Management Accounting Systems and Techniques Report Analysis

This report provides a comprehensive overview of management accounting systems and techniques, focusing on their essential requirements and applications within an organization. It begins by defining management accounting and its role in providing financial information for internal decision-making, using Renishaw plc as a case study. The report explores various management accounting systems, including cost accounting and inventory management, detailing their functionalities and essential requirements. Different methods used for management accounting reporting, such as cost reports, budget reports, and performance reports are also examined. Furthermore, the report delves into cost analysis through income statements, and the application of planning tools for budgetary control. The advantages and disadvantages of these planning tools are discussed, along with how management accounting systems can address financial problems. The report concludes by emphasizing the role of management accounting in fostering sustainable organizational success.

Management
Accounting Systems &
Techniques

Table of Contents
INTRODUCTION ..........................................................................................................................3
P1) Management accounting and its essential requirement ..................................................4
P2) Different method used for Management accounting report ............................................6
M1) Benefits and application of management accounting system.........................................8
D1) Evaluation of integration of management accounting system and reporting .................8
TASK 2............................................................................................................................................9
P3) Cost analysis through preparation of income statement.................................................9
M2) Management accounting techniques to produce financial reports................................15
D2. Interpretation of data.....................................................................................................15
TASK 3 .........................................................................................................................................16
P4) Advantage and disadvantage of Planning tools used for budgetary control .................16
M3) Application of planning tools for preparing and forecasting budget ...........................19
TASK 4 .........................................................................................................................................22
P5) Adoption of management accounting systems to respond to financial problems..........22
M4) Management accounting lead an organisation to sustainable success .........................24
D3) Planning tools for accounting help to solve problems and support organisation with
sustainable success ..............................................................................................................25
CONCLUSION .............................................................................................................................25
REFERENCES..............................................................................................................................25

INTRODUCTION
Management accounting is a tool used for effective presentation of financial information
and resources required by internal management to formulate policies and planning for
undertaking proper decision making. The main purpose of management accounting is timely
recording of day to day transaction in a proper and most presentable way so that it can be
understand easily. Management accounting also provide a easiest way for communicating current
position of an organisation (Hosseinzadeh and Davari, 2018). A effective management
accounting system provide proper accounting reports and budgetary control which ensure timely
completion of work thus facilities better performance and future growth of an organisation . It is
the responsibility of management accounting system to mange a wide range of critical
management accounting information through using various techniques like cash budget,
marginal costing, absorption costing and many other relevant management reports.
For this assignment, Renishaw plc is selected which is a British engineering company
well known for its coordinate measuring machine and machine tool products. It is a leading
company in metal additive manufacturing (The top UK engineering firms for fresh graduates,
2019). The headquarter of Renishaw plc is in Wotton- under- Edge, Gloucestershire, UK. This
report includes essentials and requirement of different type of management accounting systems
and also explain different methods used for management accounting reporting. Calculation of
cost with appropriate techniques and income statement using marginal and absorption costing is
also form a part of this report. It also include advantage and disadvantage of different types of
planning tools used for budgetary control. At last, use of management accounting system to
effectively handle or address financial problem is also included in this report.
TASK 1

P1) Management accounting and its essential requirement
Management accounting is a system that includes timely presentation of financial
information and proper recording of day to day transition in form of statistical data which used
by top management and other authorities for preparation of proper budgets and strategies, and
also helps in maintaining a good control and monitor over all performance of an organisation
(Oldman and Tomkins, 2018). It involves preparation of various management accounting and
budget which are helpful in formulation and implementation of various plans and polices needed
for betterment and growth of organisation. All these documents and reports are very useful for
stakeholders as they represent the current performance and situation of an organisation and
provide all relevant information about upcoming opportunities that can be garbed by an
organisation for ensuring future growth. Thus, the main aim of management accounting is to
keep a check and control over different expenses and cost of organisation to achieve the target of
cost effectiveness and profitability. Renishaw plc is also making use of various types of
management accounting system which are explained below.
Various types of management accounting system and their essential requirements
Management accounting system- It is basically a internal system of organisation used
for measuring and evaluating its processes for better management of organisations. Management
accounting system includes application of various system which are explained below:
Cost accounting system – It is an accounting process or framework helpful in estimation
of cost involved in production of an article. It is very essential for an organisation to analysis its
cost for properly determining its profit level. Cost accounting system facilitates proper valuation
of stock or inventory which is very help full in overall cost control of production process. This
process of estimation of cost of production is very critical as well as very crucial for every
organisation as overall productivity and profitability of business depends on this. It helps in
taking decision that which product is more cost effective and profitable for the business
organisation and thus helps in decision making about the product in which it should deal to
maximize its profit (Agrawal, 2018).
Cost accounting system provide approximate value of opening and closing raw material,
work in progress and amount of finished good. This information is necessary for calculation of
data needed for preparing financial statement and other documents. Renishaw plc can make use
of this cost accounting system as it helps in measurement and improvement of efficiency through

implementation proper cost control and also helps in fixation of prices of product. To properly
implement a cost accounting system in any organisation, some essential requirement must be
fulfilled which includes proper coordination and participation of all executives from different
departments of a firm. It is also necessary that proper balance should be maintain between cost of
instillation of system and its future benefits. It also necessary that cost accounting system should
not reduce the utility of organisation through making tasks and activity mare complex and rigid.
In Renishaw plc proper measures are adopted to implement the cost accounting system to
maintain the authenticity of decision making.
Inventory management system - It is a procedure used for monitoring and controlling
stock of raw of material to keep a balance between demand and supply of raw material. It is very
important to maintain a adequate amount of inventory to ensure uninterrupted production of
product but keeping a huge amount of stock is also very risky and costly. So proper accounting
for inventory management is necessary to reduce the cost of warehousing and other expenses
required for safely storing the material (Weetman, 2019). A proper and effective communication
with supplier of raw material is necessary to ensure the timely availability of stock. Proper
analysis of demand of the product is also essential before implementation of an inventory
management system. Proper controlling and auditing techniques are also an essential requirement
for inventory management system. Inventory management system is useful for Renishaw plc as it
keeps a track on inventory and offers a centralised view of stock. It also helps in controlling costs
through making proper stock reports and also manges planing and forecasting of inventory. The
main methods for inventory management are explained below, Renishaw plc can select anyone
of these methods for effectively managing its inventory or other stock: First in first out (FIFO) – Under this method inventory purchased or entered warehouse
first is put to use on priority basis and the newest inventory entering the warehouse last is
used at the end after all old inventory is used, thus the cost paid for oldest products are
used for calculation of cost of product. Last in first out (LIFO) – This method is just opposite of LIFO, under this method
inventory entering the warehouse last is put to use first. Thus, the cost which is incurred
for newest stock is used for calculation of cost of inventory.

 Weighted average method – This method is mainly adopted for valuation of inventory
and average cost of inventory is assign to each and every piece of inventory at the tie of
selling that product.
 Economic Order Quantity (EOQ) – This method helps in calculation of that number of
units of raw material that a company should buy at one time to minimize the total cost of
inventory by reducing holding cost and order cost (Roussy and Rodrigue, 2018).
Renishaw plc is a manufacturing company, so it is necessary to maintain sufficient
amount of inventory with lower holding and storage cost, therefore for them EOQ method is
most suitable. EOQ is useful for Renishaw plc in reducing the holding cost of inventory as EOQ
system eliminates the need of having big warehouse to store goods as under EOQ company
orders raw material in limited quantity to ensure that the current production process does not
come to a halt.
Price optimisation system – This method is used to analysis the change in response of
customers on different prices offered for a particular product, hence helps in determining the best
suitable price for an organisation to meet its objective and also to achieve maximum operating
profit. Renishaw plc can make use of this method as it provide proper strategies for regulating
pricing decisions and helps in obtaining accurate price for its product which foster sales of its
product and also yield higher profits (Tools and techniques of Management Accounting. 2019).
The essential requirement of price optimisation system includes availability of past records to
properly analysis the pricing strategy of competitors and to get information about economic
conditions. After proper analysis of all the the records and strategy a price is set for the product
to maintain a balance between demand and profit margin . Price optimization system is essential
for Renishaw plc to analysis its business environment and pricing strategy of customers to fix a
most suitable price for its product.
P2) Different method used for Management accounting report
Various methods are used by business mangers for effective reporting of management
accounting which facilitates proper management and decision making and also allows timely
performance analysis of on organisation to promote better control. Management accounting
reports are used for keeping records of day to day operations which facilitates easy planning and
design making. Some of the important methods which are used by Renishaw plc for
management accounting are discussed below :

Cost Reports: Management accounting is having a crucial role in calculation of cost of
an product and services which is very essential for determination of product price. A proper
report or document is prepared by accounting mangers to facilitate easy decision making
regarding the price of an product as overall demand of product and profitability of organisation
depend on price of an product (Jefrey, 2018). Renishaw plc is making timely cost reports to
analysis the amount of cost and expenses and to keep a check on wasteful activities to reduce the
overall cost and to increase the overall profitably.
Budget reports – This report is used for making comparison between actual performance
and estimates made to analysis the current performance level of an organisation. All the sources
of income and areas of expenses are included in the budget and it also provide knowledge about
operating and net profit thus, it as considered as most fundamental and basic report which is
maintained by all organisation. Budget is having a similar format like an income statement and
also includes sales and cost of good sold. It is basically divided into parts in which one is
showing actual data and the other part is showing budgeted data to facilitate easy comparison of
facts. Positive difference is the indicator of good performance where as adverse or negative value
shows the weak position. Timely budget reports are prepared by Renishaw plc to keep a check
on performance level and profitability (Abernethy and Wallis, 2018). Budget reports are also
useful in keeping a check on amount of actual expenses through properly comparing its with
budgeted expenses thus, a check and control over wasteful expenses are also kept through using
budget reports.
Performance reports - This report provide a deep review and analysis of performances
of an organisation and also proved information about efficiency level of workforce for a specific
time period. Timely performance analysis of employees is very essential to ensure the better
productivity and growth of an organisation in future. Main aim of performance reports is to keep
a check or monitor the working habits of an employee to motivate them for improving their
efficiency and productivity and to achieve this aim, use of incentives and reward is also made.
Renishaw plc should also prepare timely performance reports for early detection of problems and
flaws exit in any operation of organisation so that corrective action can be taken on time for
improving overall performance of organisation. Performance report makes Renishaw plc able to
gather all the essential and relevant data that helps in stimulating discussion and identifying new
opportunities which should be explored to enhance the process optimization.

M1) Benefits and application of management accounting system
Management accounting system are very beneficial for every organisation as it provide
all relevant and accurate information in form of statistical data which facilitates easy and proper
decision making for controlling all the activities and operations of an organisation. It is also used
by various stakeholders and other related parties to know about the current performance and
situation of organisation (Quinn and Oliveira, 2018). Importance and benefits of proper
application of different accounting system for Renishaw plc are explained below :
Management accounting system Benefits for Renishaw plc
Cost accounting system Application of cost accounting system is useful
for Renishaw plc in calculation of total cost of
a product for improving and measuring
efficiency through reducing cost of production
and meeting objective of cost efficiency.
Price optimisation system Implementation of this accounting system is
very useful in selecting most suitable price for
a product which will maintain an adequate
amount of profit margin for Renishaw plc and
at the same keep a good level of demand for
product.
Inventory management system Inventory management is very crucial for
Renishaw plc as it a manufacturing company
therefore, maintaining an adequate amount of
stock is very necessary. This accounting also
helps in reducing wastage of stock and raw
material through effective management and
control.
D1) Evaluation of integration of management accounting system and reporting
Type of reporting & Systems Integration with organisational process

Inventory management report: This report
is developed on the ground of combination
of information collected from system.
Integration of reporting system with
organisational process can be easily understood
through this point as it is helped Renishaw plc to
mange its raw material effectively which is
needed at different level of demand.
Performance report: This report is
prepared on the basis of information
collected from different systems of
organisation and all include all relevant
information about performance of Renishaw
plc.
Integration of performance report with operation
has provide specialisation to Renishaw plc as all
the misalliances and deviations are timely
removed with the help of this report (Cockcroft
and Russell, 2018)..
TASK 2
P3) Cost analysis through preparation of income statement
Income Statement – It is one of the most important financial statement provide
information about actual or current financial performance of an organisation for a specifics
accounting period. Its main focus is on different sources of company's revenue and expenses for
a particular period of time (Gawin and Marcinkowski, 2019). Income statement is very useful for
stakeholders as provide all relevant information about organisation and helps in taking
investment decisions.
The main methods used for preparation of income statement are :
Marginal costing – Under this costing technique, fixed cost is taken as periodic cost
which is written off against contribution where as variable cost is treated as unit or product cost.
Marginal cost implies the additional cost involved in producing an extra unit of product or
output.
Absorption costing – Under this type of accounting method both fixed cost and
variable cost are included in cost of product and equally distributed to each unit produce.
Absorption costing is a method which capture all costs associated with manufacturing a product.
ANNEX (A)