Management Accounting Report: J Rotherham Limited Case Study Analysis

This report provides a comprehensive analysis of management accounting principles and their application within the context of J Rotherham Limited, a UK-based manufacturing company. It begins with an introduction to management accounting, emphasizing its role in organizational strategy and decision-making, and then details the various systems employed, including cost accounting, inventory management, and price optimization systems. The report explores different management accounting reporting methods like inventory management reports, performance reports, and budget reports, highlighting their benefits and applications within the organization. It critically evaluates how these systems and reports are integrated to improve organizational efficiency and profitability. The report further examines the advantages and disadvantages of planning tools used for budgetary control, such as cash budgets, master budgets, and zero-base budgets, and assesses their role in resolving financial problems. The report also includes cost analysis calculations using absorption costing techniques and discusses the application of different management accounting techniques to improve decision-making and solve financial challenges. Finally, the report concludes by summarizing the key findings and recommendations for the effective use of management accounting practices within the company.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
PART 1............................................................................................................................................1
A. Management Accounting and essential requirement of it's system........................................1
B. Explain different methods which is used in management accounting reporting.....................2
C. Benefits & application of management accounting system in organisational context............3
D. Critically evaluate how management accounting system or reporting integrated with each
others in context of organisation..................................................................................................3
PART 2............................................................................................................................................4
Advantages & disadvantages of planning tools used for budgetary control...............................4
TASK 2............................................................................................................................................6
PART 1............................................................................................................................................6
Calculation of cost using appropriate techniques of cost analysis...............................................6
PART 2 ...........................................................................................................................................7
Application of different management accounting techniques.....................................................7
TASK 3............................................................................................................................................7
Use management accounting techniques to improve decision by solving financial problem.....7
CONCLUSION..............................................................................................................................12
REFERENCE...................................................................................................................................1

INTRODUCTION
Management accounting is the application of professional knowledge & skills where
manager assist the organisation or preparing various strategies and policies (Management
Accounting, 2019). Basically management accounting is the process of monitoring, controlling,
directing and analysing internal situation or try to make it batter for the development of business.
It further helps the business to achieve their goals & objectives. Selected organisation for this
report is J Rotherham Limited which deals in hand made carved stones and it was established in
1927. Founder of this company is Henry Rotherham and it UK based manufacturing company.
This report include the topics such as management accounting, it's benefits, system,
requirements, planning tools and calculation of cost with the help of different accounting tools.
In addition, advantage & disadvantage of planning tools and use of this to resolve financial
problems.
TASK 1
PART 1
A. Management Accounting and essential requirement of it's system
Managerial is the process of monitoring, controlling, directing internal system of
organisation. For this manager have to build various strategies which is beneficial for the
business to achieve their goals & objectives. J Rotherham Limited manager conduct management
accounting process on annual basis which make this possible to identify their actual position. It
will help the manager to analysis their internal structure and help them to take effective decision
in respect of organisation. There are some different type of management accounting system
which followed by the management of J Rotherham Limited (Christ, 2014).
Cost accounting system: It is a framework which is adopted by the organisation to
estimate their each product cost. Which helps in inventory analysis, profitability and help to
reduce cost or try to control for the whole period of production. It is required for the accurate
estimation of product cost which increase the productivity as well as profitability. Manager of J
Rotherham Limited use this system for the identification of each unit cost which further increase
the productivity and help the management to take effective decision on the basis of their
financial statements.
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Inventory management system: It is the system to control their inventory in the
organisation to for the production purpose. It include the technology & monitoring process to
overseas goods and it helps the manager of J Rotherham Limited to know their stock level.
Manger perform their duties according to requirement such as they order inventory when they
see the requirement of production. Inventory system required due to minimum carrying cost
which help to increase profit margin of the company.
Price optimisation system: It is mathematical analysis where management identify that,
customer reaction on different price range of products. In J Rotherham Limited, manager used
this system for the identification of cost which meet with customer's objective & requirements.
It will help the manager to build strategies and take decision for the enhancement of operational
profit (Fullerton, Kennedy and Widener, 2014).
B. Explain different methods which is used in management accounting reporting
Management accounting report is the process of formulating employees as well as
organisational performance and then create a report for the analysis which is further helps in
decision. It is used for the detailed analysis of the organisation in order to maximise production
as well as profit. Their are some different accounting reports used by the J Rotherham Limited
company which is discussed below:
Inventory Management Report: This help the management to build this report for the
purpose of track their inventory level and mostly is used by the manufacturing company. It will
provide the detailed information regarding their stock level. Manager of J Rotherham Limited
use this for the analysis of their stock level, so manager all the updated with it and order more
quantity when it required.
Performance Report: It include the evaluation of employees performance as well as the
whole business performances. In J Rotherham Limited, manger follow this report to measures
the effort given by the employees in the organisation to achieve business objectives & goals.
This report help the management at the time of providing bonus or incentives. So manager can
easily identify the individual who perform well in business.
Budget Report: This report include the projection of project where manager use this for
comparison of budget, identify actual performance through comparing with standard one. It is
called internal report which develop to meet with business goals & targets. Manager of J
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Rotherham Limited use this report which include the detailed analyses of operational activities to
the execution of plan (Hall, 2016).
C. Benefits & application of management accounting system in organisational context
Their are different types of management accounting system which is used by the manager
of J Rotherham Limited and is also disused about the benefits and applications.
System Applications Benefits
Cost Accounting System It is used by the manger of J
Rotherham Limited for the
analyses of each unit cost of
product. That helps the
management to take effective
decision which increase
productivity as well as
profitability.
This costing system help the
manager to identify the accurate
cost of product that further
beneficial for the business to
maximize their productivity
which automatically increase the
profitability.
Inventory Management
System
It helps the manger to regular
keep their eyes on their
inventory level and order
further quantity according to
the requirement (Lavia López
and Hiebl, 2014).
It provide guidance to the
management to track inventory
stratus and it will reduce the
carrying cost and wastage which
higher stock provide higher
expenses.
Price Optimization
System
Pricing system help the
manager of J Rotherham
Limited to identify customer
behavior so they build
strategies which meet with
consumer's objective regarding
price of product.
It is beneficial for the J
Rotherham Ltd. Because it helps
the managers to meet the
expectations of the customers by
deciding appropriate price for the
products and it provide the idea
regarding their buying behaviors.
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D. Critically evaluate how management accounting system or reporting integrated with each
others in context of organisation
In the organisation, management follow the various type of systems or accounting report
which help the manager to analyse their organisational strength and how it positively affect the
business. In the organisational process, price optimization system help the J Rotherham Limited
company where manager can set the best or suitable price for the particular product. Along with
this, costing system helpful for the identification of each unit cost that further helps in
maximizing productivity. Performance report help the manager to evaluate employees
performance as well as organization (Maas, Schaltegger and Crutzen, 2016). These reports and
systems help the manager to collect information and use it in effective way. In the organization
process, it increase productivity and it automatically increase the profitability.
PART 2
Advantages & disadvantages of planning tools used for budgetary control
Budget is the tool which help the manager to estimate the production related expenses or
revenues. It is based on manager's prediction and build with the help of previous years
performance of organisation. For the preparation of budget, it required enough knowledge &
experience to estimate amount regarding each activities. It help the manager of J Rotherham
Limited to keep their finance under control and it's utilization can make budget effective that will
further helps in decision making process. There are various budget which help the J Rotherham
Limited for the further strategy making process and it will be discussed below:
Cash budget: It is a plan where manager of the company prepare expected cash receipt
& disbursement during the period. It includes all the cash inflows and outflow such as revenue,
expenses which paid, borrowings and other payments. Manager of J Rotherham Limited produce
this budget for the analysis or requirement of cash in the organization and maintain their
financial structure in the business (Modell, 2014).
Advantage:
 Manager can identify their limits before spending amount on particular item as well as
become more resourceful.
 With the help of this budget, management can easily measure the deficits and due to cash
budget manager can easily communicate regarding current financial situation.
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Disadvantage:
 It will reduce the power or restrict other to break their limited because everyone have to
spend according to the budgeted amount.
 It limit manager's ability to show their capacity in order to perform well and it reduce the
effectiveness to achieve business goals & objectives.
Master Budget: It is a divisional budget which organisation prepared for the particular
department. So master budget is the combination of all divisional budget and it also include
financial planning, forecasting and budgeted profit. In J Rotherham Limited, manager follow this
budget which help the each division to perform accurately according to the budgeted amount.
Advantage:
 Here, manager have to pay equal attention on every division.
 With the help of this budget, manager can identify the requirement of each department
or which division follow budget or not.
Disadvantage:
 It is very rigid budget, where extension of amount is very difficult.
 It will take too much time to prepare this budget because it involve multiple
departmental budget.
Zero base budget: Manager use this method to prepare monthly or specific time period
budget where they not consider previous budgeted amount. Here, they produce new budget
through zero base and estimate the amount again with deep analysis. Manager of J Rotherham
Limited use this for the understanding of manufacturing expenses which changed according to
time.
Advantage:
 It define the reason behind every expenses or aspect (Nielsen, Mitchell and Nørreklit,
2015).
 This budget, identify the outdated area and modified it with the help of latest tools &
techniques.
Disadvantage:
 Most of the time manager don't have time to prepare or estimate again for the new
budget.
 It is rigid in nature which is similar to the master budget.
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Evaluation of the use of planning tools to solve financial problems:
Manager of J Rotherham Limited use above discuss planning tools to resolve their
operational or management issues with the help of master or zero based budgeting. These report
help the business to resolve their financial problems. It include various problems such as
unexpected payment, late recovery from debtors and other losses. Budgetary methods help to
improve money management through forecasting system. So manger of the company develop
various strategies to deal with unexpected problems. These planning tools help the management
of J Rotherham Limited to deal with difficult situation and manger face the issues and take
necessary actions with full of effectiveness.
TASK 2
PART 1
Calculation of cost using appropriate techniques of cost analysis
Absorption Costing: This costing method use for the evaluation of each unit cost of
product which include variable and fixed cost that occur in manufacturing process. It is used for
the cost analysis and below mentions calculation based on absorption costing techniques and it
will be calculated below mention table:
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
Marginal Costing: This method used for the calculation of cost which include only
variable cost but ignorer the fixed cost that generate at the production process. Calculation of
profit by using marginal costing methods and it will be calculated below:
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Particulars May June
Sales (13 per unit) 3900000 3510000
Less: Variable costs
Direct material 450000 450000
Direct labor 600000 600000
Contribution 2850000 2460000
Less: fixed cost 400000 400000
Net profit 2450000 2060000
PART 2
Application of different management accounting techniques
Managers of the organisation use different management accounting techniques for the
calculation of cost and it is discussed below:
Standard Costing: This method used for the comparison between actual or standard cost
of the business. When product standard cost is higher then comparison then it will be considered
as favourable condition and similarly when actual cost are higher then standard then it is adverse
condition (Otley, 2016).
Normal Costing: This costing methods used for those components which drive the actual
cost of material, labour and overheads rate. This method provide accurate value of their overhead
expenses.
Produce financial reports and interpretative the data:
After calculating net profit with the help of different costing methods, it has been analysis
that net profit of the month of May is 24,50,000 by use of absorption costing methods and
16,70,000 for the June. By use of marginal costing methods, net profit is 28,50,000 or 24,60,000
for the month of May or June respectively. Net profit is different by using different methods and
it will happen due to fixed cost of product. Because in the marginal costing, fixed cost not
consider.
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TASK 3
Use management accounting techniques to improve decision by solving financial problem
Organisation face the lots of issues regarding their finance and it will further create the
problem and affect the business or it's operational activities. That further reduce the productivity
and profitability which become barrier for the business to achieve their objectives & goals.
Recently J Rotherham Limited face some issues which affect the production process and some of
it discussed below:
Unexpected expenses: J Rotherham Limited prepared various budget but some times it
happen that projected amount will be exceed because of some unexpected expenses. Such as
repairing of machinery, increase raw material price which affect the most and create financial
problems in the organisation. For this, manager have to prepare other strategies to deal with these
problems which can occur any time and it increase the chances of deficit in the budget (Renz,
2016).
Late payment from client side: It is the main problem of organisation because creditors
of the company not pay their amount on time. Even they delay for the payment which create
problem and the business and profitability.
Manager of J Rotherham Limited use various techniques which help the organisation to
identify financial problem and also provide effective way for the solution. These are mentioned
below:
Key Performance Indicator (KPI): It is a measurable tool which indicate that how
effectively an organisation can achieve their goals & objectives by optimum use of resources.
Manager of J Rotherham Limited use this KPI technique for the analysis of unexpected
expenses. It provide idea regarding this issue, so it will not repeat in the future. So manager have
to build strategies according to it and for the achievement of business gaols & objectives (van
Helden and Uddin, 2016).
Benchmarking: This technique used for the comparison of organisational policies with
their competitors, so manager will analyse the variation and then analyse it. It will used for the
recovery of their creditors payment. How other organisation recover money from their creditors
which is used by the J Rotherham Ltd and apply in their organisation to reduce this problem
(Salterio, 2015).
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Financial Governance: All financial issues will be resolve with the help of financial
governance that is used by the manager of J Rotherham Limited. It provide guidance to
implement various principles or standards which helps the business to run their operations very
well. Unexpected expenses will be faced if manager prepare for this and develop strategies
through maintaining funds. On the other hand, late payment will be deal with restricted policy
for the creditors otherwise take tough actions regarding this.
Income statement of J Rotherham Limited for the year 2017-18.
Particulars 2018 2017
Revenue
Total revenue 1069820 1062200
Cost of revenue 674560 662930
Gross profit 395260 399270
Operating expenses
Selling general and administrative 332470 334860
Others 4950 6320
Net profit 57840 58090
Balance Sheet of J Rotherham Limited:
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10

Calculation of Ratios:
Current ratio= Current assets/ Current liabilities
0.89657189
66
0.93741808
65
Particulars 2017 2018
Current assets 153260 114440
Current liabilities 170940 122080
Interpretation: Current ratio shows that, the level of current assets or current liability is
not appropriate as its current assets are not sufficient to meet its current liabilities in any of the
year because ideal ratio is 1:1.
Quick Ratio= Quick assets/ Current
0.45284895
28
0.29767365
66
Particulars 2017 2018
Quick Assets 77410 36340
Current liabilities 170940 122080
Interpretation: Quick ratio represent the liquidity of J Rotherham Limited and it is not
solid as quick assets because it is not sufficient to meet current liabilities by realization of assets
in short duration of time to meet some uncertain liabilities (Schaltegger and Burritt, 2017).
Debt-Equity Ratio= Total debt/ Shareholders fund
1.40332034
34
1.67208384
61
Particulars 2017 2018
Total Debt 442930 394060
Shareholders Fund 315630 235670
Interpretation: It shows the poor performance of J Rotherham Limited where amount of
total debt is higher then shareholders in both the year which is not a favourable condition.
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Total Asset Turnover Ratio= COGS/ Total Asset
0.81825026
54
0.91444683
94
Particulars 2017 2018
COGS 662930 674560
Total asset 810180 737670
Interpretation: Total Assets turnover ratio represent that returns & refunds are earned
by J Rotherham Limited through human resources of the organisation. It is below 1 it shows that
earning by employing funds in the assets are not sufficient for the business.
J Rotherham Limited C & K Holdings
Cost accounting system help the manger to
deal financial problem that can be occur any
time. So manger have to be prepared for these
kinds of situation.
This organisation used inventory
management system to keep regular review
of their inventory level that is used for the
operations.
Company use price optimisation system so
manager deal with creditors late payments
issues. Where manager set a price for the
production so creditor may pay their balance
amount.
Cost accounting system help the business to
identify their each product cost (Shields,
2015).
Inventory management help the manager to
identity their product cost and further it is
beneficial for the strategic decision.
Price optimisation help the manager to
identity the buying pattern of customers
(Tucker and Lowe, 2014).
CONCLUSION
From the above calculation, it has been concluded that management process help the
organisation to maintain their internal process. For this manager required to use various system
such as cost or inventory management system which help the business to reduce their cost and
control for the whole duration of production. It will increase the productivity as well as
profitability. In addition, planning tools used to solve financial issues which occur due to
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unexpected situation. It will be resolved through KPI or benchmarking techniques that increase
the efficiency & effectiveness of work.
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