Comprehensive Analysis of Management Accounting for Renishaw Company

This report provides a comprehensive overview of management accounting, focusing on the application of various systems within the context of Renishaw Company. It begins by defining management accounting and its significance, differentiating it from financial accounting, and exploring different types of management accounting systems like cost accounting and inventory management. The report delves into cost accounting, standard costing, and activity-based costing. It also examines the importance of cost accounting in cost control, price determination, and fixing standards. Furthermore, it analyzes various management accounting reports, including budget reports, job cost reports, performance reports, and cost accounting reports. The report then explores the concepts of marginal costing and absorption costing, including their formulas. Finally, it touches upon planning tools for budgetary control and how organizations adapt management accounting in response to financial problems. The report provides a detailed analysis of financial planning, decision making, and the overall importance of management accounting in an organization.

Management accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
P1 What is management accounting and its important of different types of management
accounting systems......................................................................................................................1
P2 Different types of management accounting reports................................................................4
LO 2.................................................................................................................................................5
P3 Income statement using marginal costing and absorption costing.........................................5
LO 3.................................................................................................................................................8
P4 Types of planning tools for budgetary control......................................................................8
P5 How organisations are adapt management accounting in responding financial problems...11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Managerial accounting is also known as the management or cost accounting, focused n
the inside formation which can received through financial accounting. Managerial accounting is
concern with the field of accounting which assist in analysing, offering the information related to
the cost to the internal managerial process. it has objective such as controlling, planning and also
the decision making (Gibassier and Schaltegger, 2015). This report is based on Renishaw
company is one of the world's leading engineering and science technology which is expert in the
precise measurement and also the healthcare. It supply products and services which is used in the
application such as jet engine, wind turbine. This group currently had more than 80 offices in 36
countries and around 3,000 are employees worked here Present report lay emphasis on the about
the various management accounting system with the necessary requirements as well as the
managerial reports .it will also focus on the techniques of cost analysis ,preparation for the
income statement by using the marginal as well as the absorption costing.
LO 1
P1 What is management accounting and its important of different types of management
accounting systems.
Management Accounting:
Management accounting considers as the process of measuring, recognising, interpreting,
evaluating and communicating the financial information in the pursuance to accomplish the goal
of the company. It is also mentioned as the cost accounting. To distinguish the financial
accounting and the management accounting is that in management accounting its goal is to
assisting the mangers within an organisation while the financial accounting aimed is to targeting
to provide the information to the external parties of a company (Taylor and Scapens, 2016).
Accounting considers as the process of measurement, identification as well as
communication of the economical data that allows the informed decisions and the judgements by
the data users according to the (AAA) American Accounting Association thus there are various
types of the engagement accounting systems that involved different accounting objectives,
elements as well as the functions.
Cost accounting

It is an accounting method whose goals is to capturing the cost of production of
Renishaw company through each step of the input cost also with the fixed cost. Firstly, it is
measures and record the cost on an individual basis then compare the input consequence to the
output consequence which assist the management of the company in analysing and measuring
the financial performance. The cost accounting system which allocates the cost either activity
based or traditional based costing system (Armitage, Webb and Glynn, 2016).
Cost accounting is also used in an organisation to help in decision making and financial
accounting differs in the representation of the cost as well as the financial performance which
includes organisation assets and liabilities. Cost accounting would most beneficial tool for the
managing tool and also in setting up the control programs which can amend net margins for an
organisation on the future references (Kastberg and Siverbo, 2016).
there are two main types of cost accounting given below
Standard cost accounting it can use the ration to the cost effective use of the materials
in the developing products as well as services.
Activity based costing here cost is monitored on the basis of the activities and resources
which are consumed by each activity as well the final output that can determines the cost of the
product.
it is beneficial for the Renishaw company manufactures company to measure, analyse ,
profitable, unprofitable activities ,to do proper training ,control and fully utilisation of the
resources which helps in the decision making regarding to the labours and machines
(Rikhardsson and Yigitbasioglu, 2018).
Importance of cost accounting
Classification of cost- cost accounting is the specialised branch which deals with the
classification well as recording of cost. For example-direct cost, prime cost selling coast and
factory cost..this classification allows the management to calculate the efficiency and also
control the cost and profitability of such kind of process as well as activities.
Cost control -it focuses on controlling the cost of labour, and various other costs .for
example by applying the labour cost and also the capacity of the machines which can boost their
efficient as well.

Price determination- cost accounting allows the management of the renishaw to find the
most perfect price for the product and services. Not too high and not too low. For example-when
the recession occurs and economy suffers a lot then the businessman has lowers the prices of
their product to survive in the circumstances (Kamal, 2015).
Fixing of standards-Company can use some standards to make the estimate and the
budget for the future references. Company can use these basis to analyse the efficiency of the
department.
Importance of costing to others:
Government- costing helps the government for the liabilities like income tax any other
such liabilities. It assists to set the industry standard and also help with the price fixing ,cost
control and also tariff plans.
Customers- its main aim are cost control and improvement of efficiency .both of these
were beneficial for the organisation and this benefit ultimately pass to the custom for the product
and services.
Inventory management system
it is a process of ordering and storing by using a company's inventory. it includes the
components of the raw material ,finished product and also the warehousing and processing with
such items (Ossimitz, Wieder and Chapman, 2016). For the organisation which has complex
supply chains and complex manufacturing process the risk if inventory oversupply and shortage
is more difficult to overcome such problems' management can developed two methods just in
time (JIT)and materials requirement planning (MRP).
importance of the inventory managements- Reducing risk shortages-to avoid or to minimize the shortage of the raw materials
company can maintain the larger inventories. Here the organised inventory results into
the more efficient present as well as future. it also includes cost saving and improvement
in the product. Increased efficiency and productivity-with the proper management of the inventory there
is less time and resources spent in managing as well as allocated to the other area. here
technology plays a greater role to speed up tracking and full fill the operational needs

also ensuring inventory record that are accurate (Nuhu, Baird and Bala Appuhamilage,
2017). Save time and money- due to improved efficiency, product flow and also well
management of the inventory results into the saved time and money.
 Improved accuracy of inventory orders-for the accuracy of the product orders, status as
well as tracking.
P2 Different types of management accounting reports
Managerial accounting reports are the tools which provided the information needer to
trim the cost, also reward the high performing staff members and invests in the services and the
goods that can offers the best financial return to the Renishaw company. it depends on the type
of the project that undertakes by the company. The time sensitivity of the financial information
that may request or they generate reports that are quarterly, monthly and weekly even on daily
basis as well (Bennett and James, 2017).
These are the reports that are continuously generated throughout the accounting and the
bookkeeping period as per the requirement. as many decisions are depends on the authenticity of
the reports ,they should be more careful adapt by the experts in bookkeeping .Managers of the
Reinshaw company carefully scrutinised the focused on the certain patterns and know to convert
them into useful information for the organisation. Given below are the examples of the such
types of the reports.
Budget report-these reports are very critical in evaluating the performance of the
Reinshaw and also generated for the small business, and department wise in additional to the
large organisation however each and every company creates overall budget to understand the
overall schemes of Reinshaw company's business (Alawattage, Wickramasinghe and Uddin,
2017). A budget is estimated on the past experiences .as great budget always ready for the
unseen circumstances that might rise. a budget of the company can list all the sources of earning
as well as expenditures. Every organisation tries to achieve its goal and mission while following
the budgeted amount. Managerial report which is related to the budgeting can support the
mangers to offer the staff members incentives, also cut the cost and renegotiate the terms and
conditions with the suppliers thus budget report has its won significance to any business as it is
a critical analysis.

job cost report-it is the process which concerns the total cost obtain in a project and also
compared with the expected revenue. It can track the ongoing project in an organisation. This
benefits the company to analyse and evaluate the profitability of a particular job fully to modify
it. it is also helpful; for the company as it recognise the problems and avoided in the future
references. Reinshaw company can track the job cost report in the weekly basis so that the
problems can easily be solved as it can become the worse .it can also tell about the low profit
with the duration of the month or in the quarter ,as it is the consequence of the bad job or
downward trend as in the price of the product (Watson, 2015).
Performance reports-performance reports are created to check the performance of the
Reinshaw company. As the individual employees or in the team members at the end of the term.
There is departmental performance can also generate in the large organisation .managers of the
company can uses the performances to make the important decisions about the future of an
organisation. Individuals can awarded to the commitment to the organisation and under
performance are laid off as required (Christ, Burritt and Varsei, 2016). These reports also offers
deep evaluation into the working of the company .if an employee thinks about the performance
in a certain capacity but due to some reasons it is not happening, this information can points the
flaws. The role of the performance report is important for any organisation to keep an exact
measure of their planning and strategies towards their mission.
Cost accounting reports- all the raw material costs, labour any added costs are taken into
the deliberation the tools are divided by the amount of the products produced. Cost accounting
reports can summarised for all the information. This report offers the mangers of the Reinshaw
company to realize the cost prices as compare to the selling prices. Inventory waste, overhead
labour cost and also the inventory labour cost are all the parts of the managerial accounting
reports. They can provide an accurate understanding of all the expenses which is important for
the better improvement of resources among all the departments (Strauss, Kristandl and Quinn,
2015).
LO 2
P3 Income statement using marginal costing and absorption costing
Marginal costing:

It is defined as the additional cost involved in the production of one extra unit. It can be
computed by assigning total variable cost to one unit. It is used in classification of cost. Cost can
be differentiated on the basis of fixed and variable cost. It also benefits company in determining
price. It helps manager of company to take decisions such as discontinuation of a product or
service and replacing the machines etc (Marginal and absorption costing, 2019). Marginal
costing ascertain the level of activity which reflects the outcome on decrease and increase in
level of production. They are also called variable cost which includes material cost, labour cost
administration and selling overhead. Formula for calculating marginal costing is:
Marginal Cost = Direct Material + Direct Labour + Direct Expenses + Variable Overheads
Absorption costing:
It is an accounting method to value inventory. It absorbs all the direct cost of
manufacturing such as overhead cost, material cost. It provides exact cost for producing a

product. It is better than variable costing. It is a process of adding all the cost manufacturing cost
i.e. direct or indirect cost to find out the accurate cost. Renishaw company will benefit from
absorption costing by preparing accurate financial statements, there is no need to differentiate
between variable and fixed cost. As the name says, it absorbs all the cost of production of each
unit therefore if more units are produced cost of each unit will be lower (Marginal and absorption
costing, 2019). Both the costing techniques generate different profits because marginal costing
uses only direct expenses and absorption costing uses both direct and indirect costing. Formula
for calculating absorption costing is:
Absorption cost formula = Direct labor cost per unit + Direct material cost per unit +
Variable manufacturing overhead cost per unit + Fixed manufacturing overhead per unit
Interpretation:
From the above income statement prepared by using marginal and absorption costing it
can be interpreted that while using marginal costing all the direct expenses of £51500 are

deducted from sales of £100000 from which contribution is generated of £48500. after
calculating contribution fixed cost is deducted then profit is generated £36500. In absorption
costing both the expenses are deducted so that accurate price of the product is found. In the
above solution fixed, variable and direct expenses are deducted from the sales i.e. £54000
deducted from £10000 which generated gross profit and further deducting distribution expense of
£9500 net profits is £36500.
Renishaw company need to use absorption costing because it shows increase in revenue
and decrease in sales cost. It is suitable for companies who have regular demand of the product.
It shows accurate profit which encourages company to increase its market share and increase
sales by making strategies. Renishaw company need not to separate variable and fixed cost.
LO 3
P4 Types of planning tools for budgetary control
Budget is an estimation of income and expenses which will be incurred in future. Budget
is based on the plans and objective of the company. Management of company estimates the
expense and revenue of the coming year by comparing it with previous year. Renishaw company
also need to make budget to complete its projects within the given budget. Budget benefits
company to work effectively within the given budget. There are different kinds of budgets i.e. for
long term and short term (Gibassier and Schaltegger, 2015). If objective and goals of a company
are for long period than company prepared long term budgets and if goals are for short term
company prepares short term budget. Financial stability of a company plays an important role in
making the budget.
The purpose of budget is to coordinate and distribute the resources equally. It provides a
guideline within which company need to perform its action to achieve organisation goals and
objectives. It improves performance of company.
Budgetary control is a process of where budgets are prepared for future date than the gap
between actual and expected results is find out. Comparing the results and identification of
difference, benefits company in taking appropriate actions (Taylor and Scapens, 2016). There are
many budgetary control techniques such as financial, operation and non-monetory budget. It
helps management to plan and implement policies by using various planning tools which are as
follows:

 Zero-based budgeting: It is an approach for planning and preparing budget from the
scrap. It starts with zero, but traditional budget rely on previous budget. It is used to
implement strategic goals in specific functional areas of Renishaw company. All the
expenses need to be justifies at first before including it in actual budget. The main
purpose of using zero-based budgeting is to reduce the unnecessary cost. It helps
company to utilize the resources effectively and efficiently. For making this type of
budget employees need to be involved in figuring out the expenses.
Advantages Disadvantages
 It increases efficiency of Renishaw
company in allocating resources. It
does not rely on previous budget.
 This planning tools benefits all the
department of the company in re-
looking their cash flows constantly and
get a fair idea of expenses(Kamal,
2015).
 It reacts to the changes which arise in
business environment.
 It uses high manpower because budget
is prepared manually, it involves
employees of every department in
making a budget.
 It is a time consuming process because
Renishaw company need to prepare
budget annual.
 Management of Renishaw company
feel demotivated because budget is
prepared manually.
 Variance analysis: It provides difference between the actual and planned performance.
This analysis helps Renishaw company to maintain control over business. It is a
quantitative investigation in finding out the gap between actual performance and
estimated performance. By using variance analysis company find out the trend in change
in the performance and use that information in making financial budget. There are many
types of variance such as purchase price, labour rate, fixed overhead, selling price and
material yield variance (Alawattage, Wickramasinghe and Uddin, 2017). The objective of
using variance analysis is to take control of cost and reduce it. Reason behind the
difference can be change in the market conditions i.e. decrease in the supply of raw

materials or increase in the price. Wrong budgeting standard may also be the reason for
variance.
Advantages Disadvantages
 It benefits Renishaw in measuring the
performance of company by comparing
actual performance with estimated
performance.
 It is also called responsibility
accounting because every company has
different departments and they are
accountable of their use of resources
and performance. So it becomes easy
for company to identify who is
responsible for the variance.
 It depends on the financial outcomes of
the company which are releases
quarterly or yearly, there may be a time
difference to take certain actions to
remove the gap (Strauss, Kristandl and
Quinn, 2015).
 While preparing budget, if company do
not go through all the details and
factors than the budget prepared will be
incorrect and the operations of
Renishaw company may not run
smoothly.
 Ratio analysis: It is a process of interpreting and gaining insights of organisations
liquidity, profitability and operational efficiency. It is a relation between two numbers
extracted from the financial statements. It helps in the comparison of performance of the
company. The main objective to analyse ratio is to measure overall financial strength of
company to determine long term solvency. Renishaw company need to use ratio analysis
to compare its current position with the competitors in the industry so that management
take corrective actions. Company need to use the information to check the progress
sometimes called trend analysis (Gibassier and Schaltegger, 2015).
Advantages Disadvantages
 Ratio analysis helps Renishaw
company in decision making whether to
invest or not.
 Company improves its performance by
 Ratios ignores change in the price of a
product and services due to change in
the inflation rate.
 Ratio ignores the qualitative aspects of

comparing it with competitors. It also
helps in inter-firm comparison where
ratios are compared with the previous
years ratios to check progress (Kamal,
2015).
 It benefits company in planning and
forecasting the trends to maintain the
efficiency of work in achieving
organisational goals.
Renishaw company and take only
monetary aspects.
 Seasonal factors may affect the
financial data for e.g. umbrella
company may have high liquidity and
inventory level in the season of
monsoon. Hence it gives incorrect
information.
P5 How organisations are adapt management accounting in responding financial problems
Companies are facing financial problems in in their business. Management accounting is
a process used to control an organisation. Managers collect informations and take decisions for
the betterment of firm. It manages company's financial data and tells the current position. If a
company wants to expand its business there are various factors which affect it such as
environmental, economical and political problems (Bennett and James, 2017). Companies use
management accounting to solve their financial problems like irregular cash flow which reduces
the capability to repay, budget variance, unable to pay to creditors, bad debts. Renishaw
company and its competitors Thales are facing various financial problems such as budget
variance, cash flow irregularities, improper utilization of resources and decrease in the sales.
There are some solutions stated to resolve financial problems by using management accounting:
Renishaw company:
Company faces poor cash flows and a gap between actual and estimated performance
because firm has not use budgetary method and performance measurement methods. Thus
company face decrease in sales and profits because their performance is not better. Company
need to use management accounting tools such as cash budget and benchmarking (Alawattage,
Wickramasinghe and Uddin, 2017).
 Company has faced problem in their cash flows in recent years. Reason behind the poor
cash flows are decrease in sales, cash shortage, entry of new competitors generates
negative flow of cash, over investment and expanding too fast. Company need to make

cash budget to estimate the inflow and outflow of cash. Its main objective is to measure
whether company has enough cash for its operations or not. A cash budget is important to
determine the amount of money company has to operate. It is used to project the future
cash position of the firm. Cash budget vary from income statement. Renishaw company
need to prepare cash budget to forecast all the cash inflows and outflows. This will
benefit company in identifying their liquidity positions so that they can pay to creditors,
prediction of cash deficit or surplus (Watson, 2015). Through use of this budget firm can
utilise its cash properly. While preparing cash budget company need to consider 3 parts
i.e. forecasting cash inflow, cash outflow and cash balance by using previous years data.
 It is a process where performance is measured. Company measure its products and
services with other business to find out who is the best in the market. It benefits
enterprise in identifying internal improvement opportunities. as Renishaw company is
facing the gap between its actual and estimated performance. Organisation need to use
benchmarking technique in filling the gap of variance (Christ, Burritt and Varsei, 2016).
By using this technique firm could identify the problems in the internal environment of
organisation by comparing the process of business in finding out the gap. To measure
performance firm needs to follow various benchmarking techniques like competitive,
internal, generic and functional.
Thales company:
In past year Thales company faced costing problems due to improper allocation of
resources. Organisation faced over-costing problem which made its market share lower and
decrease its sale and profits. The reason behind the overcosting of product is raw materials are
not utilized effectively, human resource are not working efficiently to achieve organisational
goal. To overcome this problem company need to use tools of management accounting (Taylor
and Scapens, 2016).
 Company need to use activity-based costing this in distributing the resources according to
the activity. In this costing company assign equal resources to the production,
manufacturing and other departments so that resources are utilized effectively and
efficiently. It benefits company in assigning the cost to overhead activities and than
assign to the products. Proper distribution of cost will increase the sales and profitability

of company (Gibassier and Schaltegger, 2015). Activity-based costing is an advantage to
the organisation in assigning accurate cost to the products, tracking the activities on the
basis of cost and helps in decision making.
CONCLUSION
Above study can be summarised as management accounting is the method of managing
financial data of company and make effective planning so that cost can be managed. It helps in
effective planning and making sound decisions for the growth of company. It is the tool which
supports organisation in identifying financial problems and finding appropriate solution to
resolve such issues. Marginal and absorption costing methods are used in firms to calculate the
net worth of business. Absorption is considered as best tool because it highlights higher net
worth of company and help in satisfying investors to great extent. Performance report, budget
reports are helpful in analysing overall performance of enterprise. Variance analyses budgetary
control tool gives benefit to organisation in identifying actual gap between expected results and
actual outcome. By this way enterprise can make changes in its practices in order to get desired
results. Ratio analyses is another great technique which supports in determining performance of
company by calculating various ratios such as gross profit, debt ratio etc. All these things help in
comparing performance of business with competitors. There are various financial problems that
are faced by companies such as declining sales, high variance etc. All these issues can be
resolved by using effective management accounting tools. This helps in finding rout cause of
problem and implementing correct solution to get positive outcome.

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Online
Marginal and absorption costing. 2019. [online]. available
through<https://www.osbornebooksshop.co.uk/files/acrt_07.pdf>