Management Accounting Report: R.L. Maynard Company, Unit 5 Analysis

This report delves into the significance of management accounting within a business context, using R.L. Maynard Company as a case study. It explores the fundamentals of management accounting, including its role in decision-making and the essential requirements of various management accounting systems such as traditional cost accounting, lean accounting, throughput accounting, and transfer pricing. The report further examines different methods used for management accounting reporting, including job cost reports, sales reports, cost accounting, and budgetary reports. A key focus is on applying cost analysis techniques to prepare income statements using both marginal and absorption costing methods, comparing their approaches and outcomes. The report highlights the differences between these methods, emphasizing the importance of absorption costing for providing a comprehensive view of a company's financial position. The report also contains the calculation of income statements using marginal and absorption costing methods.

UNIT 5
MANAGEMENT
ACCOUNTING

Illustration Index
Illustration 1: Income statement on absorption costing basis..........................................................9

Index of Tables
Table 1: Income statement on the basis of marginal costing...........................................................9

INTRODUCTION
Management accounting is a discipline of accounts which reflects professional side, just the
internal one and has a greater significance in decision making. Management accounting helps
in making decisions related with business after planning so that a systematic procedure of
identifying, measuring, analysing, interpreting and communicating can be followed. In a
business enterprise, there are different times when management must take decisions regarding
daily business as well as some essential works.
For this purpose, they must revise and go through various reports that can impact their
decisions (Kaplan and Atkinson, 2015). Hence, management accounting report presents the
accurate information to the management so that they can come to a decision. The present
report demonstrates significance of management accounting in business environment. For
this purpose, R.L. Maynard company of UK has been chosen as a referred organisation. This
is a construction based company whose strength is 24 workers. The report contains
information about different types of income statements that a company uses along with its
benefits and drawbacks. In addition to this, various issues related to management accounting
will be addressed.
LO 1: Demonstrate an understanding of management accounting systems
P1 Explain management accounting and give the essential requirements of different types
of management accounting systems
The management accounting system is a tool which helps the organisation to keep an eye on
various types of costs and expenses that can be incurred in the production of goods and
services (Macintosh and Quattrone, 2010). In context of R.L. Maynard, the organisation has
several expenses which are necessary to be tracked so that they can have better information
regarding different costs. This will also be helpful in keeping a track of business so that they
can manage their day to day works the management accounting has the more importance in
field of business as it includes various branches of finance as well as management because of
which business enterprises can have an overall control on activities of production.

This contains wide and accurate information which makes it easier for owner of business to
have a control over business activities and take effective decisions as well. In context of cited
organisation, the top management which consists of various managers, owners and board of
directors need reports on management accounting so that they can have an overview of
different types of expenses and revenues so that they can reach to a proper decision
(Baldvinsdottir, Mitchell and Nørreklit, 2010). The management accounting report contains
different amounts discussion like cash available, sales revenues, purchases, etc. which helps
in making decisions related to the organisation. The cost accounting and the financial
accounting reports are used as a base to make the management accounting reports.
In addition to above the importance of management accounting, attempts to study those costs
which are related to the production of products and services. As per this, there are some
systems which are used under management accounting systems.
These systems are as follows:
 Traditional cost accounting: This is the conventional method of accounting which
had a lot of different procedures as compared to modern accounting system. This
system is generally adopted by companies who are engaged in production sectors. For
keeping tracks related to costs, management uses job order process or costing
methods. These methods are mainly based on determining allocation of costs (Lukka
and Modell, 2010). About said firm, these allocations include different costs like
direct materials, direct labour and manufacturing expenses. The job orders are mainly
used by companies for large size projects so that wide number of expenses and
different costs related to each factor can be traced back easily. Apart from this, the
process costing refers to various costs that are related with procedures that are
undertaken to produce similar goods and services. The costs involved in this process
are difficult to identify as they are run in a continuous way.
 Lean accounting: The Lean accounting is a modern concept in management
accounting which presents a very wider view in terms of considering costs. It is
evident that different accounting systems which are used in management system only
considers various costs and their calculations (Garrison and et.al., 2010). While Lean
accounting presents a different view where after taking into consideration about costs,
it also presents ways that can help in minimising costs which can lead to eliminating
wastages from production. In stated business entity, the finance department gives
financial information to the top management so that they can take decisions by

measuring the profitability. However, they also make efforts which can aid in
elimination of costs that are proving to be of wastes by using given information.
 Throughput accounting: Generally, the throughput accounting system is not seen as
individual accounting process and taken into traditional system. The major purpose of
this system is to determine different constraints that are acting as a barrier in
production system of company (What are the different types of management
accounting systems? 2017). In cited organisation, this system is used at a broad level
so that deficiency of any material, labour or other facilities can be ascertained as early
as possible. This helps in reduction of these constraints so that they can be removed
and throughputs can be increased for enhancing production capacity. This results in
reduction of costs of product.
 Transfer pricing: The transfer pricing method includes various costs which are added
because of movement of good through each department and process. Thus, on each
stage, small portion of costs are added to the products which eventually gives benefit
to the organisation (Van der Stede, 2011). The calculation of transfer pricing is done
by including the expenditures that incurred for transferring the goods.
P2 Explain different methods used for management accounting reporting.
 Job cost reports: The job costs report is a significant accounting report which are
maintained by organisation so that they can have an information about position of
firm in context of profits and losses. In addition to this, it is an internal report which
are required by the top management so that they can take decisions regarding
modifications. These decisions regarding alterations are taken based on present
condition of firm as expenses and revenues can be adjusted in efficient manner. These
reports also act as a monitoring work in which each job's cost is studied and further
planning is done accordingly.
 Sales report: The sales report gives information about the sales of company as per a
specific time. This report is essential in taking a decision for top level management as
any increase or decrease in the sales units can have a considerable impact (Pipan and
Czarniawska, 2010). The sales report gives a detailed information regarding the
increase or decrease in organisation's sales for a period along with its causes. Any
positive changes in the sales are studied and continued for maintaining the current

level. While the decrease in a sales and productions are studied so that necessary
improvements can be done. By having a report on sales figures, the company can
match its revenues earned in that specific time so that a right status of organisation
can be determined.
 Cost accounting: The cost accounting presents a report which consists of various
types of costs that are incurred by said company. This report helps in making various
decisions which are useful in making changes in the cost structures. These changes
can help in attaining minimum cost of operations for company. This accounting report
also gives information about the company's performance as well as transfer pricing,
variance and standard costing which are used by internal management to take
significant information related to firm (Weißenberger and Angelkort, 2011).
 Budgetary report: The budgets are the basic requirement for any firm which includes
information about planning that is done by companies for allocation of funds. The
budgetary report includes planning in which management makes the standards for
performance as well as determine targets that are to be achieved by employees in a
particular period. Thus, the management takes decision after comparing the actual
results with planned ones based on which action plans are made if required. The
deviations occurring in results are attempted to remove with the help of corrective
measures. The budgets made in initial stages also help in keeping the cash outflow of
firm in control as due to strict budget, any unproductive investments can be avoided.

LO 2: Apply a range of management accounting techniques
P3: Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs.
The income statement of an organisation states the performance of a firm in financial terms
which is based on a fixed period. In this statement, management attempts to demonstrate the
activities of a business which has resulted in creation of revenues or expenses (Pipan and
Czarniawska, 2010).
There are two methods per which income statement of a company can be prepared which are
Marginal and Absorption costing method. As per the given situation, statement in both ways
can be made in following way:
Illustration 1 : Income statement on marginal costing basis - change the table its not
marginal costing ( for marginal costing its not gross profit etc) make the interpretation of
the table after changing
The marginal costing method refers to a method in which either increment or decrement
regarding total cost of production incurred for making one extra unit is calculated.
Particulars Amount in £ Total in £
Sales 21000
Less: Variable costs and expenses
Cost of goods sold 6600
Variable production overhead 1200

Variable sales overhead 600
Total 8400
Costs 12600 £
Table 1: Income statement on the basis of marginal costing
Illustration 1: Income statement on absorption costing basis
The two methods of preparing the income statements have been presented in the
above figures. In the first table where calculation done through marginal costing method, it
shows that R.L. Maynard company has the cost of £12600 at the end of period. While in
second table, where calculation has been done through absorption method, has shown that
company has made a profit of £ 9300. in both methods, it is evident that organisation has
successfully made a profit (Shah, Malik and Malik, 2011.). While, it is significant to consider
here that amounts of profit gained in both methods are different. This difference is a result of

major point in which both calculations use to differ. The income statement based on marginal
costing which has shown profit of £12600 is depicting greater profits as it considers only
variable costs. Thus, the amount of total expenses in in this statement is £ 1800. While in case
of Absorption costing method, amount of profit is less as it considers both variable as well as
fixed expenses which are incurred by company because of production. Thus, both methods
have their own procedures of making calculations per which the amount of profit and loss can
be different.
In practical business situations, it is evident that Absorption costing method is better
to apply by companies. Said method of accounting takes into consideration both types of
expenses either it is fixed or variable (Harris and Durden, 2012). Thus, it is helpful in getting
more viable and right information about financial position of a firm. Contrary to it, the
marginal costing method only considers variable expenses. Thus, it does not give a true
picture of financial position. Therefore, most of the business firms use to adopt absorption
costing method. The absorption costing is better as it makes adjustments on the basis of
different operating expenses so that cost of company can be kept in control. In addition to
this, it also assist in ascertainment of the total cost so that profitability from that task can be
determined in advance.
Difference between two methods of management accounting techniques
There are several differences between both methods of marginal and absorption costing
methods which can be stated in below mentioned manner.
Basis of difference Marginal costing Absorption costing
Meaning The marginal costing is a tool
which is used for measuring the
cost of production considering
only variable expenses incurred by
a firm.
Absorption costing method is a
technique of measuring the total
cost of production including all
types of expenses incurred for it
(Kaplan and Atkinson, 2015).
Recognition of cost It considers only variables
expenses; hence it takes the
variables expenses as cost of
product.
Both types of fixed and variable
expenses are considered under cost
of product.

Calculation of
profitability
The calculation of profits can be
measured through a definite
method of profit volume ratio.
As it considers fixed costs as well,
it results into more fluctuating
results in profitability.
Impact on unit cost The per unit cost of products are
not affected because of differences
between amounts of opening and
closing stock (Lukka and Modell,
2010).
Due to inclusion of fixed
overheads, there is a considerable
impact on per unit cost of product
if there is a variance in opening
and closing stock amounts.
Presentation In this method, contribution of
each unit is highlighted
In this method, presentation is
done based on conventional
method as it highlights net profit of
each product.
Difference in profit
amounts
In this method, amount of profit
calculated is higher as it deducts
only variable expenses (Pipan and
Czarniawska, 2010).
This method shows relatively less
profit as it does include all types of
costs in calculation.
Purpose The marginal costing method is
utilised by organisations for
reporting system of internal
management. Thus, helps in better
management and decision making
in business.
The absorption costing method is
applied for reporting system of
external management (Garrison,
and et.al., 2010). It helps in better
management as well as in
treatment of inventory available
with business.