Management Accounting System Report: Rowlinson Knitwear Company

This report, prepared for Rowlinson Knitwear Company, provides a comprehensive overview of management accounting systems. It explores different types of management accounting, including its essential requirements, and various reporting methods. The report delves into costing methods, evaluating accounting techniques and profit and loss statements. It further examines planning tools, their advantages, disadvantages, and their evaluation. The analysis extends to critical financial problem analysis and potential solutions. The report covers topics like price optimization, cost accounting, inventory management, and job costing systems, emphasizing their importance in decision-making, planning, and controlling business operations. It also highlights the differences between management and financial accounting and the benefits of effective reporting systems, such as performance and inventory management. The report aims to provide insights into improving profitability and achieving organizational goals.

Management
Accounting

Contents
FROM: MANAGEMENT ACCOUNTING OFFICER...........................................................................................3
TO,..............................................................................................................................................................3
GENERAL MANAGER.............................................................................................................................3
ROWLINSON KNITWEAR COMPANY................................................................................................3
SUB: MANAGEMENT ACCOUNTING SYSTEM...................................................................................3
INTRODUCTION.......................................................................................................................................3
TASK 1.......................................................................................................................................................3
P1: Different types of management accounting and its essential requirements........................................3
P2: Different methods for management accounting reporting.................................................................6
M1: Benefits of management accounting................................................................................................7
D1: Critical analysis of reporting system.................................................................................................8
TASK 2.......................................................................................................................................................8
P3: Various costing methods...................................................................................................................8
M2: Evaluation of accounting techniques..............................................................................................10
D2: Critical evaluation of profit and loss statements.............................................................................10
TASK 3.....................................................................................................................................................10
P4: Advantages and disadvantages of using planning tools...................................................................10
M3: Evaluation of planning tools..........................................................................................................12
D3: Critical analysis of financial problem.............................................................................................12
TASK 4.....................................................................................................................................................13
P5: Various measures to resolve financial problems..............................................................................13
M4: Evaluation of financial issues.........................................................................................................14
CONCLUSION.........................................................................................................................................14
REFERENCES..........................................................................................................................................15

FROM: MANAGEMENT ACCOUNTING OFFICER
TO,
GENERAL MANAGER
ROWLINSON KNITWEAR COMPANY
SUB: MANAGEMENT ACCOUNTING SYSTEM
INTRODUCTION
Management accounting is the process of identifying and analyzing the organizational
and operations cost with a motive of preparing financial reports and documents which help
management to make an effective and profitable decision in order to achieve desired goals and
objectives. It helps in translating costing and financial data into useful and profitable information
for management so as to plan policies and preparing budget for future business objectives.
Rowlinson Knitwear, a UK company which deals in producing durable garments for corporate,
schools etc. with a purpose of enhancing the personality among others is taken for the purpose of
preparing this report. The company generally does not directly supply products to the public as
they focuses on getting support from specialist retailers who help their products to reach to their
targeted customers (Alsharari, Dixon and Youssef, 2015). The project covers the different
costing methods and reporting systems which helps company to evaluate their profitability and
current position in competitive market. There are various planning tools which are useful in
budgetary control are also discussed under this report along with their merits and demerits. Thus,
the overall project is based on the management accounting system which drives company to
achieve growth and success within limited period of time.
TASK 1
P1: Different types of management accounting and its essential requirements
Definitions:
The Institute of Management Accountants (IMA) defined management accounting as “ It
is the profession which guides and assist management to make an effective decision, planning
and strategies regarding achieving desired goals and objectives with the help of valuable
information obtained though ad\opting various management accounting system.

According to the Certified Management Accountants (CMA), “Management accountant
should required to use their own professional skills and knowledge in order to prepare financial
reports and other decision oriented information in such an effective and accurate way that will
help in assisting management in the making of policies and controlling the business operations
activities in more profitable manner(Aykan and Aksoylu, 2013) .
Meaning: Management accounting is the process of measuring the success or failure of
the business and identify whether the business moves towards right direction or not. It is the
process of analyzing the performance of different departments through reviewing their actual
performance with expectations. Its main objective is to find out the best possible way to reduce
cost in the production process so as to bring maximum possible output.
Importance of Management accounting:
The management accounting plays crucial and important roles in ensuring the effective
performance by performing following functions:
Planning: It helps management in making short as well as long term plans and policies in
order to achieve desired target within limited period of time. Preparing budget is the part of
planning through which the managers can able to allocate resources in such areas of department
from which they can achieve profitable outcomes. For example: The managers of Rowlinson
Knitwear need to first make a plan regarding the prices they should charged from their customers
on buying their products that will help in maximizing satisfaction of customers and at the same
time helps in maximizing the profitability of company (Bobryshev and et. al., 2015).
Organizing: It is the process of arranging resources of company in such an effective way
that will help in getting positive outcome to company in near future. As here are different
departments in an organization thus all roles and responsibilities need to properly defined and
allotted to them so that they perform in right direction with help of utilizing available resources
in an optimum manner. For example: The manager of Rowlinson Knitwear need to identify the
efficient employees who are good in performing particular roles and accordingly assign them
suitable responsibilities in order to achieve profitable outcome.
Controlling: It is the process of re-arranging and re-planning the actions if any deviations
found which restrict company in achieving desired goals and objectives. The managers need to
monitor, measure, analyze the actual results through collecting reviews and feedbacks from their
employees and accordingly takes corrective actions to bring all business activities in right
directions. For example: Due to using outdated technology, the cost of production increases
through which Rowlinson Knitwear cannot able to provide quality products at an affordable
price to their targeted customers. Thus, in order to control this, the managers need to take
corrective actions regarding implementing updated and advanced technology in order to reduce
cost and achieve huge profitability (Chenhall, 2012).

Decision making: It is the process of selecting best options among various alternatives so
as to achieve profitability and sustainability. An effective plan cannot be made without better
decision making process thus it is important for management to consider all aspects and
thereafter reach to the final decision for the betterment of an organization. For example: In case
the demand of corporate wear garments are increases as compared to school wear then the
manager of Rowlinson Knitwear need to focus on producing more corporate wear products in
order to meet customer’s needs and demands and improves sales figure of company and generate
huge revenue.
Difference between the Management accounting and Financial accounting:
Management accounting Financial accounting
It gives important and useful details and
information of the management to formulate an
effective decision regarding operating business
more successfully.
It gives financial information to the internal as
well as external interested parties through
preparing and showing them financial
statements of company.
It is not necessarily required for company to
prepare such documents.
It is essentially required for company o prepare
financial statement on annual basis.
It provides monetary as well as non-monetary
information.
It only provides monetary information.
It is prepared only as per the need and
requirements of company.
It is prepared at the end of the accounting
period.
It is not essentially required to audit such
documents by statutory auditors.
It is essentially required to audit such
documents or statements by statutory auditors.
Management accounting systems:
There are various accounting systems which helps in recording all material information
about the daily transactions happened in company on daily basis which allows managers to make
suitable plans and policies regarding achieving desired goals and objectives within pre-
determined time period. Such management accounting systems are listed and defined as below:
Price optimization system: Through using such system, the managers of company can
able to maintain the price and value of product which maximizes customer’s satisfaction level as
well as profitability of company. As the Rowlinson Knitwear is small sized company who are
looking to achieve strong position in market thus it is important for them to attain huge
customer’s strength by setting effective prices after analyzing the purchasing power of customers
and what want to pay for their products (Hall, 2010).
Cost accounting system: An organization can survive in competitive market world only
when they are able to manage cost of raw materials, expenses incurred in marketing strategies
etc. so as to control and monitor irrelevant expenses. The managers need to make an effective

decision regarding storage cost and other cost which increases price of product and manage such
cost in such an effective way so that will help in increasing the profitability of company.
Inventory management system: Through using such system, the company can able to
meet customer’ needs and demands through maintaining raw materials used in production
process whenever they required. The managers need to focus on reducing storage cost which
increases the price of product and at the same time, they also need to order inventory from the
suppliers whenever they feel shortage so that their production process cannot be interrupted in
any way (Hasniza Haron, Kamal Abdul Rahman and Smith, 2013).
Job costing system: This system is helpful for company as it helps management to
allocate cost to produce single or group of specific products. This system is only adopted by
company when the products manufactured are differed with each other. For example Rowlinson
Knitwear need to allocate cost for producing each corporate wear garment and school wear so
that they can able to identify whether they can recover invested cost in future or not.
P2: Different methods for management accounting reporting
A report is essentially required to prepare by company which provides sufficient
information and data related with financial transactions. The reports include profit and loss a/c,
balance sheet and cash flow statements. With the help of such report, the managers can able to
make an effective decision regarding achieving desired goals and objectives. Such reports must
required to present in front of the shareholders, investors etc. so that they can decide whether
investing in an organization will be beneficial for them or not. The report also prepared with a
motive of analyzing the performance of different departments and thus can able to guide them to
perform in right direction. The information available in the report helps in monitoring the
business activities according to the financial position of company. The report should be prepared
on annual basis on the basis of which the managers are able to prepare budget and formulate an
effective plans and strategies for future business activities that will ensure in getting profitable
outcome in near future.
The reports can provide useful data and information only when the entries done by
accountant manager are in accurate way. It will help company in gaining competitive advantage
by keeping books of accounts confidential. There are some other advantages as well of using
reporting system which are as follows:
Useful tool in controlling system: It helps management to analyze the performance of
their employees through reviewing their previous performance and provide them required
guidance to perform in right direction so as to achieve desired target within given time frame.
Effective in profit generation: An effective decision could be made with the help of
information obtained through reporting system which directly enhances the profitability of
company for longer period of time (Kew and Watson, 2010).

Types of reporting system:
Performance reporting system: Using such system helps in analyzing the performance of
employees as well as company through comparing actual performance with expected so that if
any deviation found can be resolved easily by taking corrective measures without consuming
more time. Such reports contains information regarding he performance level of all employees
which will help management to identify more skilled and knowledgeable employees and thus
able to delegate important roles and responsibilities to them in an organization. Through this, the
chances of getting positive result will be high.
Inventory management system: This reporting system is useful for an organization as it
provides crucial information about stock position. Using such system ensures management to
have sufficient amount of inventory due to which the production process cannot be disturbed.
There are various tools such as EOQ, ABC costing and inventory turnover ratio which help
management to monitor and control inventories. The mangers are mainly focuses on recuing
storage cost of inventory by maintaining such amount of stock which is required I production
process (Lee and Cobia, 2013).
Account receivable report: Preparation of such reports helps management in identifying
the customers whose payment to company are due. This will help company in recovering such
amount on particular date which supports financial position of company. The report contains
whole information about the customers which can help in future for recovery. In case the
managers forgot to record name of customers whose payments are due then it will make negative
impact on the profitability of company.
Job costing report: The reports contains all cost which are required to incurred in
producing specific product or bunch of products. It includes labor, material and overhead
expenses which are incurred in the manufacturing process. This reporting system is more helpful
when the company produces products which are unique and different with each other. For
example Rowlinson Knitwear produces garments related with school wear and corporate wear
thus the managers should required allocating cost on producing school wear and corporate wear
on the basis of outcomes received in future (M Ancini, Vaassen and D Ameri, 2013).
M1: Benefits of management accounting
There are lots of benefits the company received from management accounting which are as
follows:’
 It helps management to make an effective decision with the help of using information
available through various management accounting systems.
 It helps in formulate an effective plans and policies regarding achieving desired goals and
objectives.

D1: Critical analysis of reporting system
Reporting system helps company in identifying their actual financial position through
maintaining financial statements, Balance sheets, P&L a/. It must be present towards the internal
and external parties so that they can able to make decision whether investing amount in an
organization. Will be profitable or not. Rowlinson Knitwear need to maintain their financial
accounts every years so as to attract investors to provide them financial support in achieving
growth and success for longer period of time.
TASK 2
P3: Various costing methods
Cost refers to the amount which is invested in producing final products and services to
the customers. It may express in financial and non-financial manner. Cost includes all such
expenses which are incurred from production process to the selling it to the final customers. It
includes both fixed and variable cost. Thus, while preparing budget the cost factors is the first
which need to determined. Basically there are two types of costing methods which helps in
making calculation of identifying the exact cost incurred in producing final products. Such
costing methods are defined as below:
Marginal costing: it is the cost which I incurred in producing extra unit of product with
the same resources. It is divided into two parts such as fixed and variables through which the
company can able to make an effective decision.
Absorption costing: Through using this method, the cost incurred in manufacturing
process has been determined after evaluating total cost. It includes both fixed and variable cost.
Therefore these methods it can be used for longer period of time. Variable cost varies with the
product whereas fixed cost are apportionate over other aspects of products (RW Hiebl, 2013).
Comparison:
Absorption Costing Marginal costing
Distribution of total costs to the cost centre
with a motive of determining the total cost
incurred in production process is called as
Absorption costing.
It is a decision making technique in order to
determine the total cost of production is called
as marginal costing.
It includes both fixed and variable cost in total
product cost.
It includes only variable cost in total cost of
product.
It is useful for making effective strategies for
longer period.
This costing method has adopted generally for
the purpose of formulating short term planning.
Calculation through marginal costing using

Income statements
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2 - 7800
Closing stock: 100*13 - 1300 -6500
Contribution 11000
Less:
Variable sales overhead 500*1 500
Fixed overhead -1800
Selling and administrative cost expenses (800+400) -1200 -3500
Total Profit / Loss 7500
Computation of Net profit by using absorption costing
Income statements
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2+3 = 16*500
8000 8000
Gross profit 9500
Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
Total Profit / Loss 7800

M2: Evaluation of accounting techniques
Every company should required adopting different accounting techniques which help
management in estimating total cost and expenses incurred in production process. Conservatism
techniques help manager to control risk as well as reduce extra cost while execution of business
activities.
D2: Critical evaluation of profit and loss statements
Rowlinson Knitwear need to adopt two costing methods for the purpose of calculating
total cost incurred in manufacturing quality products. Through using marginal costing method,
the company gets profit of 7500 whereas suing absorption costing methods, the profit increases
to 7800. Such 300 difference is arises due to fixed cost. Thus the manager needs to adopt
marginal costing method as compared to absorption.
TASK 3
P4: Advantages and disadvantages of using planning tools
Budget: It is considered as an effective technique through which the manager can
estimate cost and expenses incurred in future business activities. With the help of available
information and resources the management should be able to formulate an effective planning and
strategies with a motive of proper execution of future project activities that will help in getting
best possible outcomes. On the basis of desired target, the cost is allocated in order to achieve
within given time frame. The company has made budget for maximum five years. The budgeted
amount can be ether be right or wrong thus the manager need to first analyze the previous year
budget and accordingly fixed current budget on the estimation of getting positive outcome than
before (Schermann, Wiesche and Krcmar, 2012).
Budgetary control: It refers to techniques which is helpful in operating activities
through making proper planning, organizing and controlling performance of company. The
managers need to first identify the expenses incurred in previous year budget and the problem
they faced earlier thus accordingly make an effective planning to avoid circumstances that
happened earlier and organize reduces in such an effective manner that will ensure company in
achieving profitable result to company. There are different processes which need to be followed
by management in order to make accurate and effective budget. Such process is as follows:
Research with concern managers: Before thinning of preparing budget, all the managers
of different departments need to discuss with each other regarding the objectives that need to be
achieved in near future within limited period of time.
Determination of effective assumptions: In this process, the managers need to estimate
the cost which will incurred in the production process after analyzing the expenditure and
revenue generated from previous period budget.

Set organizational data for budget to achieve goals: Gathering information from all
departments and assembling it for the purpose of achieving desired goals and objectives.
Measurement of information with actual: The information collected from various
reporting and management accounting system helps should be carefully measured and comparing
the actual information with standard so as to achieve expected result in future (Unerman,
Bebbington and O’Dwyer, 2010).
Review analysis: This is the last stage at which the manager needs to review all step and
analyze it carefully before taking into actions.
Planning tools: In order to achieve desired target within limited period of time, the
management should required to formulate an effective planning which prevents all such
situations that restricts the company to achieve competitive advantage in market. Such planning
tools are described as below:
Forecasting tools: With the help of this tool, the manager can bale to forecast the
situation which affects the business activities either in negative or positive way. On the basis of
historical data the management assumes the cost incurred in the future production process.
Forecasting help manager to be ready with their measures and actions to cop up with the
complex situation that may occur due to several aspects. It becomes easy for the company to
identify the potential happenings which may occur in the market such as demands, prices and
labor (Watts and McNair-Connolly, 2012). With the help of using such tools the manager can
able to analyze the important factors such as consumer behavior, advance technology, strategies
adopted by etc.
Advantages:
 It helps management to ready with corrective measures if any problems occurred in
execution of future business activities.
 It is helpful in estimating total cost and sales volume incurred in future project activities.
Disadvantages:
 As it is based on assumptions which sometimes may be incorrect due to which the
company may faces losses in future.
 Wrongly estimation of cost and expenses will affect the profitability of company.
Scenario analysis tools: With the help of this tool, the management can able to manage and
handle current trends in market through formulating planning, operational and investing
administration of Rowlinson Knitwear. The budget has been changed according to the variations
in the demand of the products in market.
Advantages:

 It helps management to generate new ideas and opportunities which will help them
cooperating with uncertainties.
 All the aspects and elements are ascertained due to which the management may find no
difficulties in execution of future business activities.
Disadvantages:
 Sometimes scenario picture may be different with actual picture due to which the
company may face losses and affecting profitability as well.
 Changing in policies according to the variation in demands may not bring expected
outcomes in near future.
Contingency planning tools: As the business environment is complex and contingent in
nature which creates problem for an organization to achieve its desired goals and objectives.
With the help of such tool, thee management can able to make an effective decision related with
dealing critical situations. It is required to implement contingency plan which ensures in brining
expected result in future (Zaleha Abdul Rasid, Ruhana Isa and Khairuzzaman Wan Ismail, 2014).
Advantages:
 It is helpful in motivating employees to deal with complex situations so as to achieve
profitable outcome.
 Factor which affects profitability and sustainability of business are carefully analyses
using such tools.
Disadvantages:
 It becomes difficult for the management to accurate predict future which may brings
losses to company as well.
 The business environment is complex in nature due to which the management found
problems regarding operating business activities.
M3: Evaluation of planning tools
There are various planning tools for budgetary controls such as forecasting tools,
scenarios tool which help management in estimation of total cost incurred in future business
activities. It ensures company in getting maximum possible result in near future.
D3: Critical analysis of financial problem
There are lots of issues which are related with finance such as cost efficiency,
performance and control. Thus it is the responsibility of manager to eliminate such financial
issues as soon as possible otherwise it will be difficult for company to sustain in market for
longer period of time.