Management Accounting Report: J Rotherham Financial Analysis

This report provides a comprehensive overview of management accounting principles and practices, focusing on cost analysis, planning tools, and financial systems within an organization. The report begins with an introduction to management accounting and its significance, using J Rotherham, a manufacturing company, as a case study. It covers the differences between management and financial accounting, and explores various management accounting systems such as inventory management, cost accounting, and price optimization. The report further details different types of management accounting reports, including accounts receivable, inventory management, performance reports, and budget reports. Costing techniques, such as absorption and marginal costing, are explained, along with the reasons for analyzing profit variations. Planning tools, including budgeting, and their merits and demerits are discussed. The report also compares organizations that adopt accounting systems to solve financial problems. This report is valuable for students seeking to understand the practical application of management accounting in real-world business scenarios. This report is contributed by a student to be published on the website Desklib, which provides all the necessary AI based study tools for students.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
Task 1...............................................................................................................................................1
P1 Management accounting system and its demand in organisation..........................................1
P2 Different types of management accounting reports...............................................................3
Task 2...............................................................................................................................................4
P3 Calculation of cost with appropriate technique of cost analysis............................................4
b) Reason for analysing variations in profit ...............................................................................8
Task 3...............................................................................................................................................8
P4 Planning tools and its merits and demerits............................................................................8
Task 4.............................................................................................................................................10
P5 Comparison between organisation that adopts accounting system to solve financial
problems....................................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCE.................................................................................................................................13

INTRODUCTION
Management accounting is study of accounts and transaction which is required to be
present by managers within organisation. It is the process of identifying, classifying, and
interpreting the accounts and information. The main aim of this report is to understand about
management accounting and its requirement within organisation (Arroyo, 2012). For
understanding this J Rotherham has been selected that is manufacturing organisation. It was
established in 1930 that manufacture stone and does architectural work on stone (Overview of J
Rotherham, 2019). This report will covered different topics such as management accounting and
its requirement, Methods which can be used for managing accounting reports and costing
technique that can help to decide the cost of organisation in order to maintain the profits.
Moreover, report discusses about planning tools which is used in budgetary control and different
type of accounting system to solve the financial problems within industry.
Task 1
P1 Management accounting system and its demand in organisation
Management accounting is defined as the process of monitoring, controlling and
evaluating the 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. J
Rotherham Limited is a manufacturing company of hand carved stones currently working in
Yorkshire UK. It is used by all organisation to keep records of all transaction and increase the
profitability of organisation. Management refers planning, organising, staffing and controlling of
business information and activities. It help to maintain the accounts properly and increase the
working capacity of organisation. The main aim of management accounting to make easy
transaction and business decision.
Difference between management accounting and financial accounting
Basis Financial accounting Management accounting
Definition This is an accounting system which
focuses on preparation of financial
statement of a business entity. It is
used for internal or external
This system provides relevant
information that help to make
policies, strategies and plans for
running a business.
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purpose.
Information It involves monetary information
only.
This contains monetary and non
monetary information.
Main objective Its main objective is to give
financial information to outsiders
like creditors, shareholders and
investors.
Its main objective is to make plans
and effective business decision
within organisation.
Management accounting system are used by managers to know the performance and
expand the business activities in a company (Wickramasinghe and Alawattage, 2012).
Management accounting system means a system which is used to get the information about
accounts and transaction within organisation. It help to maintain the proper records of
information and maintain the profitability (Fadzil and Rababah, 2012). The description of some
management accounting system are given as:
Inventory management system: This is important system that can help business
organisation to keep records of inventory and should place next order accordingly. This is mostly
used in inventory management and use it systematically. In J Rotherham, managers use this
system to track and manage the inventory or stock within organisation. In this company, it is
important for managers to track the raw material and manages it to increase the profitability. It is
manages by a software that help to analyse the data and generate reports. The manager of J
Rotherham uses different method that is described as:
FIFO: This means first in first out that states organisation should sell the product which
came firstly.
LIFO: Last in first out method means sell the products which came at last.
AVOC: In this method organisation sell goods and services which help to calculate
average cost for production.
Cost accounting system: This is an effective system which is used by manufactures and
other business concern to record production activities by using a perceptual inventory system. It
is require in all organisation to manage the cost as well as accounts in order to make profits.
Basically, this system works by tracking raw material as managers of J Rotherham go through
manufacturing stage and turn slowly in to finished goods in real time. It help to managers to
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focus on cost and improve the production process that help to increase the profitability. It is
required to give accurate cost by using software that help to maintain the profit margin.
Price optimisation system: This is the system that conclude mathematical analysis by an
industry to define how customers responds for different prices for products and services. It is
used by managers to set the prices of products and influence the customer. J Rotherham is
manufacturing company that works on stone as designing or Architectural work which influence
customers. It uses the software to fix the price of products and maintain the profitability within
organisation. Such as manager of J Rotherham bear all cost and expenses while manufacturing
the products and set the reasonable price. This process help organisation to meet with objectives
like maximisation of profit in a company (Grabner and Moers, 2013).
Presenting financial information
Financial information means information which is related to cash or monetary terms that
help to make business decision. It should be relevant to user, reliable, accurate and up to date
because it help to expand the further business activities. If information will be relevant or
accurate then manager of J Rotherham can make correct business decision. Moreover, it should
be up to date because without up to date managers can not think about future activities and
profitability. J Rotherham is uses job costing system that help to divide and track the cost and
revenues in order to perform organisation functions.
This information should be presented in proper and accurate way that can be understand
easily and managers can make business decision efficiently. If information should be
understandable them organisation can maximize the profits because there is no need to spent
extra money to get understand.
P2 Different types of management accounting reports
Management accounting reporting
Management accounting reporting is regulating on yearly basis by J Rotherham so that
strategies decision can be formulated by managers for the betterment of the organisation. Four
different types of reporting are followed by management of J Rotherham company.
Account receivable reports:
This is the collection tool that assuring the customers pay their invoices. Good
receivables management helps impede overdue payment or non-payment. It is a quick and
effective way to strengthen the company's financial or liquidity position. The report is also used
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by management of J Rotherham Limited to determine the effectiveness of the credit and
collection functions of the company. It is beneficial for the company as it may help to strengthen
the credit policy .
Inventory management reports:
This is a report that shows real time perception of the stock turnover in a accounting
period. This report is generated by manufacturing companies in order to keep track record of
inventory. In J Rotherham it is prepared by the managers to keep detailed information regarding
inventory that are used by the company to perform its operations activities. It help to manage
the report that can assist for inventory handling and real time stock management (Hilton and
Platt, 2013).
Performance Report:
Performance Report measured that result of an activity which is performed by an
individual. This report compare the actual final result with standard input of a specific activities
and variances are being figured out. For example ,Annual performance report analysis for each
employee that what they have contributed for an organisation in the term of performance. J
Rotherham measure the various aspect regarding the current performance of the employee with
their actual efficiency that can help to increase the efficiency and productivity.
Budget report
It is interim management accounting concepts that derives the variances from estimated
prediction with actual performance gained by organization. J Rotherham's managers are
generated the budget report to make sure that all the operational activities are performed in the
estimated budget or not. With the help of this budget report company can evaluate the accurate
output and managers can make appropriate financial decision.
Task 2
P3 Calculation of cost with appropriate technique of cost analysis
Cost volume profit is an analysing method that can be used to define how changes in cost
and volume affect organisation's operating income and net income. It involves flexible budget
and cost variance.
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Cost: This means amount of money which is created business concern in order to
manufacture products and services. It is required in all organisation as it help to define the cost of
manufacturing activities. Different types of cost are defined as:
 Direct and indirect cost: Direct cost means cost which is arises in directly
manner and it provides single cost that help to classify the cost in indirect and
direct. Where as indirect cost are arises in more than one business activity in order
to complete business objects.
 Fixed and variable cost: Fixed cost are defined as a cost which can not change in
business activities or remain fixed. Where as variable cost can be change as per
requirement. It get changes by changing in the level of activity of material cost.
For instance, direct material and direct labour.
Absorption costing: This is a method of costing that apportioned fixed and variable cost
in to cost centre where they are accounted for using absorption rates. It ensures that incurred cost
can be recover from the selling prices of product and services. It help to calculate the accurate
cost of business activities in order to increase the profitability.
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Marginal costing: This is the ascertainment, by defining the difference between fixed
cost and variable cost. In marginal costing, costing are mainly classified in to fixed and variable
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cost. It focuses on different elements like office and administration expenditure, selling and
distribution and manufacturing expenses that defines cost of production. It help to make profit
plan with the help of break even charts and profit graphs.
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b) Reason for analysing variations in profit
According to above calculation it has been analysed that costing method is useful for
organisation as it calculate the net profit and present differences which is arises within
organisation. The are different reason that may be a reason of variation in profit such as
fluctuation in variable expenses, increase and decrease in direct cost.
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Task 3
P4 Planning tools and its merits and demerits
Preparing a budget: Budget is the estimation of income and expenses which is arises
within organisation due to running a business activities. Every organisation should prepares these
budget that help to get information about income and expenses. This is the predetermination
which starts before beginning a project. Such as the manager of Nero Ltd prepares a budget by
recording the transaction such as sale , purchase and availability of resources. This budget help
to give idea about future uncertainties and can be improve if is needed (Kaplan and Atkinson,
2015).
Planning tools are the techniques which is used by managers to control over budget and
use it properly. It also help to increase the productivity and profitability in organisation. The
manager of Nero Ltd uses different types of planning tools or budgets in order to improve the
business performance. The different types of budget are defined as:
Operating budget: This is a financial plan which is designed to meet with organisation's
debt obligations and sustainable growth over time period. It help to operate business functions
effectively. It is important to manage current expenses or fixed expenses. In Nero Ltd manager
prepares operating budget for maintaining the operating activities within organisation. This type
of budget are prepares on the basis of quarterly, half yearly and annually.
 Advantages: Operating budget helps to make plan for day to day operations of
business so not need to run in to financial ditch. It help Nero Ltd to tracking the
actual expenses, projecting future expenses and also help to build investment in
order to perform operating functions effectively. Moreover, it helps to manage the
current expenses and future expenses.
 Disadvantages: It has drawback also such as it is time consuming process that
consume more time. It does not give correct results such as revenues and expenses
can be increases that affect operational activity (Nielsen, Mitchell and Nørrekli,
2015).
Master budget: This is the total of all small budgets which is prepares by managers
within organisation. It involves estimated financial statement, cash forecast, and financing plans.
It help to make budget with the support of all low budgets in order to increase the productivity
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and profitability. In Nero Ltd, manager prepares master budget that help to make financial plan
for gaining profits.
 Advantages: Master budget is the superior of all budget that includes all accounts
in order to make profits. It help Nero Ltd's managers to achieve goals and
objectives after making budgets. Moreover, it help to provide continuous
improvement in order to increase the production.
 Disadvantages: It is rigid that is difficult to update within organisation. The
manager of Nero Ltd can face problem while preparing master budget as low
revenues and high expenses. Managers may not involve new opportunities for the
further growth of organisation.
Cash budget: This is the estimation of cash inflow and outflow of a business over a
certain period of time. This is used to assess the organisation have sufficient balance or not to
operate the business. It involves only cash transaction that should be in monetary terms. Such as
manager of Nero Ltd prepares cash budget by including cash income and expenses that help to
maintain profits.
 Advantages: It help to avoid the debt that increase the productivity and
profitability. Is is beneficial to minimize the cost and maximize the profits by
using cash budget. In Nero Ltd, manager help to maintain the cash transaction
within organisation.
 Disadvantages: It has drawback also such as it is difficult to analysis the
financial information through specific budget. It does not involve non cash items
that creates confusion. As result organisation can not get correct profits within
business entity.
Pricing strategies: This means policies, rules and regulation which is set by managers of
business organisation. Pricing strategy attracts the people in order to purchase the products and
services. Such as manager of Nero Ltd set the pricing policy of products and services in order to
influence the customers. Pricing strategy is used by responsible person who have knowledge
about setting the pricing policy by including all cost which is incurred by organisation. The
different types of pricing policy is defines as:
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 Full costing pricing: This is considered as important approach which is used by Nero
Ltd for making effective practices. In this strategy cost of product and services are
considered as full cost pricing.
 Cost plus pricing: This means a pricing strategy that add a specific amount in cost of
products and services. The manager of Nero Ltd can use this price strategy by adding the
specific amount in cost of product and services. It helps to make effective business
decision by adding prices in cost.
Task 4
P5 Comparison between organisation that adopts accounting system to solve financial problems
Management accounting system is used to make financial decision with the help to
accounts and transaction. It is adopted by business entity to know the financial problems which is
facing by organisation and get the solution of problems. In Nero Ltd, managers uses different
types of management accounting system that help to address the problems and increase the
profitability.
Financial problem are the critical situation for company as it increases losses and reduce
profit margin of entire business. A company should focus on financial problem and in order to
maximize the profits. Some financial problems are defined as:
Unequal cash flow: It is major financial problems which is arises within organisation
such as inflows are not match with outflow. For matching this manager are required to record
every activities like investing, operational and financing activity.
Spending more than income: If company's expenses are more than incomes then
financial problem arises in organisation. Some times managers spend more money on projects
that creates financial problems (Nixon and Burns, 2012).
Techniques to solve the financial problem
Key performance indicator: This is useful technique which is used to measure business
performance. It help to measure process of business and shows success of a business. It involves
financial and non financial indicators that help to track the performance and solve the financial
problems which is arising within organisation. The manager of Nero Ltd focuses on business
processes and function in order to meet with strategic goals (Otley and Emmanuel, 2013).
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 Financial indicator: This is used to assess the financial stability or viability of an entire
project and by focusing on financial performance of a business entity. It expressed as
earnings, profit margin, average order value and return on assets.
 Non financial indicator: This is used in quantitative measures which can not be
expressed in monetary value. It includes performance appraisal, promotion etc.
Benchmarking: This techniques is used to compare company's performance with other
organisation. It help to improve the performance by comparing with competitor entity (Sánchez-
Rodríguez and Spraakman, 2012). It is mainly used to solve the financial problems which is
arising within organisation due to some reason.
Financial governance: It means government policies and regulation which is used to
collect, manage, monitor and control the business performance. It is set up by government to
control over business activities by deciding the policies within organisation. J Rotherham apply
this to solve the financial problem that is spending more than income. The manager of J
Rotherham will make strategy that will help to solve financial issue.
Comparison between Nero Ltd and TPG processing
Basis TPG processing Nero Ltd
Financial Problem This company is facing Unequal cash
flow financing problem because
manager forget to records that
financial, investment and operating
activity (Ward, 2012).
It is facing financial problems
such as spending are more than
income that reduces its profits
and increase debt.
System To overcome from this financial issue
manager should use cost accounting
system that will help to maintain the
records of transaction and other
activities in a systematic way.
For controlling this problems
and increase the profits
company should use inventory
management system that will
help to track the goods and
services within organisation.
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CONCLUSION
From this report it an be concluded that management accounting is very important for all
organisation like small, medium and large which help to maximize the profitability. It provides
appropriate information to top level management and make correct business decision. Different
types of management accounting system like inventory, cost accounting and price optimisation
help to solve the financial problems. Planning tool such as master, cash and operating budget
helps to control the budget within organisation. Business concern prepares different types of
reports which are integrate with accounting system in order to make profits with organisation.
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REFERENCE
Books and Journal
Adler, R., 2013. Management Accounting. Routledge.
Arroyo, P., 2012. Management accounting change and sustainability: an institutional
approach. Journal of Accounting & Organizational Change. 8(3). pp.286-309.
Fadzil, F. H. B. and Rababah, A., 2012. Management accounting change: ABC adoption and
implementation. Journal of Accounting and Auditing. 2012. p.1.
Grabner, I. and Moers, F., 2013. Management control as a system or a package? Conceptual and
empirical issues. Accounting, Organizations and Society. 38(6-7). pp.407-419.
Hilton, R. W. and Platt, D. E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
Nielsen, L. B., Mitchell, F. and Nørreklit, H., 2015, March. Management accounting and
decision making: Two case studies of outsourcing. In Accounting Forum (Vol. 39, No.
1, pp. 66-82). Taylor & Francis.
Nixon, B. and Burns, J., 2012. The paradox of strategic management accounting. Management
Accounting Research. 23(4). pp.229-244.
Otley, D. and Emmanuel, K. M. C., 2013. Readings in accounting for management control.
Springer.
Sánchez-Rodríguez, C. and Spraakman, G., 2012. ERP systems and management accounting: A
multiple case study. Qualitative Research in Accounting & Management. 9(4). pp.398-
414.
Ward, K., 2012. Strategic management accounting. Routledge.
Wickramasinghe, D. and Alawattage, C., 2012. Management accounting change: approaches
and perspectives. Routledge.
Online
Overview of J Rotherham. 2019. [Online]. Available through:
<https://www.jrotherham.co.uk/>
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(Adler, 2013) (Arroyo, 2012) (Fadzil and Rababah, 2012) (Grabner and Moers, 2013) Hilton and
Platt, 2013) (Kaplan and Atkinson, 2015) (Nielsen, Mitchell and Nørrekli, 2015) (Nixon and
Burns, 2012) (Otley and Emmanuel, 2013) (Sánchez-Rodríguez and Spraakman, 2012) (Ward,
2012) (Wickramasinghe and Alawattage, 2012)
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