Management Accounting Report: Financial Analysis of Rowlinson Knitwear

This report provides a comprehensive analysis of management accounting principles and their application within Rowlinson Knitwear, a UK-based manufacturing company. The report begins with an introduction to management accounting, emphasizing its role in preparing financial reports and assisting in systematic business operations. It then explores the roles and purposes of management accounting, including planning, decision-making, and controlling. The report delves into various management accounting systems relevant to Rowlinson Knitwear, such as price optimization, inventory management (FIFO, LIFO, and average cost methods), and job order costing. A comparison between management and financial accounting is also provided. Furthermore, the report examines different management accounting reports, including inventory reports, accounts receivable aging reports, performance reports, and cost accounting reports. It discusses how these systems and reports integrate within organizational processes to aid financial assistance. The report concludes with an overview of costing methods, including marginal and absorption costing, and their significance in financial management.

MANAGEMENT
ACCOUNTING

Table of Contents

INTRODUCTION
Management accounting is a part of accounts and finance that assists the manager of a
company to prepare multiple accounts and reports so that business operations can be managed in
a systematic manner. This project report us prepared in relation with Rowlinson Knitwear which
is a Britain based small sized manufacturing company, situated in Stockport, England. This
company provide corporate wear and school wear uniforms to their customers at reasonable
price. This organisation is established in 1974 and employs around 60 employees. This
organisation is operating at as a small and medium size enterprise and perform operations to
earn high revenues in local market.
This report will include about various kind of management account reporting and
systems which helps in smooth working of organisational process. Other than this, different kind
of costs are used so that accurate income reports can be preprepared for company. Also, different
kind of planning tools are used so that budget can be prepared in a proper manner. At last, with
the help of management accounting systems, financial issues faced by selected firm are resolved
in an appropriate manner.
TASK 1
P1
Management accounting is a way to analyse, summarise and interpret income and
financial statements which can be prepared either at annual or monthly basis. With the help of
management accounting, manager in a company can organise their statements and reports in a
proper manner. Aspects of accounts management will benefits Rowlinson Knitwear in
acknowledging their actual financial position in a market so that they can formulate strategies
and gain high advantages over rivals and competitors.
Role and purpose of management accounting
Basic roles and purpose of management accounting are planning, decision making and
controlling which are stated below:
 Planning: Management accounting benefits a company in attaining high productivity and
reliability against rival organisations due to appropriate planning (Anessi-Pessina and et.
al., 2016). This helps the concerned company in gaining competitive advantage over
rivals.
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 Controlling: Aspects of management accounting helps in analysing business
performance in a proper manner so that required business modifications can be carried
out in organisational function. By this, performance of company is controlled and
monitored on regular basis.
 Decision making: Main purpose of management accounting is to acknowledge all the
costs and expenses which will be incurred by a company while manufacturing their
commodities. This helps them in taking right business decisions.
There are different kind of management accounting systems which are used by a
company so that their activities related with accounts can be performed in an appropriate way
(Cohn and et. Al, 2014). In context with Rowlinson Knitwear, different kind of management
accounting systems are stated below:
Price optimisation system: This system is referred as the system that allows an
organisation to optimise the price of their service or product, according to the opinion of
customers. Main costs which are experienced by a company during production and
manufacturing are production cost, distribution costs, promotion costs, selling costs etc.
identification of overall cost will helps Rowlinson Knitwear in developing right strategies so
that high advantages can be gained. Also, this system will allow the concerned company to
identify the requirements and reactions of customers for price range of their products. By this,
company can assign a stable costs for their products so that good amount of profit can be
generated.
Inventory management system: This management accounting system is referred as a
technique which helps an organisation in identifying the status of their inventories. This system
is used by manufacturing organisations to track about their inventories and other stocks. With the
help of this system, manager in Rowlinson Knitwear can check if they have all the material
required for production at their warehouse or not (Dekozan and et. Al, 2014). This system will
assists Rowlinson Knitwear in ensuring that resources and material required for manufacturing
will not be wasted so that optimal manufacturing can take place. Generally, there are thrree kind
of inventory management process which are stated below:
 First in First out: Under this process, inventories and stocks which are purchased
earlier are prioritised by manufacturing team so that wastage and damage of inventory
can be reduced.
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 Last In First Out: In this process, stock and inventory which is purchased last is firstly
used so that raw material for production can be used in a systematic manner. This
process leads to wastage of stock which is purchased earlier and haven't used for a long
time.
 Average Cost Method: In this process of inventory management system, stock of
company is used as per the requirement. Due to this, consumption of raw materials and
resources is carried out on average basis (Hiebl, 2014).
In context with Rowlinson Knitwear, manager of company can use FIFO process in
which those stocks which are buy earlier will be used first. Due to this, damage of inventory will
be minimised and all the stock of company will be used in a optimal manner.
Job order costing system: This management accounting system is defined as an aspect
that is used by an organisation to manage orders of customers in an individual manner. As this
system is used with the purpose of managing orders of customers, its name is justified as job
order costing system. By using this system, concerned company can track the job cost of
multiple processes in a separate manner so that amount of resources, materials and human labour
for completing an order can be identified properly. This system will help the manager in
Rowlinson Knitwear to complete their orders within time due to which company will achieve
high revenues and sales in an effective manner (Janke, Mahlendorf and Weber, 2014).
Difference in management accounting and financial accounting
Management Accounting Financial Accounting
 This accounting technique is used to
serve the management of company in
identifying organisational problems and
resolving them.
 This accounting technique helps in
identifying both monetary and non-
monetary information.
 It is a niche subject that helps a
company in understanding the way a
firm is managing their funds and
finances.
 It offers monetary information only.
3

P2
Management accounting reports- The term MA reports can be defined as a kind of
reports that consists detailed information regards to monetary and non monetary aspects of
companies. The Rowlinson Knitwear company produce vital range of accounting reports and
some of them are demonstrated below in such manner :
 Inventory report: In this report a detailed information related to quantity of stored
material is included which helps in projection of future need. In general, this is widely
used in the manufacturing companies in which products are produced by a systematic
process. Along with it is useful for production department because this provides complete
information about raw and finished goods. In the absence of this report, it can be difficult
for business entities to manage overall stock. In the aspect of above selected Rowlinson
Knitwear company their production department use this report for tracking the quantity of
prepared school wear as well as needed material for production (Otley, 2016).
 Account receivable ageing report: This has been defined as a type of accounting report
that involves information about those debtors who are unable to pay after the deadline.
With the help of this report, companies can decide about whether they should allow credit
transaction facility to their customers or not. As well as in this report, date of credit
transaction is also mentioned which helps in computing interest payable amount. Overall
this report helps in making financial transactions transparent for both to the customers
and companies. While in the absence of this report, companies will not be able to recover
their debts on time. Such as in above Rowlinson Knitwear company, their finance
department tracks their debtors whose payment is due as well as they compute the interest
amount by help of it.
 Performance report: It has been defined as a report in which estimated income &
expenditures are included which are compared with actual income & expenses. The main
objective of this report, is to assessing the actual financial performance of companies so
that they can adopt changes accordingly. On the other hand, in the absence of this report
there can be a lot of conflicts due to mismanagement of actual performance. Along with
managers of companies evaluates growth and performance of employees and on the basis
of it promote them (Senftlechner and Hiebl, 2015). In the aspect of above Rowlinson
4

Knitwear company, their financial department use this report and estimate the further
income and cost. This estimation becomes a basis for comparing the actual performance.
 Cost accounting report: It is a type of report in that expenditure on a particular activity
of production as well as sum of total expenses is included. The objective of preparation of
this report is to helping companies in providing information about cost of various
operations. This report helps to finance department of companies in order to manage
aware about actual cost. Like in the above Rowlinson Knitwear company , they produce
this report for managing the cost of their production of cloths.
So these are the reports of MA which are produced by above Rowlinson Knitwear company
company.
M1
Management accounting systems helps in financial assistance due to which accounts of a
company are managed in a systematic manner. In context with Rowlinson Knitwear, application
of management account systems is discussed below:
 Inventory management system: This accounting system will help Rowlinson Knitwear
in identifying and understanding the status of their inventory so that production of goods
can be carried out in a timely manner. Records of inventory will helps in arranging
required materials at right time. Due to this, organisational productivity will increase and
company will be able to earn high revenues.
 Job costing system: With the help of this system, manager in Rowlinson Knitwear will
be able to record transactions for each operation, business activity or job orders. By this,
entire cost will be acknowledged by company due to which they will be able to perform
their transactions according to the budget of company. This will help the company to
save themselves from debts and shortage of money (van Helden and Uddin, 2016).
 Price optimisation system: By usage of this accounting system, Rowlinson Knitwear
can accomplish their works and activities by spending less amount. Due to this, extra
costs of company will reduce and organisation will be able to operate in a profitable
manner.
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D1 Critical evaluation of management accounting systems and reporting in integrated manner
within organisational processes
There exist various kinds of management accounting reports and systems which are used
in integrated manner in a business firm so that complex activities at workforce can be performed
in a systematic manner. Different kinds of accounting systems like job costing, inventory
management and price optimisation can be used with management reporting so that appropriate
documents can be generated for organisational purpose. For instance, with the usage of inventory
management system, appropriate reports for inventory can be prepared. These reports will helps
the manager to understand the actual situation of company in terms of inventory and stocks
(Warren Jr, Moffitt and Byrnes, 2015).
TASK 2
P3
Cost is referred as the amount which is paid by person in return of purchasing a
commodity or service. It is the monetary valuation of the efforts, resources, materials, risks and
time which are employed by the workers so that a productive product can be produced.
Marginal costing: This is a costing tactics in which variable costs of the product are
changed to the total units. In this kind of costing, fixed cost is not considered for the final
contribution. Marginal cost is calculated by summing up direct labour, direct material, variable
overheads and direct expenses (Qian, Burritt and Monroe, 2011).
Absorption costing: It is management accounting method to capture all the costs and
expenses while production or manufacturing of a product. This costing method involves both
indirect and direct costs like labour, rent, insurance, material, resources etc.
In order to prepare an appropriate income statement for Rowlinson Knitwear, both
marginal and absorption costing is used.
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Preparation of income statement by Absorption costing
7

Preparation of income statement under marginal costing:
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M2
There exist varied kind of management accounting techniques like cash flow statements,
balance sheets, profit and loss statements etc. All of these techniques benefits a company in
maintenance of finance in a proper manner with the help of an accurate financial report. By using
these accounting techniques, Rowlinson Knitwear can acknowledge their financial position
within marketplace so that high revenues and profits can be earned against rivals and
competitors.
D2
In order to perform their work in a systematic manner, each organisation is needed to
prepare their financial reports in a regular manner. General type of reports which are prepared by
a company are Balance sheets, profits & loss statements etc. so that they can evaluate their
business performance in a proper manner. Other than preparing reports, it is important for
company to interpret the data so that actual digits can be identified by the manner. In case of
income statement formulated by the manager in Rowlinson Knitwear, net profit for the month of
June is 5750 pounds if calculated by marginal costing but in case of absorption costing, net
profits earned by company is around 9792 pounds Hence, manager of company can use
absorption costing to prepare their income statements. This difference in both costings came
because of inclusion of fixed cost in absorption costing (Renz, 2016).
9

TASK 3
P4
Budget- It is referred as a detailed statement of financial results for a specific period of
time. This budget plan involves expected costs which a company is going to spend so that their
business operations and activities can be performed in a proper manner.
Budgetary control: It is defined as a planning tool that is used by the owner or manager of a
company so that organisational tasks can be controlled and planned in an efficient manner. It is
implemented by a company to manage their budget in an efficient manner. With the help of
budgetary control, manager of a company can keep the status of their expenditures in a
systematic manner. Below are discussed various kinds of planning tools which can be used by
the manager in Rowlinson Knitwear for budgetary control and other associated processes:
Zero based budget: This type of budget is treated as the main part of a budget control. In
this type of budget, all the previous activities and operations of a company are avoided and
budget starts from zero base (Shah, Malik and Malik, 2011). In case of Rowlinson Knitwear,
management of firm can adopt this budget so that budget in annual context can be prepared in a
transparent manner. There are different benefits and demerits of this budget which are stated
below:
Advantages Disadvantages
 This kind of budget helps a company in
maintaining transparency in their
financial reports and statements.
 This budget is most suitable for new
projects as it is initiated with zero base.
 Preparing this budget requires more
time and cost.
 This budget do not include information
about previous data and reports due to
which getting previous information
became a complex task.
Master budget: Each department has to made budget so that they can perform their
works and tasks without facing shortage of money. All the budgets which are prepared by a
company to perform their organisational work are summed up in master budget. This budget is
defined as the sum total for all the budgets. With the help of this budget, manager in M&S can
10

maintain a summary of all financial data at a single place (Suomala and Lyly-Yrjänäinen, 2012).
There exist some merits and demerits of this budget which are stated beneath:
Advantage Disadvantage
 This kind of budget benefits the
manager of company to have brief
information about the budgets of
different departments.
 By using this budget, manager of a
company can easily acknowledge the
overall profit margins of company
without wasting much time.
 As master budget includes all the
information associated with
departmental budgets, specifying all the
functions at a single place is not
possible.
 Due to presence of vast information, it
is not possible for employees to
understand this budget in a simplified
manner.
M3
There are different kind of planning tools like zero based budget, master budget,
operational budget etc. which benefits an organisation in formulating and forecasting the
monthly and annual budget of an organisation. These planning tools help a firm in
acknowledging all the important aspects related with budget due to which manager of company
is capable to take right and strategically beneficial decisions. In this respect, manager at
Rowlinson Knitwear can use zero based budget for their operations as it will avoid all the
previous loss and profits due to which actual condition of their existing operation will be
identified by the company.
TASK 4
P5
Financial problem is defined as a situation in which a business firm faced issues related
with funds and capital. Main reasons behind these financial issues are delay of payment from
customer side, unequal cash flow, sudden increase in expenses of a company etc. In these
conditions, manager of a company are considered guilty for the inefficiency of maintaining
work. Each business organisation faces some financial issues which are stated below:
11

 Late payment by customers: Concerned company is offering credit options to their
clients so that they can achieve high sales and revenues. Due to which customer base of
company has considerably increased but these customers are not paying the credit amount
within time. This is the reason due to which financial position of Rowlinson Knitwear is
less. Due to this situation, company also faces shortage of funds (Ward,2012).
 Sudden expenses: This is another reason due to which Rowlinson Knitwear is facing
financial problems while performing their organisational activities. There are some
situations in which contingency takes place. Due to this contingency, company has to pay
unnecessary expenses. This results in decrease of financial resources due to which budget
of company gets disrupted and company faces shortage of money while performing
business operations.
There exist multiple tools and techniques which can be used by Rowlinson Knitwear to
solve their financial issues and problems. Some of these tools are stated below:
Key performance indicators: KPI is used to evaluate and measure the actual
performance of a company so that expected results can be attained in a proper manner. This tools
has two aspects. One aspect of KPI helps in identification of extra expenses which is incurred by
a company whereas other aspect is non-financial in nature and helps in analysing organisational
problems in a proper manner. With the help of this tool, issue of sudden expenses can be
minimised properly.
 Financial KPI: The financial KPIs are dependent upon the balance sheet component and
income statement . These indicators helps in acknowledging the changes in sales growth
so that expected outcomes can be achieved easily.
 Non-financial KPI: These KPI's are not related with fianncial or income satements and
helps in assessing those activities which benefits a firm in attaining their strategic
objectives. Non-financial KPI includes supply chain of firm, customer relationship,
quality, cycle-time etc.
Benchmarking: In this technique, a company is treated as a market leader and other
companies use the results and achievements of that company to acknowledge their actual
position within marketplace. By using this technique, a company can set targets and objectives
after bench-marking the strategies and capabilities of rival organisation. By using this technique,
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Rowlinson Knitwear can update their credit policies due to which issue of late payment can be
resolved properly.
 Vertical bench-marking: In this type of Benchmarking, entire focus is given on
particular function or department of an organisation.
 Horizontal benchmarking: Here, all the emphasis and focus is given to a specific
operation, activity or process rather than giving entire emphasis on an organisational
department.
Balance score card: It is a management and strategic planning procedure which is
utilised by an organisation to communicate their objectives and vision. Other than this, Balance
scorecard benefits in aligning day to day work so that all the financial transactions can became
transparent. By this, an organisation do not have to face financial issues.
ABC: This is an analysis method in which subjects of a project are bifurcated into three
different categories like A,B and C. in A category important customers and products are shown
whereas B category depends upon the potential of customers and organisation. These customers
or product have contribution in company but not as much as A category people. In C category,
those transactions are covered which have very little contribution on individual basis.
COMPARISON
Rowlinson Knitwear Galway Plc.
 Company is facing this problem of
sudden expenses. In this context, this
organisation has adopted cost
accounting system so that they can
evaluate the total cost of material and
resources which is needed by them for
manufacturing purpose. By this,
problem of sudden expenses can be
avoided.
 Company is facing the problem of
inappropriate credit policy due to which
customers do not pay back the credit
amount in a timely manner. In this
context, company can use price
optimisation system so that right cost
can be mentioned for products.
 Key performance indicators is the
technique which can be used by
company to solve their financial issues.
 Bench-marking can be used by the firm
to overcome the problem of late
payment of money by customers as
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benchmarking will help them in
improving their credit policies.
M4
Key performance indicator is used by Rowlinson Knitwear to solve their financial issues.
This will help the respective company in managing and dealing with sudden expenses due to
which profits of company can be maintained properly.
D3
There exist multiple planning tools such as zero based budget, flexible budget etc. which
can be used by a company to plan their budget control in a proper manner. These tools helps in
preparing appropriate reports due to which solving financial issues of company became an easier
process. In this context, zero based budget is useful for company as it allows the firm to
accomplish their targets in a timely manner.
CONCLUSION
As per this prepared assignment, it can be summarised that management accounting is an
important aspect for an organisation to manage their funds and finance in a proper manner. There
are different kind of systems of management accounting like job order system, price optimisation
systems etc. which helps in preparation of accounting reports like job inventory report, budget
report etc. so that work related with accounts and finance can be performed in a systematic
manner. In order to prepare financial statements, manager of a company can choose any of
absorption or marginal costings. There exist multiple planning tools like master budget, zero
budget etc. which helps a company in formulating and forecasting their budget. With the help of
techniques like KPI, benchmarking etc. financial issues and problems faced by a firm can be
resolved in an efficient manner.
14

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APPENDICES
3