financial that involve impact of prices changes on economy, consumer demand and potential
sales etc. It directly facilitates financial returns from the function and operation of business.
Management accounting is the process which support an organization in analysing and
interpreting the information effectively. With the help of this tool cited firm can manage its
operations well and can make sound business decisions. In the modern business world it is
essential for entities that to compare their performance with other competitors. This is possible
by using management accounting tools. By comparing financial statements of these firm's entity
can identify its loop fall and can improve their performance.
Management accounting is essential for the growth of business. It helps in identifying
the mistakes and making sound business decisions. These tools and techniques support an entity
in making control over cost and improving cash flow in the corporation.
The requirement of various management accounting system used by R.L. Maynard that
are as follows-
 Job order costing system: In this costing system, management accountant records
expenses incurred in manufacturing process. It includes expenditures on purchasing raw
materials, labour and additional overhead (Kaplan and Atkinson, 2015). However, by
analysing these costs, price determination ideas are generated that affect production and
distribution system of R. L. Maynard. Therefore, decisions are made regarding all
expenditures and by which budget for further business operations is made affect further
implementation. Cited firm can use this management accounting tool, it can help entity
in meeting with its objectives. Purpose of the company is to enhance its sales revenues
which can not be possible until cited firm manage its records well. Job order costing is
the great tool that helps in identifying overhead expenses. By this way company will be
able to allocate resource well that will assist in minimizing unnecessary costs. Thus, it
wil be able to gain high profit.
 Cost accounting system: in this process system, all incurred expenses and gained
revenue on business operations are identified. It impacts on profitability and
2

competitiveness of R.L.Maynard by which further decisions are made in terms of cost
effectiveness and increasing revenue of the enterprise. Therefore, cost accounting
system is useful for effective costing and decision-making for production and
distribution of its goods and services efficiently. For example if R.L. Maynard is
planning to expand its business. For that entity will have to manage its cash well it is
possible by cost accounting system. Cost accounting will help in making sound
decisions about the various expenses and it will be able to manage its operations well.
By this way entity will be able to meet with its objectives.
 Inventory management system: Management accountant of R.L.Maynard analyses
inventories and their management regarding production and supplement of its goods and
services. Similarly, it is useful for managing inventories and reducing their wastages
therefore their optimum utilization can be done affect further implementation. Thus,
inventory management system is helpful for managing entire business operations
adequately. It is another tool of management accounting, there are various expenditures
which needs to be manage by the company., IF cited firm manage its inventory well
then it will help R.L. Maynard in reducing wastage and increasing business revenues.
By managing inventory cited firm will be able to meet with its objective and this will
help in gaining competitive advantage to business unit.
 Performance management system: As management accounting is multidisciplinary
approach also plays vital role in performance management of its workers. In this regard,
report on performance of employees' performance is prepared by which their efficiency
and work abilities are identified. Thus, performance of the small scale enterprise can be
managed efficiently by which their personal and professional development can be done.
 Traditional cost accounting: It is conventional method relate to accounting in that
there are variety of procedures that are applied by R.L. Maynard in their production
department. For this, it facilitates them to easily track the various cost and management
adopt job cost method that are based mainly used to measure the allocation of cost. The
cited company used in which they allocate the various cost that involve manufacturing
expenses, direct material and direct labour. The organisation adopt job order process
method in which they track each factor that produces expenses and various cost in
3

manufacturing process. Along with that, the process can be define as a those cost that
are incurred in production process of similar type of goods or services. Thus, it is not
useful in identifying cost when the production process are done continuously.
 Transfer pricing: In the transfer pricing is that price in that there is a division of an
organisation when they make transaction across boarders. Along with that, in
management accounting in which it is that prices in which company transact in different
division. It is used by firm for the purpose of determining cost and there are some
regulation for transfer pricing (Burritt, Schaltegger and Zvezdov, 2011). The rules that
are applied in these prices that shows fairness as well as accuracy. The regulation apply
when company transfer any kind of products such as service, intangible product, loan
and tangible across boarders.
P2 Explanation on different types of method used in management accounting reporting
R.L. Maynard Limited adopt the various methods for the purpose of management
accounting reporting that has been described below-
 Job Cost report: It is most important in accounting report that are managed by company
so, they can easily know their financial performance in terms of profit and loss. Along
with that, the report is given to the internal affairs that are needed by top level
management so, they can easily made effective decisions related to changes. The
decisions that are taken by manager regard to modifications which are made present
firm's condition due to which they made adjustment regard to expenses and revenues in
desired manner.
 Sales report: It is that type of report in which there is detailed information available
regard to sales of product or services of a company (Shah, Malik and Malik, 2011). The
report consist of sale volume per items and also cost that are occur at the time of
promoting firm's sale. It indicate the sales volume of product or services over some
specific time period in which there is a increment or decrement of sales. Therefore, the
top level management used sales report in which they identifying the market
opportunities through which they can increase sales volume. It also used to know the
several problem regard to product demand.
4

 Cost accounting: It is provide a detail information regard to cost through which they can
evaluating the alternative action to control cost. It help the managers to help in providing
analysis of operational budgeting, standard costing, transfer pricing and activity based
costing etc. Apart from this, it also useful in making decisions that are beneficial in
making modifications in the cost structure. The main advantages of these accounting is
that it help in identifying efficiency and it have to manage and make improvements in it.
It also provide detailed information due to which they can effectively manage the
inventory and provide materials when it required.
 Budgetary report: It is that type of report that are necessary for a company to make
budget report that provide information regard to planning. The organisation adopt budget
report that facilitate them to effectively allocate the funds and it is also used to make plan
through which management set target. It also help the company to performance standard
that attain by the staff workers at a particular time period (Elbashir, Collier and Sutton,
2011). The manager make various type of decisions by comparison on performance of
previous year profit according to which they make plan. It also help in finding out the
deviations that can be finding out the difference among actual and expected standard.
Therefore, according to which they can take corrective measure so, that company run
their business function smoothly.
TASK 2
P3 Calculate cost by adopting appropriate techniques of cost analysis to prepare an income
statement and also explain difference among marginal as well as absorption costing
Income statement help the company to know its financial performance in a accounting
period. It is a summarizing into two revenues and expenses by both non-operating and operating
activities. R.L. Maynard measure its performance relate to finance that indicate net loss or profit
in an accounting period.
It has a two methods through which company can able to prepared it income statement
are the marginal and absorption costing (Burritt, Schaltegger and Zvezdov, 2011). In the given
case, there is a need to calculate cost by preparing income statement that are based upon these
two costing. Therefore, it is can determine and explain below in various ways:
1: Income statement that are based upon marginal costing
5

It is that type of costing that can be define as a there is either increase or decrease in the
total cost of production that can be occur at the time of producing additional unit. It can be
calculating below-
2: Income statement that are based upon Absorption costing
It can be define as those cost that are related to production process and it is required at
time of generating inventory valuation that are stated in the balance sheet.
6

Illustration 1: Income statement through absorption costing system
Interpretation: The income statement is prepared through marginal and absorption
costing in the above table that presents data that can be explained further. In the table 1 in which
income statement is calculated on the basis of marginal costing by the R.L Maynard company. It
indicates that the cited organisation show cost that is £12600 over the specific accounting period.
In the another table 2 in which the statement are prepared on absorption costing in which it has
shown the profit amount of company that are made at the end of accounting period is £9300. It
has been asserted that in both the costing method in which there is difference in the profits but it
describes that organisation made a large amount profit (Garrison and et.al., 2010). Therefore, the
income statement that are made on the marginal costing is found 9600 whereas absorption
7

costing is found 9300. Further, in these total amount of expenses occur in income statement is a
£1800. Whereas, in the absorption costing method the profit is less than the marginal costing
method is due to because they consider both expenses are variable and fixed that are occurred at
the time of production. The procedure that are used to calculate net profit or loss is differed from
each other.
Most of the author said that in the business situation is has been evident that most of the
companies think that the absorption costing method is better to calculate profit. It is due to as
they take fixed and variable expenses at the time of calculating that show the accurate as well as
reliable information. It has been also said that from these it shows a true financial position of
company in effective manner.
Table 1: Difference among marginal and absorption costing method
Basis Marginal costing Absorption costing
Definition It is that type of tool that are
used for to ascertained cost of
production by take into
consideration variable that are
occurred within the
organisation (Elbashir, Collier
and Sutton, 2011).
In the absorption costing
method in which it can be
determined cost of production
on the basis of fixed as well as
variable expenses.
Cost recognition In this method, they only
consider variable expensed
under the cost of production.
In the cost of product they
take both type of expenses are
fixed and variable.
Calculated profitability The profit can be determined
that are based upon profit-
volume ratio.
In the calculation of profit of
company they consider fixed
cost due to which there is a
fluctuation in the result of
company profit.
Impact on unit cost The unit cost of product have In these methods there is an
8

a not impact as there a
difference among opening as
well as closing inventory.
impact on the cost of unit as
they concern fixed expenses
due to which there is variation
among opening and closing
stock (Garrison and et.al.,
2010).
Presentation In the presentation there is
each unit will be taken.
It highlighted net profit of
each product in which these
are based upon conventional
method.
Variation among profit amount In this method the profit is
higher as they deduct all the
variable expenses and ignore
fixed expenses.
In that method that show a
less amount of profit as they
take all type of expenses at the
time of calculation.
Aim The main objective of these
marginal costing method is
that it is used by internal
management so, they can make
a better decisions regard to its
business (Modell, 2010).
The main aim of this system is
that they can be applied for
reporting to the external
management. It is best for a
company as they can manage
all the business activities
effectively. It also manages all
the inventory appropriately
when it required.
TASK 3
P4) Advantages and disadvantages of various type of planning tool used for budgetary control
Budgetary control is that procedures that can be used to know the actual performance of
company through which it evaluating with the help data available in budget. It can be used for
the purpose of taking corrective measure on deviations that is difference among expected and
actual performance. Further, it also used to identifying the management performance in terms of
9

budget utilize and control cost. It is a best tool of management accounting through which they
can easily make plan and control. Therefore, it is prepared on the basis of historical accounting
data due to which they estimated the company's future performance. It has some advantages and
disadvantages that has been discussed below-
Merits Demerits
 The main advantages from budgetary
control is that it can help in
coordinating each activity of
departments (Ward, 2012).
 They can easily transfer the strategic
plans that are put into an action for the
upcoming year.
 It highly improves in allocating
resources that are well defined.
 It gives facility to the organisation for
the purpose of making corrective
action through reallocations.
 It creates problems at that time when
budget made mechanically and
inflexibly.
 It does not involve individuals in an
organisation due to that reason
employees are highly demotivated.
 It establishes competition and politics
among staff members.
 Lack of participation it will reduce
innovation that does not give an
opportunity to generate more revenue.
Planning tools of budgetary control
R.L. Maynard adopt various tools to make plan for budgeting that are described below-
 Responsibility accounting
 Variance analysis
 Zero-based budgeting
 Adjustment of funds
Variance analysis: It can be define as a difference among actual and standard
performance of company in which there is a deviation arise that can be known as a variance. It
can be in various types such as labour cost variance, material cost variance and overhead
10

variance (Gow, Ormazabal and Taylor, 2010). Therefore, it can be of two types are the
favourable and unfavourable variance. It has some advantages and disadvantages that are
discussed below-
Table 2: Variance analysis
Advantages Disadvantages
 At the time taking corrective action
that help them to finding out the
reason for overall variance.
 It includes sub-division of various
type of variance that shows the
relationship among each other.
 In this variance analysis that
indicating the company inefficiency
in its performance (Zimmerman and
Yahya-Zadeh, 2011).
 It can be used to control cost
 The variance analysis used by top
management through they can make
proper profit plan.
 It is can be used to minimize the
overall cost that resultant into better
result of management action.
 The variance analysis consume time.
 It requires a huge amount money for
hiring a express to done this work.
 It shows unfavourable variance that
will be highly demotivate firm.
Responsibility accounting- It is system in which an individual person is appointed for
the purpose of prepare report which indicate company's day to day routine overall performance
of a company. The person who are appointed for this purpose that can be functional head,
supervisor, president and foreman etc. There are some merits and demerits that are as follows-
11

Table 3: Responsibility accounting
Advantages Disadvantages
 It can use to control
 It can be useful for the comparison
among the actual achievement and
budgeted figures.
 It also enhances the interest of
individuals as they provide answer of
deviations.
 The main demerit of responsibility
accounting is that is find difficulty
at the time of classification of
expenses in traditional manner
(Kaplan and Atkinson, 2015).
 It also creates difficulty for the
manager as they have to make extra
classification when they find out
difference among responsibility
report and daily report.
Adjustment of funds: It mainly includes adjustment entries that are based upon accrual
accounting. It has some advantages and disadvantages that are described below-
Table 4: Adjustment of funds
Advantages Disadvantages It can be used to identified the error
that helps the company to rectified
accordingly (Modell, 2010). It can be used to maintain the proper
funds through calculation. It facilitates the company to
effectively utilize the funds within
the organisation.
 It consumes time as they required to
make separate calculation for funds.
 It produces expenses as they need to
hire a separate employee to do
calculation.
 It also consumes useful time and incur
cost to finding out the best option for
the adjustment of funds.
12

Zero-based budgeting: It is that type of budgeting that are used for the purpose of
calculating upcoming year expenses with the help of actual expenses. It has some advantages and
disadvantages that are described below-
Table 5: Zero-based budgeting
Advantages Disadvantages
 Accuracy: In the normal budget method
there is a high chances of arbitrary but
ZBB assist the company to look at each
item of cash flow in all department.
Therefore, it is a best method to generate
accurate data.
 Efficiency: In these ZBB assist the
organisation to enhance company's
efficiency level (Lukka and Modell,
2010).
 Budget inflation: The main advantage is
that to give repeated activities of
company that help in identifying
opportunities and ways that are cost-
effective.
 Minimization in redundant activities: In
ZBB each item is justifies that help in
overcoming deficiency of incremental
budgeting.
 Tine consuming: The method more
time for the organisation (Macintosh
and Quattrone, 2010).
 High manpower requirement: It
require a more workforce to calculate
the complex calculation and it is not
affordable by all firms.
 Lack of expertise: It is very difficult
to calculate cost of each line item
that need to train the managers to
make them expertis
P5) Comparison ways in which organisation use management accounting to respond financial
problems.
R.L Maynard adopts the management accounting system so, they can easily respond
financial problem that are discussed as follows-
13

 Financial accounting system: Management accountant of R.L Maynard prepares and
maintains financial statements which present economic position of the entity. In this
regard, he identifies profit and loss account, balance sheet, income statement etc.
Therefore, occurred financial issues can be reduced for small scale enterprise and making
decisions for increasing profitability and effective management of all business operations
(Lukka and Modell, 2010).
 Key performance indicators (KPI): In this process, key performances of all business
operations are identified by which different ideas are generated for reducing monetary
issues (Weißenberger and Angelkort, 2011). For example; costing, budgeting, investment
appraisal etc. Thus, key performance indicators are recognised for financial development
and growth of R.L Maynard.
 Budgetary targeting: It is process for preparing planning procedures for controlling over
excess of production and reducing wastages. However, it is useful for optimum utilization
of resources and fund that affect productivity and profitability of R.L Maynard. Thus,
budgetary targeting plays essential role in reducing economic problems and improving
efficiency of the organisation adequately (Van, 2011). Different budgets are prepared for
decision making on business operations such as; sales, purchase, inventory and
performance etc. Therefore, entire business operations can manage systematically.
 Benchmarking: It is competitive tool for analysing market position of R.L Maynard
which is compared with other competitive entities (Modell, 2010). However, different
ideas are generated for increasing profitability and sustaining good reputation in market
for longer time period. It includes analysing all tools of other competitive entities like;
quality services, price on goods and services, uniqueness in products etc. Therefore,
appropriate decision-making is done for further business operations and implementing
them efficiently.
 Financial governance: It is also essential tool for reducing economic issues and financial
development of R.L Maynard. In this regard, by taking government's aid in improving
monetary position of the small scale would be able to enhance its efficiency and further
implementations. For example; taking loan from financial institutions and other agencies
for further business operations.
14

 Lean accounting: The lean accounting have a main objective is that eliminating wastage,
finding out the errors and make the procedures in understandable. The another
fundamental of these accounting is that they can easily measure procedure due to which
they can easily find out the financial impact on company. It also finding out the financial
problems through performance measurement and also make financial reports on time that
can be easily understood by everyone. Apart from this, it also provide useful information
and measurement that can be made quickly and it can easily find out the financial
problem arise in the company. Thus, it play role as financial expertise due to which they
empower the finance related information effectively.
 Transfer pricing: In these pricing there is a regulation imposed when any organisation
transfer any kind of product such as services, loan, tangible and intangible property
across boarders(Weißenberger and Angelkort, 2011). It can easily identify the financial
problem as it can easily determine cost when there is an transfer of product from on
division to another. Therefore, these price is much differ as a market price as entity loss
transaction they start buying in the prevailing market that it directly impact on company's
financial performance. It also show that firm run its function in effective manner or not as
there is an rules on transfer pricing that make sure that there is an accuracy and fairness
among entities.
 Throughput accounting: It is that type of accounting which are differ from cost
accounting as well as costing as they are mainly focus on cash. It ignore the variable and
fixed expenses as it mainly concern on constraints due to which they can easily respond
financial problem that arise within the firm as. The management make effective decisions
through closely monitor monetary variables that help them to resolve financial issues.
 Cost accounting: It is that type of procedures in which they collect the information,
record them into a system, classify them, make analysis on it, summarize them so, they
can effectively develop the alternative course of action (Van der Stede, 2011). The main
aim of these costing is that it can help the company to control cost as they can easily find
out those areas where there is wastage of resources. It can easily identification of
financial problem with the help of detailed information of cost as the manager control the
cost by planning them in future. It is possible from the financial information that are
15

given in the cost accounting that are used by management to make decision that resolve
the various problem of finance.
 Traditional cost accounting: In these costing in which it help the company to allocating
the factory overhead of products that are highly based upon the production resource
volume. It is one of the best method in which the company can easily make prediction
regard to profit. It take into an account both direct and indirect expenses that occur in a
business through they can easily finding out the problems related to finance. Therefore,
they can easily make prediction regard to profit if they know total cost.
CONCLUSION
Summarizing the whole report it has been concluded that R.L. Maynard adopt the
management accounting system due which they can easily make decisions regard to routine
business operations. The manager can easily make the effective plan due to which they can easily
control the cost and eliminating the wastage of resources. Furthermore, it has been also analysed
there are various type of management accounting system that include lean accounting, transfer
pricing, throughput accounting and traditional cost accounting. Thus, all these system have their
different function that are adopted by the cited company to make the various decisions that are
related to the cost, revenue, expenses, firm's profits etc. Along with that, it has been also asserted
that there are various method that are used to ascertained the net profit or loss with the help of
marginal costing and absorption costing. Therefore, it show from the above table the data explain
that the absorption costing is a best method for the company to measure the net profit that make
the firm's finance position strengthen. Furthermore, the report also describe that budget control is
best method it have a various type of planning tool are the responsibility accounting, job reports,
sales reports etc. which is also used by manager to effectively make plan. It facilitate the
company its actual performance by make comparison due to which they can easily make the
effective decisions due to which the business operation run in smoothly.
16

17

18