Analysis of Management Accounting Systems and Reporting at RL Maynard

This report provides an in-depth analysis of the management accounting systems employed by RL Maynard, a construction company. It explores the core functions of management accounting, including the preparation of managerial accounts and reports for efficient decision-making. The report details various management accounting systems such as cost accounting, price optimization, job costing, and inventory management systems, highlighting their benefits and applications within the organization. It further examines the methods used for management accounting reporting, including performance reports, account receivable reports, job cost reports, and inventory management reports. The report also delves into different costing methods like marginal costing and absorption costing, alongside break-even analysis and margin of safety calculations, illustrating how these techniques are utilized to determine profitability and make informed business decisions. The report emphasizes the importance of these systems in achieving organizational goals and maximizing profitability.

MANAGEMENT
ACCOUNTING

FROM: MANAGEMENT ACCOUNTING OFFICER
TO,
GENERAL MANAGER
RL Maynard
SUB: MANAGEMENT ACCOUNTING SYSTEM
INTRODUCTION
Management accounting is considered as the core function of an organisation which
includes formulation of managerial accounts and reports through various systems, techniques and
tools. The main aim of this system is to serve accurate and reliable reports to related parties
which reflects true and fair position of the business, these related parties are creditors, investors
and many more. In this project report, a medium scale organisation is chosen and that is “RL
Maynard” which is a construction company. Various management accounting systems and their
reporting systems are discussed in this project along with the several planning tools of budgetary
control.
TASK 1
P1 The need of Management Accounting and its types
Management accounting is a process of preparation of managerial accounts and reports
for efficient decision making mechanism. This method is considered as a technique which helps
an organisation in better planning and controlling mechanism. . It is appropriate for almost every
organisation including public limited company, private limited company, sole proprietorship,
non profit organisation and many more. Management accounting plays an significant role in a
business firm by facilitating them to achieve their overall organisational goals. It is a procedure
which requires a lot of skills and professionalism for its conduct and this process is considered as
science as well as an art (Burritt, 2011).
RL Maynard is a medium scale organisation which uses management accounting in order
to satisfy their needs of efficient management and effective control. This is a combination of set
of activities like finance, accounting and management. This procedure makes sure that
organisation account for all available resources and utilise them in the most efficient way
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possible. The main aim of management accounting systems is to serve reliable and accurate
managerial reports to manager and other related parties such as investors, creditors, debtors etc.
Management accounting systems helps RL Maynard in preparing managerial reports and
earn more profit, which are described below:
 Cost accounting system: Cost accounting system is the method of estimating and
analysing the cost involvement in the activities of the organisation. RL Maynard uses this
method to ascertain expenditures and costs incurred during a financial period. This
method is considered as the most tested and accurate for estimating the future costs
involvement and analysing current expenditures. RL Maynard is engaged in numerous
activities of construction due to which they use this method in order to determine overall
costs and individual costs (Cuganesan, 2012).
 Price optimisation system: RL Maynard exercises this system to allocate prices to their
manufactured products. This method provides a framework which helps an organisation
in allocating various prices to various products. Price optimisation system analyses how
clients would react for the prices of the product. This system enables manager of RL
Maynard to maintain a balance in the prices of the products, as too high prices makes a
product undesirable for the customers and too low prices will increase the demand and
desire but will result in poor profitability of the organisation.
 Job costing system: This framework is used to identify the cost involvement in a
particular product or job activity, this system also helps in ascertaining batch number and
profitability of different products or jobs. The manager of this RL Maynard classifies
activities according to their nature and technical know-how required for performing them
and then uses this system, in order to recognize cost involved in each of the activity. The
most important benefit of this system is that the manager can estimate the profit making
ability of several activities by estimating their costs and expenditures. Methods used in
job costing systems are Batch costing, process costing and contract costing. RL Maynard
uses contract costing as they deals in construction business.
 Inventory management system: Inventory management is considered as the most
complex but the most significant process of an organisation as it deals in maintaining and
managing the inventory available in the organisation. RL Maynard deals in construction
business due to which they uses this system so that they can mange their ample of
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inventory. Inventory includes available raw material, stock engaged in work in progress
and warehoused stock. Under this management accounting system, manager of RL
Maynard prepares various documents such bills which records every transaction relating
to inventory. While recording the stock of the organisation, manager uses various
techniques such as LIFO, FIFO and AVCO which helps in efficient recording of
inventory (Ter Bogt, 2012).
The above mentioned systems are developed for the benefit of the organisations, these
methods helps in maximising the profitability and achievement of other organisational goals.
P2 Methods used for management accounting reporting
For the efficient management and control of the organisation it is important to maintain
proper documentation and paper work which helps them attaining overall objectives and aims.
Accounting reporting is a procedure in which managerial reports are prepared by the proper
available information, this process is done by either manager of an organisation or by any other
skilled professional. The main aim of these reports are to serve reliable and accurate information
to related parties such as investors, creditors etc.
RL Maynard is a construction company which uses the process of accounting reporting in
order to prepare various reports such as inventory management report, account receivable report
and others. The above mentioned company is benefited by this process as it facilitates them in
the process of decision making, proper planning and efficient authority responsibility
relationship. Preparation of these reports requires high skills and professionalism due to which
RL Maynard has hired individuals are trained and experienced in this field. Managerial reports
are different from financial reports as managerial reports can be prepared at any time of the year
whenever they are needed but financial reports such as profit and loss account, income statement
are prepared annually in a financial year (Fullerton, 2014). Some of these managerial reports
are:
 Performance report – It is a physical written material which reflects overall
performance of the organisation. Also, it is prepared regularly by the managers of the
organisation and includes all incomes and expenditures which effect its functioning. RL
Maynard prepares this report in order to grab investments through external parties by
serving them this report which reflect true and fair condition of the business.
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 Account receivable report – This report is a document which records all the
transactions which are related to account receivables. This report is prepared by the
organisation which deals in activities of credit sales. Account receivables report has a
main benefit for the organisations, which is providing information to the manager of the
organisation about what amount is needed to be recovered by the creditors on what date.
This report is considered as the primary tool for the purpose of collection of the amount
(Herbert, 2012).
 Job cost report – This report is prepared in the organisations where there is numerous
activity involvement like RL Maynard as they deals in construction business and are
engaged in various jobs. The aim of preparation of this report is to determine costs
involved in various job orders. Benefit of this report is that organisation can ascertain
profitability of various jobs separately.
 Inventory management report - Account receivable report is the detailed information
about the stock available in the organisation. Manager of RL Maynard prepares this
document by storing stock-related information. Here inventory refers to the sum of raw
material, stock of work in progress, finished goods and warehoused stock. There are
several tools and techniques by which inventory reports are prepared and they are ABC
costing technique, EOQ and inventory system. These techniques helps in ascertaining
various elements which are important in preparation of inventory managemen6t report
such as order cost, economic order cost, opening stock, inventory engaged in various
activities etc.
M1 Benefits and applications of management accounting systems
Above mentioned management accounting systems are used in RL Maynard in order to
get benefited from these systems. Some of the advantages of these systems are listed below:
Management accounting systems Benefits
Cost accounting system This system is employed to ascertain costs involved in
various products. All revenues and expenditures are
controlled by this system using product line and
distribution channel (Hiebl, 2014).
Inventory management system This management accounting system is beneficial for RL
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Maynard as it control and manage all the inventory by
using techniques like ABC costing and EOQ. This
system also helps to record all the stock by using tools
such as LIFO, FIFO and AVCO.
Price optimisation system The main benefit of price optimisation system is that it
allocates prices to various produced products of RL
Maynard, other benefit of this system is that it helps in
maintaining the balance between the prices.
Job costing system This frameworks helps in finding costs involved in
various jobs. Through this, manager at RL Maynard can
know batch number and date in regards to when a
particular job was performed.
D1 Analysing various reporting and accounting system
Reporting system includes preparation of variable, reliable and accurate reports which
reflects true and fair image of an organisation. Managers of RL Maynard prepares these reports
by collecting data and information about business, merchandising and other departments. There
are several methods such as performance report, account receivable report and many more which
helps in analysing past experiences in order to predict future events. Account receivable report
are prepared to ascertain all outstanding payments which are yet to be collected from the
creditors. Inventory management report helps in keeping the record of all the stocks available in
the organisation by transacting regular opening and closing inventory in the report (Hilton,
2013).
TASK 2
P3 Various costing methods employed while calculating net profit
In a production business like RL Maynard it becomes complex to determine costs and
profitability for which they uses certain techniques like marginal costing and absorption costing.
These accounting techniques helps the organisation in calculating the profitability by charging
few costs which are mentioned below:
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Marginal costing – Marginal costing is considered as the most effective way of
calculating the profitability. Under this method profitability is ascertained through charging only
non-fixed costs against sales which results in contribution and only fixed costs are charged
against it to get net profit and income. Variable or marginal costs are the sum of direct costs
related to inventory and production. This method is used by RL Maynard for decision making
process (Lavia López, 2014).
Sales revenue – marginal cost = contribution – fixed costs = Net profit or income
Absorption costing – Under this methodology, all costs whether fixed or not are
absorbed by the turnover to calculate earnings before interest and tax and all selling expenses are
charged against these earnings to ascertain final profitability of the organisation. RL Maynard
uses this costing method to determine their period profitability when they are required to include
all marginal and fixed expenditures. According to absorption costing, cost of goods sold is
calculated by the sum of total expenses and total sales units
It is calculated as follows: Sales revenue – cost of goods sold = gross profit – selling and
administrative cost = net profit
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Break-Even – It is the situation wherein no profit and loss situation for the organisation
occurs. Break-Even point is the number of units which are atleast sold to incur no loss and break
even sales the sales revenue which is earned to incur no loss in the organisation.
a. The number of products to be sold to break even
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Margin of safety – Safety of Margin is the safety level which should be retained by an
enterprise so as to earn specific sum of net income. This safety margin is determined as the
difference of actual revenue and revenue where neither loss nor profit occurs.
d. The margin of safety if 800 products are sold
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M2 Different methodologies of accounting
Several accounting techniques that helps RL Maynard in ascertaining their profitability
by charging various different costs and expenses. Few of them are discussed below:
 Standard costing – Standard costing is a method of calculating future profitability which
is used to determine various elements such as future sales revenue, costs and demand.
This method is appropriate for large scale organisations, but RL Maynard also exercise
this method in order to ascertain their future incomes.
 Marginal costing – Marginal cost id considered as the most effective tool used by almost
every organisation including RL Maynard to determine their profit making ability by
charging various variable costs. The main aim of this method is to serve organisation
with efficient decision making process mechanism.
D2 Data interpretation
By calculating the net profitability from marginal and absorption costing, it is noticed that
profit under marginal costing is higher than the income under absorption methodology and that is
17500 and 15675 because under former technique non-fixed costs are charged against turnover,
that is, 9600. Total Unit Sales made to achieve break even are 500 whereas level of revenue to
incur neither loss nor profit is 20000. In order to earn minimum profit of 10000, the above
organisation has to achieve sales target of 1333.33. The margin of safety is 37.5, when 800 unit
sales are made.
TASK 3
P4 Merits and Demerits of various planning tools utilized for budgetary control
Budget can be referred to as a tool that collects incomes and expenditures for a certain
span of time. One can state that by using budget, company could attain an effective strategy
which will ensure sustainable development in an effectual manner. Through the utilization of
budgetary tools, management of the aforementioned organisation can compare the actual
outcome with the forecasted results. If the deviation is favourable, then it is assumed to be the
best. But in case, and if any deviation occurred, then there is a need to modify the area, where it
needs. Planning tool is made in order to gain sustainable development by using various planning
tools. Here are number of budgetary tools are mentioned as under:
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Operational Budget: This comprises all the operational related revenues and expenditure
which are used for a particular period of time. This is the most effective and efficient tool that
could be used for making the business reliable and sustainable for a specific time period. Now,
the management of the related organisation can be informed in regards to the incomes and
outlays of the business in a particular timespan.
Advantages:
 This assist in knowing the particular revenues and expenses for a particular period of time
which would ultimately help to make the decisions for the business.
 Permits remedial action in order to take the variance.
 Clearly mentioned areas of accountability. This needs managers of the budget centres to
be made which are accountable for gaining the attainment of the budget targets for
operations as per their personal control.
 This helps to know the current position of the company and where company wants to go.
 This will help out to know the business operations which would ultimately gain the
business operations to attain the targeted results.
Disadvantages:
 This takes lots of time to complete the budget. As, this is said to be the time consuming
process.
 While making the budget, this needs so much amount that are required to be taken in
order to make the budget.
Cash Budget: Cash Budget enlists all the cash outflows and inflows for a particular
accounting period. Now this can be simply being said that the management of the cited
organization would ultimately assist to gain the sustainable development by using an efficient
strategy (Otley, 2013).
Advantages:
 This assists to ascertain the total cash flow and liquidity scenario in a given accounting
period.
 This helps in identification of those unplanned underlying factors that occur during
implementation of the plan and were not possible to be located unless at the time of
execution of such plan.
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