Management Accounting Report: Renishaw Plc Financial Analysis

This report provides a comprehensive overview of management accounting, focusing on its application within Renishaw Plc. It begins with an introduction to management accounting, its objectives, and its distinction from financial accounting, followed by an exploration of various management accounting systems such as job costing, cost accounting, price optimization, and inventory management, detailing their benefits and applications. The report then examines different management accounting reporting methods, including performance reports, budget reports, accounts receivable aging reports, and cost managerial accounting reports, highlighting their importance for decision-making and financial control. Furthermore, the report delves into the calculation of costs using marginal and absorption costing methods to prepare income statements and analyzes the advantages and disadvantages of various planning tools used for budgetary control. Finally, it compares organizations adapting to management accounting systems, and provides a conclusion summarizing key findings and recommendations.

MANAGEMENT ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
L O 1................................................................................................................................................3
P1) About management accounting and various types of systems for management accounting .
.....................................................................................................................................................3
P2) Various methods for management accounting reporting......................................................6
LO 2.................................................................................................................................................8
P3. Calculation of costs to prepare an income statement using marginal and absorption
costing.........................................................................................................................................8
ANNEXURE A...........................................................................................................................8
ANNEXURE B.........................................................................................................................19
LO 3...............................................................................................................................................20
P4. Advantages and disadvantages of different planning tools used for budgetary control.....20
ANNEXURE C.........................................................................................................................22
LO 4...............................................................................................................................................24
P5. Comparison of organizations adapting to management accounting systems......................24
CONCLUSION .............................................................................................................................26
REFERENCES..............................................................................................................................27

INTRODUCTION
Management accounting refers to the use of professional knowledge, abilities and skills
for producing the accounting information so that, the information will support the management
of the organization in developing the policies and also support in formulating the plans related
with various operations of the company. It also supports the manager to monitor and control the
working of different departments of the firm(Alaeddin, O. and Thabet, 2018). The Report is
based on Renishaw Plc. The firm belongs to engineering industry. It was founded in year 1973.
Key peoples of the company are John Deer, David McMurty etc. Renishaw Plc is headquartered
in Gloucestershire, UK. Firm is specialized in machine tools, motion control etc. It offers its
products in different countries across the world. The Report will outline the details regarding
management accounting and things that are required for various systems of management
accounting. It will also describe different methods that are used by organization for reporting
management accounting, techniques for developing a profit and loss statement by using marginal
and absorption costing. At last, the report will focus on advantage and disadvantages of various
types of tools that are used for controlling budgets, the way in which company uses systems of
management accounting for resolving financial difficulties.
MAIN BODY
L O 1
P1) About management accounting and various types of systems for management accounting .
Management accounting-
It refers to the activity of examining the cost of business and operations for preparing
financial records, reports, and various types of accounts related with internal operations.
Management accounting supports the Managers in different departments in taking various
decisions so that, firm can achieve the aims and objectives (Crowther, 2018). It is the activity of
analysing the cost and financial data and then converting the data into information that is useful
for management and employees of the company. It includes various methods that helps in
effective planning for selecting the alternative business actions through evaluation of the
business performance.
Management accounting is different from financial accounting in different ways. Reports
that are prepared through management accounting is mainly for the utilization of management of
the organization. It supports the decision-making of internal users, there is no limit on the

frequency for preparing financial statements. Under management accounting, financial
statements include both the type of information that is monetary and non-monetary. There are
various major role of management accounting such as it helps to determine the profitability of
the business either of a particular product or a project. It also supports the management to
perform analysis of trend. Management accounting presents the reports at the regular intervals
therefore, it supports the management in preparing financial statements (Englund, H. and Gerdin,
2018).
Management accounting systems-
Management accounting system is consisted of several types of concepts, business
practices that are adopted for preparing financial reports and accounts. These reports consider
statistical and financial nature information related with operations of the company. Management
accounting involves internal systems that are used by an organization to measure and control
various processes. There are different types of management accounting systems that can be used
by Renishaw Plc. These systems will provide various benefits to the company.
Job costing system -
System for calculating the cost of different jobs is a type of system that helps to
accumulate and distribute cost of manufacturing of an individual unit. This system is used when
different units that are produced by the organization is having significant cost different from each
other. Information obtained through job costing system will help Renishaw Plc. to determine the
accuracy of the system. It will also help the management to assign cost of inventory to
manufactured items. Job costing system will assist the engineering firm to track the cost of raw
material during the process of production (Hiebl, 2018). It also helps the management to
determine profitable business unit for promoting the growth of business.
Benefit - This will help the management to minimize the expenses, to improve the efficiency and
overall profitability of the firm.
Cost accounting system -
It is a process that is used by various organizations for determining the cost of the units to
estimate the profitability of the business, to control cost and to determine the value of inventory.
Cost accounting system in Renishaw Plc. supports the management to determine the correct cost
of the product that results in ascertaining that which products are profitable and which are not.

The system also assist the firm to estimate work-in-progress, closing value of raw material and
finished goods etc (Hwang, Lin, H. and Shin, 2018). It is further divided in two parts -
Job order costing -
This method will help Renishaw Plc. to accumulate the cost of manufacturing units
separately for different type of jobs Such as civil engineer, site engineer etc..
Process costing -
This method will supports the manager of Renishaw Plc. To accumulate the expenses of
manufacturing items for different process such as process of automation of activities etc..
Benefit - It will help the company to develop financial plan for every financial year that will
result in comparison of standard cost with actual cost of the product.
Price optimization system -
It is a system that helps the business to evaluate the response of customers at various
levels of the price of goods and services of the firm. Price optimization system assists the
management of Renishaw Plc. To determine the price at which firm should sell its products to
the customers that will help to achieve goals of the firm such as providing goods at low cost etc.
(Ismail, Isa, C.R. and Mia, 2018).
Benefit - It will support the firm to fix the price of products that will help to achieve goals of the
business. Therefore, it will assist the management to determine the business area that is incurring
maximum expenses.
Inventory management system -
It is one of the type of system for management accounting that helps the firm to track the
level of inventory, customer orders and delivery etc. The system supports the manager of
Renishaw Plc. in developing bill of materials and other documents related with production. It
also supports the business to control the whole supply chain that is starting from production to
shipping etc. There are various features of inventory management system such as bar-coding,
accounting tools, forecasting inventory and tools for reporting etc.
Benefit - It will support the Manager of Renishaw Plc. to improve delivery process of goods that
will result in increase in profits (Kaplan, R.S. and Atkinson, 2015).
Inventory can be valued with the help of various methods -
Economic order quantity -

It is a technique that helps the firm to determine the adequate level of inventory to be
purchased or to be ordered. This will help Renishaw Plc. to reduce cost of ordering and carrying
cost of raw material ((Weetman, 2019)).
LIFO -
It means Last in first out. Under this method, the goods that are purchased at last by the
firm will be available for sale at first.
FIFO -
It means, First in first out. Under this method, goods that are purchased by the company
will be available first for sale to customers. Company should use FIFO method because it is easy
to apply. (Schaltegger, 2018).
P2) Various methods for management accounting reporting.
Management accounting reporting refers to the process of developing the reports that
includes all the financial as well as managerial information for a particular period. Reports that
are prepared as a result of management accounting helps the management to develop plan,
monitoring and controlling and also in taking decisions related with future (Rikhardsson, P. and
Yigitbasioglu, 2018). There are various methods for reporting the results of management
accounting that will assist the management of Renishaw Plc. in taking different types of
decisions. These are as follows-
Performance Reports -
It is one of the important report for every type of business. Performance Report helps the
business to review the overall performance of the business as well to monitor the performance of
individual employees. This type of report will help the Manager of Renishaw Plc. to take
strategic decisions regarding the future performance of the company. This will also support the
firm to evaluate the performance of each and every department. Administrator of Renishaw Plc.
Will require performance reports for evaluating the future performance of the employees of th e
organization in terms of increase in production of units and cost of production.
Budget Reports -
The budget of an organization includes all the sources of earning income and
expenditures. Budget Reports helps the company to determine the performance of the business. It
helps the Manager of the organization to analyse the performance of different departments to
control the cost of operations. Manager of Renishaw Plc. will use budget reports for providing

incentives to the employees for meeting the financial objectives. It also supports the firm to
negotiate better terms with suppliers. Budget Report is very crucial for measuring and comparing
the actual performance of Renishaw Plc. with estimated work performance. Further, it also helps
the management to allocate the resources of the firm according to the requirement of different
departments.
Account Receivable Aging Reports -
Account Receivable Aging Reports are essential for those companies that depends on
extending the period of credit to the debtors up-to a great extent. This type of report helps the
management to divide the remaining balance of the customers in different time periods.
Therefore, Account Receivable Aging Report will support the management to identify those
customers that can be defaulted in making remaining payment to the company as well as it will
also help to identify the problems that are occurring during the process of collection. Further, it
will help Renishaw Plc. in developing and implementing a strict policy for collecting due amount
from clients (Schaltegger, 2018).
Cost Managerial Accounting Reports -
It consists of all the information related with cost of raw material, expenses of labour,
overheads and any other type of expenses that are incurred deliberately in manufacturing
products. Cost report helps the business to analyse all these types of cost. It also includes various
other elements such as wastage of inventory, cost of labour and cost of overheads etc. that helps
in optimum utilization of the resources in all the departments of the company. This type of
Reports will help the Manager of Renishaw Plc. to determine the price of the units in comparison
with its selling price. Cost Reports also assist the firm to evaluate the profit margin for a
particular period.
Integration between system for management accounting and management accounting
reports -
Management Accounting System is the practice of the business that supports the firm to
prepare various types of managerial reports in effective way for a particular accounting period.
Management Accounting Reports and systems both are interdependent and interrelated with each
other (Weetman, 2019). Interrelationship between Systems and Management Accounting
Reports helps in improving process of company. There are Various types of systems such as Job
costing, cost accounting etc. Systems helps in preparing reports like performance report, budget

report etc. In the absence of any one of them will result in wrong preparation of financial
statements for the accounting period. For example – Budget Report is required to prepare
because it will help Renishaw Plc. to control the cost of operations. These reports will help the
company in preparing financial statements.
LO 2
P3. Calculation of costs to prepare an income statement utilizing absorption costing and
marginal.
Cost is the value of money utilized in production of goods or services and is linked right
from the activity of procuring raw material to delivery of manufactured products or services
(Dearman, Lechner and Shanklin, 2018). There are many kinds of cost that are associated with
this process and can be categorized into many categories like, fixed and variable costs;
replacement and historical costs, opportunity costs etc. the two major costs related to income
statement formation are marginal and absorption costing.
Marginal Costing: - This cost is termed as the change in total cost of a product or service
when the production increases by one unit. In essence, it can be termed as the cost that will be
incurred when one extra unit of any product is produced. Marginal cost is basically used for
ascertaining the variable cost on production volume or output generated.
Absorption Costing: - This costing helps to calculate the total costs related to the
production and then apportioning the total cost to the individual tasks or departments or products
manufactured (Absorption Costing, 2019).
Both the costs assist in preparing income statement of Reinshaw Plc thus helping the
management in utilizing the information related to cast and take decisions accordingly. It helps
the management in taking into consideration all kinds of cost that is associated with product
manufacturing.
ANNEXURE A
Question 1. Profit calculation for period 1 and 2 of Elegant Furniture’s Ltd.:-