Management Accounting Report: Rowlinson Knitwear, Cost Analysis

This report provides a detailed analysis of management accounting practices within Rowlinson Knitwear, a UK-based clothing manufacturer. The report begins with an introduction to management accounting, its importance, and its application within the company. Task 1 explores various management accounting systems, including price optimization, inventory management (FIFO, LIFO, AVCO), and job order costing, discussing their benefits and applications within Rowlinson Knitwear. It also covers different methods for managing accounting reports, such as budgetary and cost managerial reports. Task 2 delves into cost calculation techniques, specifically marginal and absorption costing, to formulate income statements. The report includes calculations and evaluations of financial problems, discussing the application of KPIs and benchmarking techniques to improve organizational success. The report highlights the integration of management accounting systems and reports to achieve strategic advantages and organizational goals. The report emphasizes the importance of management accounting systems in managing finances, controlling costs, and making informed business decisions.

MANAGEMENT
ACCOUNTING

Table of Contents

INTRODUCTION
Management accounting is referred as an accounts management system which is linked to
the analysis, interpreting and monitoring of financial data so that internal decisions related with a
company can be taken in a proper manner. This accounting system is essential for a firm as data
stored in these systems helps manager of a company to formulate appropriate plans and polices
(Adler, 2018). This allow a firms to gain competitive advantage over rivals. This report is written
in context with Rowlinson Knitwear which is a UK based clothing manufacturing company,
situated in Stockport, England. Company earns revenues of around 11.8 million pounds and
employ 30 employees. This assignment is going to discuss about different types of management
accounting report and systems along with costs so that an appropriate income statement can be
formulated. Also, benefits and drawbacks associated with planning tools to control budget is
mentioned.
TASK 1
P1 Mention about management accounting and provide basic requirement for various kind of
management account systems
Management accounting is the procedure in which business operations and costs are
analysed so that income & financial reports related with company can be formulated in a proper
manner. This will allow the manager of firm to take right decisions so that high business
advantage can be gained without any compromise. It benefits the concerned company in gaining
long term benefits against rival firms. This system is mainly used by manufacturing companies
so that information related with inventory, textile, spendings and earnings can be managed in a
systematic manner (Ahmad and Mohamed Zabri, 2015). In relation with Rowlinson Knitwear,
management accounting will benefits the firm in manage their costs and productivity so that high
level of profit margins can be acquired. Below are mentioned different kinds of management
accounting systems along with their role in organisational work:
Price optimisation system: Main purpose associated with this system is to identify all
the costs which takes place while manufacturing a product. Different costs in this context are
selling costs, promotion cost, production costs etc. This system of management accounting
acknowledge about product life cycle, goal level, price strategy etc. which helps a firm in
formulating right business strategies. This system will benefits Rowlinson Knitwear in shaping
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demand and reaction of their clients at different price levels. As product demand is linked with
cost, hence this system will benefits Rowlinson Knitwear in adjusting their price moderately so
that a proper balance between profits and sales can be maintained.
Inventory management system: This system of management accounting is used by
manufacturing companies to keep a track on their inventory. By using this system, a business
firm can check if it has needed material to carry out their production process in an efficient
manner or not. Appropriate management of inventory will ensure Rowlinson Knitwear about
manufacturing of products without wasting any material (Alsharari, Dixon and Youssef, 2015).
There exist varied kind of inventory management systems which are stated below:
 First in first out (FIFO): In this process, those inventories which are purchased earlier
are considered as a priority during manufacturing of products.
 Last in first out (LIFO): As per this process, material and resources which are
purchased last will be used for production as a priority.
 Average cost method (AVCO): In this procedure of inventory management system,
stock available to company is utilised on Average basis. This means average of stock is
selected for production and used for manufacturing purpose.
In case of Rowlinson Knitwear, main raw material required by company are raw fabrics
and cotton bundles so that manufacturing of clothes can take place. Manager of company can
adopt FIFO method so that no resources and raw material will be put on hold for larger time
span.
Job order costing system: This system is mostly used when a company is dealing with
orders of an individual customer. As requirements of a customer is considered here, it is called as
Job order costing system. Here, every job cost is tracked in a separate manner and allow the
manager to identify the amount of material, resources and man power required to finish the
order. Rowlinson Knitwear is a cloth manufacturing company which provide customised school
and corporate wear to their customers as their requirement. Hence, this system will allow the
company to perform their work systematically so that high profits and revenues can be earned
(Chiarini and Vagnoni, 2015).
P2 Discuss various methods to manage accounting reports
Management accounting reporting is a procedure which allows a company to formulate
income and management reports in accordance with the facts & information given by
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management accounting systems. There exist different type of reports which allow a company to
manage their data in a systematic manner. In context with Rowlinson Knitwear, different
management accounting reports are stated beneath:
Budgetary reports- These reports are prepared to measure the actual performance of
company by comparing outcomes with expected outcomes. This is an internal report which
allows a firm to analyse the issues and performance management at workplace. With the help of
these reports, budget of a company is prepared and important financial decisions are taken. In
case of Rowlinson Knitwear, manager of company can use this report to evaluate their actual
performance within marketplace by identifying if company is spending less or more capital then
expected amount. This will allow them to acknowledge if they are earning profits or not (Cooper,
Ezzamel and Qu, 2017).
Cost managerial accounting reports- This report includes all the information and facts
related with different costs of a company spend during production of services or products. This
type of report involves information linked with labour overhead, direct cost material cost etc.
With the help of this cost, manager in Rowlinson Knitwear can check and monitor information
related with costs and also evaluate those activities which requires high expenses. To formulate
these reports, cost accounting system is needed. Concerned company can use these reports to
analyse the cost for different business activities in a proper manner.
Inventory cost report- It includes information associated with resources, materials and
other stock present in warehouse for production process. By using these reports, a company can
identify and check the quantity of stock present for manufacturing purpose. Also, these reports
involves the information associated with demand and supply of product. Manager in Rowlinson
Knitwear can use this report to acknowledge their ordering, storage and carrying costs along with
identifying the amount of resources present in warehouse (Hiebl, 2014). By this, company will
not face shortage of materials while production and good sales can be earned.
M1 Evaluate the benefits of management accounting systems including their applications in
organisational context
Their are several benefits are attached with management accounting that assist financial
department of an organisation to manage and control their finance in appropriate manner. Some
benefits of management accounting system is mention as follow:
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Types of management accounting system
Inventory management system: This system will benefits Rowlinsin Knitwear in
understanding and finding out the actual needs of inventory and available stock so that
manufacturing of products can take place in a proper manner. Appropriate record of inventory
will benefits Rowlinson Knitwear in giving clear instructions to employees about the stock
which must be used before. This will allow the company to reduce wastage of materials and
resources (Jamil and et. al.,2015).
Job costing: This management accounting system will benefits Rowlinson Knitwear in
recording transactions about each job, work and operations. By this, company will be able to
allocate various costs in a systematic way so that transactions can be managed in a proper
manner.
Price optimisation system: Benefits associated with this system in context with
Rowlinson Knitwear are completion of work in minimum amount. This system will allow the
firm to eliminate their extra activities so that expenses can be carried out in an optimal manner.
D1 Critical evaluation of management accounting systems and reports in integrated
organisational procedures
To gain high advantages, manager in Rowlinson Knitwear is required to have integration
in their management accounting reports and systems. This will benefits the concerned company
in gaining strategic advantage against rivals. Integration of systems and reports of management
accounting will assists a company in attaining its goals in timely manner. Without the use of
accounting systems, it is not possible for a firm to prepare accounting reports. For example, to
prepare inventory management report, manager at Rowlinson Knitwear will needed to use
inventory management system. Hence, these two process are needed to work in an integrated
manner (Modell, 2014). Without these reports, manager of a company will not be able to
formulate strategies and tactics as per market situation. Hence, these reports are important for
systematic work at workplace. This shows the integration of management accounting reports
with organisational processes of a business firm.
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TASK 2
P3 Calculation of costs by using different techniques of cost to formulate and income statement
including absorption and marginal cost
Cost is defined as an amount that is paid by a person for purchasing a service or product.
It is defined as a monetary value that is given by consumer to the manufacturer or retailer in
return of a commodity. Cost associated with a product include resources evaluation, raw
material, time required etc. To prepare income statement for Rwolinson Knitwear, two kind of
costs will be used i.e. marginal costing and absorption costing.
Marginal costing: It is a method in which fixed costs and variable costs of a company
are used to prepare income statement. Variable cost is unit cost and fixed cost is considered as
period cost in marginal costing (Nielsen, Mitchell and Nørreklit, 2015).
Absorption costing: This kind of costing captures all kinds of costs which is linked with
product manufacturing. This costing method involves variable and fixed cost as a single entity.
This cost will benefits Rowlisnson Knitwear in providing accurate & correct data for inventory
purpose.
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Preparation of income statement by Absorption costing:
Net profit for the month of May in absorption costing is 1050 pounds which further
increases to 9792.4 for the month of June. This shows that company is earning good profits and
managing their business activities in a positive manner, without any complexities and
ambiguities.
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Preparation of income statement under marginal costing:
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Valuation of closing stock using LIFO
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