Management Accounting: A. Reyrolle & Company Financial Analysis Report

This report provides a comprehensive analysis of management accounting practices within A. Reyrolle & Company, a British engineering firm. It explores the role and importance of management accounting (MA) in resolving financial issues, enhancing production, and improving employee performance. The report delves into various MA techniques, including cost reports, budgets, and job costing, used to present financial data, manage costs, and optimize pricing. It examines the benefits and limitations of different accounting tools, such as inventory management, job costing, and price optimization systems, and highlights their application in addressing financial challenges like sales variations and profit declines. The report also discusses costing methods like marginal and absorption costing, and elaborates on the integration of management accounting systems and their reports. This analysis aims to provide a clear understanding of how MA supports effective decision-making and financial management within the company, contributing to its strategic goals and overall success.

Management Accounting

INTRODUCTION
Management accounting is the procedure of recording, analysing, sorting, managing
activity of company via different accounting tools and take the efficient decisions to promote the
production of company and employees performance. It helps company to solve various problem
by evaluating the financial data. A. Reyrolle & company is a British engineering company which
is the one of the largest employers company on Tyneside. The aim of the company is to produce
the scientific instrument.
The study represents the role of MA in the company and the requirement of accounting to
resolve financial problem. It helps to explain the various technique used by the organization to
report the financial data like cost report, budget, job costing etc. which helps to present income
and expenditure of company by adopting the abnormal and marginal cost. Report explains the
various benefits and limitations of accounting system tools for controlling the budget. It also
highlights the MA system role to suggest solution for various problem related to the finance such
as variation in sales, revenue, decreasing profit etc.
LO 1
P1 MA and the need of MA system
Management accounting : MA is the procedure of using monetary information to
making the decisions for the company for effective and efficient management (Maas,
Schaltegger, and Crutzen, 2016). It supports managers decision to make policy, strategies, plans
to run the business organization. It is used by the internal users such as employee's, owner and
managers.
Requirement of MA systems
The focus of MA system is to give the information to the external and internal user such
as customer, employees, managers, owner, creditors, shareholders etc. MA system requires
taking the financial statement and evaluate the data via various reports like inventory
management report, job costing report, cost report etc. MA system support the decision of the
organisation take the effective and efficient measures by using the various accounting system.
(Cooper, Ezzamel, and Qu, 2017).
Inventory management system: This system lays focus on using software for managing
inventory level, order the inventory, billing the raw material etc. It is required by the A. Reyrolle
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& company to manage their organization scientific tool and order the quantity when it demanded
in the market (Chenhall, and Moers, 2015). Management of inventory level in organisation help
to reduce the maintenance cost of the inventory in their warehouses. It also supports the
organization to take the effective measures regarding the order level and order the quantity which
they require.
Job costing system : In job costing report the work of task is divided indifferent job and
each job is evaluate on the basis of its importance to the organization. It is used to track the
financial effectiveness and efficiency in the organization. A. Reyrolle & company use the job
costing reporting method to focus on the activity which is highly required by the company. It
helps to monitor and control the different jobs or activities which generate higher profit rather
than to wasting time on less required activities.
Price optimisation system : It is an effective reporting method used by the company to
estimate the price of goods. It helps them to meet their goal and objective by increasing their
profit and revenue of the company. A. Reyrolle & company require the price optimization
system to measure the price of each activity to accomplish the project of providing scientific tool
to the customer (Thomas, 2016).
Cost accounting system : It is used by the firm to record and track production activity by
using the perpetual inventory system. It is required by the company to analyse the profitability,
efficiency and valuation of inventory level in the organization. The estimation of cost of the
product also help to prepare the budget of organisation or firm which measures the activity of the
firm by balancing its performance to the previous month performance. It includes the various
costing method such as job order costing, process costing, traditional costing, activity based
costing etc. (Collis and Hussey, 2017). The use of process costing is to estimate the
manufacturing expenses of process separately, so they can evaluate the cost required by each
process and control the process separately. It also helps the company to manage the tome and
cost by focusing on the individual process rather than to whole process.
P2. Different methods defined under the MA reporting.
This term is defines as a process related with preparation of internal statement by
considering all the monetary as well as arithmetical info aiding in the process of decision making
of company's management. It helps company in providing better understanding of current
business operations and assist in making day to day decision for the improvement of commercial
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areas and objects. There are several methods of preparing managerial report that can be used by
A. Reyrolle & Company:
1. Performance Report – The presentation is measured as one of the greatest significant
for every commercial organization which helps in conducting functions related to
monitoring, controlling and reviewing performance level of its operations, processes. It
further assists in monitoring performance of employees and team as a whole as involved
in carrying on a particular business activity. Furthermore, such report provides a base to
A. Reyrolle & Company in strategic decisions for future growth and success of both.
Such delivers a bottomless vision around the employed processes, concepts and
techniques relevant for smooth business activities (Maas, Schaltegger and Crutzen,
2016). By keeping track, it helps in determining whether company is performing
effectively as per the strategies and plans made on the way to the achievement of
commercial areas and if any changes required.
2. Cost Managerial Accounting Report – It determines cost amount incurred for carrying
on production function of the company. At the time of computing cost amount it takes
into account all the expenses related to raw material, overhead, labour and others issues.
It helps the management of A. Reyrolle & Company in making proper realization of the
cost price as well as of selling prices being charged for their products and services for
estimating amount of profit or loss going to happen in the near upcoming after such
business transaction.
3. Budget Report – It elaborates budgetary targets as made by company for making proper
and effective distribution of available occupational as well as monetary capitals. By
framing financial plans it helps A. Reyrolle & Company in projecting future business
expenses and revenue amount. It helps company in making comparison if actual
outcomes with the estimation made for determining variances if any. Further it provides
details about amount of money required to be spent on carrying on any future business
operations. Thus, A. Reyrolle & Company by formulating budgetary plans and strategies
can make more profit and improves its performance. It provides better understanding to
management in making effective use of limited resources. By the assistance of financial
plan report, assessment can be made of own performance level by evaluating whether
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budget made is required to have any changes thereby determining unproductive business
areas incurring charge incidentals.
4. Account Receivable Aging Report – Such report is best for commercial organizations
that deeply rely on spreading praise amenities and services. It helps in determining the
amount which is due or going to be received in an average time period in lieu of credit
sales made to its customers. It is helpful to company especially in conducting its business
operations by gaining of raw material etc. on the credit basis. It further provides details
regarding list of defaulters which are making default in respect of the non-payment of
money (Novas, Alves and Sousa, 2017). A. Reyrolle & Company can evaluate all the
issues which is coming in the money collection process of the company. For overcoming
this default risk, it is required for company to formulate and implement strict policies and
plans in context of business operation carried on credit basis.
This system provides assistance in form of functions such as managing, controlling and
evaluation of all the business operations thereby suggesting any modification required for
making improvement therein. A. Reyrolle & Company by using this system can get benefits in
ways such as:
Management Accounting
System
Benefits
Cost Accounting System AA Reyrolle & Company by designing
financial plan can make contrast of real with
predictable one. Also, it helps in assessing the
most cost incurring part of business department
which is unproductive and unnecessary.
It helps in determining the cost associated with
operational activities, its efficiencies.
Inventory Management System It provides support to company in identifying and
minimizing all the cost related expenses which are
associated with the business operations (King and
Clarkson, 2015).
It helps in making proper valuation and
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management of inventory level which can bring
improvement in performance among its customer
and market and increase profitability.
By this scheme the stock out condition can be
avoided and management can have proper
inventory level.
Job Costing System It helps in assessing cost which has been assigned
per job or business activity for making effective
decision related to business process.
This scheme of management accounting helps in
observing, following level of performance of all the
individual employees as well as of the team for
making changes related to cost control, improving
business efficiency and productivity.
Elaborating integration of management accounting system and report
Management accounting system & report is used by company to evaluate performance by
taking different measures and using the various report to improve the effectiveness and
efficiency of the company. A. Reyrolle & company use the MA system to make the report for
gathering information regarding the company. The gathered information is evaluated by the
internal user such as managers, employees and owner to provide the efficient information to the
external users such as customer, creditors, client, government and stakeholders. MA report helps
to record all transaction regarding its sales, revenue, profit and expenses for the different purpose
such as to control the cost, managing the activities, deliver the products on time and improve the
performance according to the requirement and demand of the customer.
LO 2
P3 Use of different costing technique to prepare the income statements
MA techniques and tools : Organization use the MA tools and techniques to calculate
the cost of the company task. It supports them to control the cost of the production and ascertain
the area where the changes are required. There are different kinds of tools which help them to
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present the income and expenditure of the company in proper format and as=certain the net loss
and profit in particular year (Scoccia and et.al., 2018).
Marginal costing : It is the method of calculating the cost by changing in per unit of
output. It is used by the company to determine the optimum use of resources and quantity of the
products manufactured by the company. It also helps to manage the product price when the
customer demanded the minimum price of the product with the higher quality.
Absorption costing system : In this method only fluctuating cost is assign to the
inventory of the organization. It includes the various cost like material expenses, employment
cost, fixed and variable overhead related to manufacturing activity etc. it is required for different
kinds of reporting such as income tax and external financial report (What is absorption costing?,
2019). The major variation in these to costing method is fixed cost. Marginal cost exclude the
fixed cost in its calculation but absorption cost method use the fixed cost in the calculation of
cost per unit and preparation of income statement.
Annex A
Calculation for the period 1
Basis Value in £
Total Production
Dining table 5000
chair 20000
SP of the material
Dining table 590
chair 90
DM
Dining table 215
chair 20
Total labour
Dining table 90
chair 30
Total production O/H (variable)
Dining table 25
chair 5
8

Total fixed cost of the material 410000
Unit sales
Dining table 4350
chairs 16000
Total production cost of the material
Dining table 330
chair 55
Per unit fixed cost 16.4
Cost of production
Dining table 346.4
chair 71.4
Preparation of income statements by marginal cost
Basis Description Value in £
Total generated
income(Revenue)
Dining table 2566500
chair 1440000
4006500 4006500
Subtract
Material 935250
Dining table 320000
chair 1255250 1255250
Labour 391500
Dining table 480000
chair 871500 871500
production O/H (variable) 108750
9

Dining table 80000
chair 188750 188750
2315500 2315500
Subtract closing inventory 214500
Dining table 220000
chair 434500 434500
Contribution 1256500
Subtract Fixed costs 410000
Total Net gain 846500
Preparation of income statement by using absorption cost
Basis Description Value in £
Total generated revenue 2566500
Dining table 1440000
chair 4006500
Subtract 4006500
Material 935250
Table 320000
chair 1255250 1255250
Labour 391500
Dining table 480000
chair 871500 871500
production O/H
(variable)
Dining table 108750
chair 80000
188750 188750 2315500
10

Subtract total Fixed
costs 410000
Subtract closing
inventory 410000
Dining table 225160
chair 285600 510760
510760
Total net gain 770240
Interpretation : It can be concluded from the calculation that by using marginal cost
the company generates the 846500 profit and by using the absorption cost the company is able to
generate the 770240 profit. It can be analysed that the company generate higher profit by using
the marginal costing method. The cause of generating the greater profit is that marginal costing
method exclude the fixed cost in preparation of income statement While the other method,
absorption cost includes the variable cost, fixed cost and overhead cost. It can also be interpreted
that absorption cost is the better method in compare to the marginal cost because it presents the
true position of the company by considering all the cost.
Calculation of the data for the 2 period
Basis Value in £
Total Production
Dining table 5200
chair 22000
SP of the produced material
Dining table 590
chair 90
Total DM
Dining table 215
chair 20
Total DL
Dining table 90
chair 30
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Total O/H (variable)
Dining table 25
chair 5
Fixed cost of the production 482000
Production sales unit
Dining table 1700
chairs 19100
Total cost of production
Dining table 330
chair 55
Per unit fixed cost 17.72
production cost (fixed)
Dining table 347.7
chair 72.7
Opening inventory + total purchases – sales =
closing inventory
Dining table
650
4000
Opening inventory
Dining table 4150
chair 6900
Preparation of income statement by using marginal costing method
Basis Description Value in £
Total generated revenue
Dining table 1003000
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