Management Accounting Techniques and Reporting for Rio Tinto

This report provides a comprehensive overview of management accounting, focusing on its application within Rio Tinto, a multinational mining company. The report begins with an introduction to management accounting and its role in organizational decision-making, followed by an examination of various management accounting systems, including cost accounting, inventory management, job costing, and price optimization. It then delves into management accounting reporting, covering job costing reports, inventory management reports, departmental reports, and performance reports. The report further explores management accounting techniques and the advantages and disadvantages of planning tools. Finally, it compares how organizations can use management accounting to address financial problems. The analysis covers both the benefits and the critical evaluation of these systems, techniques, and tools within the context of Rio Tinto, providing insights into their practical application and impact on financial performance and decision-making.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management Accounting Systems........................................................................................1
P2: Management Accounting Reporting......................................................................................3
M1: Benefits of Management accounting systems......................................................................5
D1: Critical evaluation of Management accounting systems......................................................5
TASK 2............................................................................................................................................5
P3: Management accounting techniques......................................................................................5
M2: Accurate application of management accounting techniques..............................................7
D2: Producing of financial reports...............................................................................................7
TASK 3............................................................................................................................................7
P4: Advantages and Disadvantages of Planning Tools................................................................7
M3: Analysis of planning tools..................................................................................................10
TASK 4..........................................................................................................................................11
P5: Comparison of organizations...............................................................................................11
M4: Analysis of response to financial problems........................................................................12
D3: Evaluation of planning tools...............................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting refers to a process through which a proper analysis and
interpretation of the financial data, facts and information of the organization is done so that
proper short-term, medium-term and long-term decisions can be taken effectively and efficiently
(Bakke and et.al., 2016). Using it, the firms will be able to ensure that they manage their funds in
a proper manner and therefore achieve the different types of goals and objectives which are set
for the future effectively and efficiently. This will help them in targeting the maximization of
profits. For this report, Rio Tinto has been chosen. It is an Anglo-Australian multinational
company which deals in finding, mining and processing of Earth's mineral resources. It has its
headquarters in London, United Kingdom. In this report, detailed focus will be made on
demonstration of understanding of management accounting systems, application of a range of its
various techniques, explanation of the use of planning tools. Additionally, focus on comparison
of ways in which organizations can make the use of management accounting to solve financial
problems will be discussed as a part of this project.
TASK 1
P1: Management Accounting Systems
Management Accounting is also known as managerial accounting that helps the manger
to take decision within the organisation, it provide the information of accounting and internal
report to manager that enable him to take long term and short term decision (Heinzelmann,
2017).
Types of Management accounting system -
Cost Accounting system – This Managerial accounting system aids in estimating the the
value of product to for profitability analysis of company (KASHANIPOOR and et.al., 2018).
This essential part of any management accounting and it consist of many cost like fixed cost,
variable cost and semi- variable cost.
Requirements-
 In company Rio Tinto, this accounting system helps in transforming the raw data into
useful date and helps the manager to take conscious and rational decision for company.
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 For company, cost analysis assist in preparation of budget and analysis of profitability of
different department. It also helps in deciding in setting the price of product to attain
profit margin to cover the cost.
Inventory management system – This tool helps in checking the status of product
produce by company throughout the supply chain and ensure safe delivery of goods to the
vendors (Khlif and Achek, 2017). It focuses on minimising the loss of goods during its process
and check the availability of stocks in warehouses to reduce the risk of any uncertainty during its
delivery time.
Requirements -
 In Rio Tinto, managing the inventory is necessary as it ensure the sufficient availability
of stocks in warehouse and inventory manger can monitor the under stocks and
overstocks which will be able to prompt decision on that situation.
 Through this inventory system, manager can reduce the risk of wastage that occur while
deliver the stock to vendor and maintain the quality of stock is also important at same
time.
Job costing system – It refers to determining the cost of each job that has been incurred
during the process of manufacturing to shipping of product (Kocsis, 2019). It include many
different cost such as Direct cost, Labour cost, Manufacturing cost and overhead cost.
 In the big company like Rio Tinto, manager trace the expense of each job that occurred
that and evaluate how it can be minimised to certain level to achieve desired profit
margin.
 Job Costing system is used in determining the cost of each project from calculating the
expenses of each department. It helps in ascertaining the profit and loss of each job after
its completion.
Price optimising System – This is mathematical model that is used by company to
determine the fair price that satisfied the behaviour of costumer and with that also maintain
operating profit of company (Kokina, Mancha and Pachamanova, 2017). It analysis the data and
segmenting the costumer and according to scenario of market.
Requirements -
 In Rio Tinto, this system helps in analysing the market price of product and provide the
data how much price needs to set to attain profit.
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This system assist the manager in decision making process and also consider the behaviour of
costumer which gives competitive advantage to company.
There are different types of role of Management accounting. These roles are explained in
the following manner-
 Planning- Management accounting is quite useful for the organizations in order to make
proper plans. Thus by making its use the companies can make sure that they are able to
create short-term, medium-term and long-term plans which can be useful in the future.
Therefore In the context of Rio Tinto it can be said that it must be used for the purpose of
creating proper plans which are useful for the future.
 Control- Management accounting is very useful for the firms so that they are able to
create proper controls effectively and efficiently. For Rio Tinto it can be useful for the
purpose of ensuring that deviations and variations can be identified effectively and
efficiently. For Rio Tinto it can be useful so that the achievement of financial goals and
objectives can be done.
 Decision-Making- In Management accounting, decisions can be taken without problems
and issues. In the context of Rio Tinto, it can be useful so that short-term, medium-term
and long-term decisions can be taken highly effectively and efficiently.
Difference between Management Accounting and Financial Accounting
Basis Management Accounting Financial Accounting
Usage It is useful for internal
management of the
organization so that it is able
to take decisions in a proper
manner.
It is useful for external
management because by
making its use can be made for
the proper analysis of different
stakeholders.
Measurement of
performance
It can be used for the
measurement of financial as
well as operational
performance.
It can be used for the purpose
of measurement of financial
performance.
Focus area In it, specific focus has to be
put on specific areas within the
In it, the report on the entire
organization can be prepared
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business. effectively and efficiently.
There are different types of benefits of Management accounting systems when they are
applied in the organizations. The advantages of these systems can be explained in the following
manner-
 Assessment of the system- The use of Management accounting systems can create
benefits for the organizations because it helps a lot in assessing the system. In this way it
can be said that the use of these systems can help the firms in ensuring that they are able
to raise the overall efficiency and effectiveness. Thus In this way Rio Tinto will be able
to assess its system in the right manner.
 Raising the overall bar of efficiency and effectiveness- Management accounting
systems can help a lot in raising the overall bar of efficiency and effectiveness. Rio Tinto
can be helped by the application of these systems as they can help it in raising the overall
bar of efficiency and effectiveness without facing problems and issues.
P2: Management Accounting Reporting
Management Accounting Reports are a summarized form of the financial data, facts and
information which can be used by the organizations so that they are able to present their results
and findings in a proper manner effectively and efficiently (Bebbington, Russell and Thomson,
2017). Their use can be made by Rio Tinto so that the managers are able to achieve their goals
and objectives in the future. The following types of reports can be used by the management of
Rio Tinto-
Job costing reports- In these reports there is an assessment of the various types of job
costs which are being incurred within an organization (Chung and Cho, 2018). By making their
use, the firms are able to find out the way they can assess the job costs and thus use methods and
techniques to reduce them. For a manufacturing company there is a particular importance which
is associated with these reports because through them an accurate identification of the job costs
can be made. As a manufacturing company indulges in the inflows and outflows of job orders
this can be really helpful for it in managing the orders correctly. Also in the tracking and
managing of the job orders the use of these reports is very useful. As Rio Tinto is a
manufacturing company it has to use these reports so that it is able to manage the inflows and
outflows of job orders accurately. This will help it in reducing the job costs and thus targeting the
maximization of profits.
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Inventory management reports- In these reports, there is a calculation of the inventory
and the inflows and outflows of the different stock items (Ferramosca and Ghio, 2018). When
the managers use it the stock management can be done in a proper way which is therefore helpful
to ensure better functioning of the organization. Therefore the management in the various
organizations has to use them in a right manner so that a proper analysis and interpretation of the
various findings can be made effectively and efficiently. This will help a lot in ensuring that the
stock items are managed correctly. The managers of Rio Tinto can use these reports so that they
are able to track and manage their inflows and outflows of stock. Also by using the methods like
LIFO, FIFO, Weighted Average Cost etc. proper management of the inventory level can be done
easily. Also by using these reports the problems and issues which are related with the stock can
be identified and thus the use of methods and techniques can be made by to solve these problems
and issues. Thus in this way expenses related to the management of stock can be reduced in the
organizations and this will help them a lot in targeting the maximization of profits.
Departmental reports- In an organization there can be different types of departments
(Grishanova, Tatarinova and Kirina, 2016). These can be Production, HR, Finance, Marketing,
Sales etc. For the firms it is useful so that they are able to enhance the efficiency and
effectiveness level of these departments which will help them a lot in the achievement of goals
and objectives in the right manner. In the context of Rio Tinto, there is a requirement that the use
of these reports must be made so that the overall level of efficiency, effectiveness and
productivity can be enhanced. Here, a detailed and thorough summary of the departments can be
provided which is thus helpful in assessing the required actions which need to be taken to
improve the departments. Thus in this way the management of the companies can focus on
making sure that they are able to analyse and interpret the given information of these
departments by making a use of these reports and can thus find out the problems and issues in
these departments. Thereby the use of rectifying techniques and methods can be made so that the
achievement of the goals and objectives can be made in a proper manner.
Performance reports- In the firms there should be a thorough assessment of the level of
performance effectively and efficiently by using these reports properly. Detailed overview of the
performance level is possible when the management makes the use of these reports so that if the
improvements are required then they can be made quickly which will thus be very helpful in the
proper management of funds and bringing an improvement in the financial situation (Gulluscio
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and et.al., 2020). For the managers of Rio Tinto these reports are therefore very useful because
by making their use they will be able to assess the level of performance which is desired. This
can be done by setting of particular standards against which the performance can be measured
and the deviations and variances can be identified. Therefore corrective actions can therefore be
taken to remove these deviations and variances which will not only help a lot in the enhancement
of performance but will also lead towards the achievement of goals and objectives. Also through
the use of these reports the management can facilitate a comparison with the other organizations
so that they can find out the way the company is performing as compared to the different
organizations which are operating in the same sector. Therefore it is quite crucial that the various
aspects of departments like their performance in the current year, performance in the previous
year is measured correctly so that the enhancement of the overall efficiency and effectiveness
level can be done easily.
There are a wide variety of benefits of Management accounting reports. These benefits
can be explained as follows-
 Analysis & Interpretation- Management accounting reports can be useful in ensuring
that a proper analysis & interpretation of the given financial information can be done in
the right manner. For the managers of Rio Tinto, it can be quite helpful in ensuring that it
can analyse and interpret the given financial information.
 Assessment of the problems- The use of Management accounting reports can be made
so that a wide variety of the problems can be assessed. In the context of Rio Tinto, they
can be quite helpful in finding out the problems and assessing the solutions for them.
M1: Benefits of Management accounting systems
Cost accounting system helps in the assessment of costs and thus using techniques and
methods to reduce these costs. Inventory management system is helpful in the identification of
stock items and using methods and techniques to reduce the cost of maintaining the inventory.
Job costing system is helpful in the assessment of the overall inflows and outflows of the job
orders and reducing the costs associated with these job orders. Price optimization system is
helpful in the assessment of the overall price level and using forecasting techniques to forecast
the price which needs to be set. This leads to an advantage for the management of Rio Tinto.
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D1: Critical evaluation of Management accounting systems
The Management accounting systems are required to be properly integrated within the
processes of the organization. Thus for the management of Rio Tinto it is quite necessary that
these systems are integrated so that their benefits can be obtained. Cost accounting system can be
integrated by using the cost accounting system for cost calculations. Inventory management
system can be integrated by using methods like LIFO, FIFO, Weighted Average Cost etc. so that
the management of inventory can be done. Job costing system can be integrated by ensuring that
the job orders are managed appropriately by maintaining a detailed record of the job orders. Price
optimization system can be integrated by using mathematical and statistical models through
which the computation of price to be set in the future can be done.
TASK 2
P3: Management accounting techniques
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Marginal Costing is technique that used in determining the cost of variable items and
ascertain the additional cost per unit (Mahmoudi, Jodeiri and Fatehifar, 2017). It include fixed
cost and variable cost and it uses in financial modelling to generate sufficient cash flow. Rio
Tinto company is also using this tool to identify the variable cost and determine the profitability
of company.
Advantages
 In Rio Tinto this techniques is used efficiently as they were dealing in metal and mining
business which will help them to find their fixed and variable cost because they were
incurring both cost. In fixed cost they have land, depreciation and rental payment that
they have to regulate carefully and make sure they are not much costly and they also deal
with large labour force required in mining which impact directly on th operation of
company.
 Marginal costing is easy to understand and easy to operate it facilitate the company to
identify whether they should manufacture their parts outside the firm or continue in their
own firm and aids in vital decision making between choice of alternatives (Walker,
2016).
Disadvantages
 The main drawback of this technique is that if Rio Tinto separates its fixed and variable
cost it is quite difficult as every component act differently according to their nature, so
proper estimation is quite difficult in this technique.
 Company need an expert to calculate marginal technique as it require better
understanding of this technique. It is difficult in rapidly changing environment of
business.
Absorption Costing is also called Full absorption costing that is managerial part which
include fixed overhead cost and lumps all manufacturing cost per unit produced (Meiryani,
Susanto and Warganegara, 2019). It enables the company to determining overall variable cost.
Rio Tinto is in mining and metal business require to calculate overall operating cost that also
include equipment cost, energy cost, rental cost which are part of this business.
Advantages -
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