Management Accounting Practices at Renishaw: A Case Study

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Management Accounting
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Table of Contents
Introduction....................................................................................................................................3
Activity 2.........................................................................................................................................4
Part A..........................................................................................................................................4
Part B..........................................................................................................................................8
Conclusion....................................................................................................................................12
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Introduction
Renishaw is one of the world’s leading engineering company that has expertise in precision
measurement and healthcare. The company deals in products and services which are used in the
application of the jet engine, a wind turbine in engineering and dentistry and brain surgery in
healthcare.
It is also a world leader in the field of metal 3D Printing. The Renishaw group is spanning over
36 countries and has over 5,000 employees. The major operations of this company take place in
the UK.
Renishaw uses tools of management accounting to monitor the costs that are being incurred in
the different sectors in which it is operating. The production of medical instruments curtails
higher costs which leave very less margin for the profits. Accounting tools are used to
economically allocate the resources and utilize the resource for maximization of profits.
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Activity 2
Part A
Budgetary Control It is the process used by organizations to monitor the activities and control
the costs involved in different areas of work in the production. It is applied by the formation of
budgets that are prepared for the future and is then compared with the actual performance to
figure out any variances (Appelbaum, et.al., 2017).
There are certain objectives of Budgetary Control which coordinates with the goals of the firm:
 It collaborates with all the activities of various departments.
 Eliminates waste that leads to efficient performance.
 Instills controlling measures.
Budget is a statement that is prepared to estimate the total expenses and revenues that will incur
in the organization in a year. It includes costs that will be borne by every segment. There are
different types of budgets that act as planning tools. These tools help the firms in evaluating the
operations and provide solutions for several issues that could deteriorate the growth of the
company. Few of the Budgets can be categorized as:
 Production Budget It is a method that calculates the total number of units that are
supposed to be manufactured in the firm. It is derived from the mixture of the forecast of
sales and the total number of finished goods inventory (Bedford and Malmi, 2015). This
budget is presented in a quarterly or monthly format.
 Zero-Based Budget Companies that evaluate the performance from the root cause
usually restructure all the costs assigned to various departments. This helps in knowing
the exact value of the activity and its effect on the total production and also how
beneficial it is for the firm. This budget is known as the Zero-Based Budget. It aids in
eliminating all the unnecessary costs and helps in maximizing the profits.
 Incremental Budget This budget is primarily based on the base of the previous year's
value. It is assumed that the departments will operate at the same level of production,
therefore the expenditure will remain the same. If there are any additions in the activities
in the production process, then the budget is modified.
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 Sales Budget This is a very important type of budget that is used by the company to
predict the sales for the future. It is used by the firm to set departmental goals, estimate
the earnings that will be incurred and forecasts the future requirements for the production.
The components of the sales budget are the price per unit, estimated unit sales, and
allowance for returns and discounts (Cooper, et.al., 2017).
These tools play a very important role in monitoring performance. These are applied according
to the requirement of the project that the firm is currently handling. It is vital for managers to
observe the advantages and disadvantages so that they can be implemented appropriately.
Budget Types Advantages Disadvantages
Production 1. It makes provisions
for raw materials at
the right time.
2. It helps in planning
the operations in a
proper sequence as it
is feasible for
economical
production.
1. It may or may not
produce great long-
term results.
2. . It does not take
advantage of low
purchase prices on
commodity products
(Isaac, et.al., 2015).
Zero-based 1. It provides an in-depth
analyzation of all the
costs involved in
business activities.
2. All the costs are
justified and all the
excessive costs are
reduced.
1. It is a very time-
consuming method
and also requires
many efforts and a
higher workforce.
2. The requirements of
the product may
change, and this
budget may not be
able to facilitate the
changes.
Incremental 1. It provides 1. As the budget is carry
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consistency in
departmental
operations.
2. This budget is very
easy to implement in
the business
(SUHAIMI, et.al.,
2016).
forwarded from the
previous year, there
are very low chances
of any innovative or
new thoughts.
2. It could lead to
wastage of resources
as it relays’ on the old
data and implements
the same in the
current year.
Sales 1. It allocates resources
to various products,
sales territories for
realizing the sales
forecast.
2. It serves as a yardstick
in evaluating the sales
performance of the
firm (Jarzabkowski
and Kaplan, 2015).
1. It may or may not
predict future trends
in sales.
2. It restricts itself from
entertaining into
expenses that can
possibly give returns
in the long-term.
Variance Analysis 1. It helps each
department to scan the
variances
individually.
1. If the budget is not
made taking every
analysis into
consideration, then
there is no point of
variance analysis.
CVP Analysis 1. It helps the managers
in answering special
pragmatic problems.
1. This approach
provides limited
information while
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implementing in a
Multi-Product
Operations.
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Use of Planning Tools and their Applications for preparing and forecasting budgets
Planning tools have a very wide scope in terms of advantages. They help the managers to prepare
the budgets in an efficient manner. The use of these tools can be summarized as:
 Formation of cash flow that would ascertain sufficient flow of capital in the business to
carry on the activities.
 Planning and organizing the costs in a systematic manner.
 Provides accurate, reliable data to the manager for the purpose of making key decisions.
 Efficient utilization of resources for proper application to achieve sustainable success.
 It sets standards to achieve goals in a stipulated period of time (Rogulenko, et.al., 2016).
 It aims at eliminating all uncertainties that increase the chances of profitability.
 It helps in forecasting the performance of sales and the generation of revenue.
 It enables the managers in formulating strategies to come up with innovative methods to
increase results.
 The application of planning tools aids the managers in comparing the performance and
establishing grounds on which growth can take place (Radlach and Leug, 2016).
 Increases customer base of the company.
 Guides the managers in evaluating the best and most economical method which can
extract the best results for the firm.
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Annexure C
Q.1
Cash Budget for March-
May:
Particulars Marc
h June May
Opening
Balance
£
27,000
£
29,080
£
38,420
Receipts:
Cash Sales £
20,000
£
22,000
£
25,000
Credit Sales
(WN1)
£
77,780
£
81,840
£
90,100
Total £
97,780
£
103,84
0
£
115,10
0
Payments:
Purchases (WN2) £
61,200
£
60,000
£
69,000
Salaries £
9,500
£
9,500
£
10,000
Fixed Overheads
(WN3)
£
25,000
£
25,000
£
27,000
Total £
95,700
£
94,500
£
106,00
0
Closing Balance £
29,080
£
38,420
£
47,520
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Credit Sales:
Particulars Januar
y
Februa
ry March April May Total
Credit Sales £
74,000
£
82,000
£
80,000
£
90,000
£
100,000
£
426,000
]
Receipts:
40% in month of sales
£
29,600
£
32,800
£
32,000
£
36,000
£
40,000
£
170,400
45% in next month
£
-
£
33,300
£
36,900
£
36,000
£
40,500
£
146,700
12% in the following month
£
-
£
-
£
8,880
£
9,840
£
9,600
£
28,320
Bad Debts
£
2,220
£
2,460
£
2,400
£
2,700
£
3,000
£
12,780
Total £
29,600
£
66,100
£
77,780
£
81,840
£
90,100
£
345,420
Purchases:
Particulars Januar
y
Februa
ry March April May Total
Purchases £
55,200
£
61,200
£
60,000
£
69,000
£
75,000
£
320,400
Payments Made (I month
arrears)
£
-
£
55,200
£
61,200
£
60,000
£
69,000
£
245,400
Fixed Overheads:
Particulars Januar
y
Februa
ry March April May Total
Fixed Overheads £
30,000
£
30,000
£
30,000
£
32,000
£
32,000
£
154,000
Depreciation £
5,000
£
5,000
£
5,000
£
5,000
£
5,000
£
25,000
Cash Fixed Overheads £
25,000
£
25,000
£
25,000
£
27,000
£
27,000
£
129,000
Payments Made (I month
arrears)
£
-
£
25,000
£
25,000
£
25,000
£
27,000
£
102,000
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Part B
Organizations use management accounting systems to respond to various financial problems that
arise in the company. These have a high potential in affecting the performance of the company
and can also reduce the production of units for the firm.
Finance is the backbone of any organization. It has the ability to transform the methods of
business. Every manager follows a financial model that helps the company to achieve its set
goals and also plan for bigger things in the future. This is achieved through constant monitoring
of actions and application of techniques of accounting systems in order to prioritize the factors
which are responsible for achieving high productivity.
Different Organizations use different methods to resolve their problems. Few of the methods are:
 Variance Analysis It is a tool that is used by several companies to study the deviations
in the behavior of actual and standard budgeting. It concerns with the costs that are
associated with the production process. It can be further segregated into two further
steps: calculation and compilation of individual variances and comprehending the causes
of every variance (Manyaeva, et.al., 2016).
 Trend Analysis This is a technique used to monitor the performance of the company in
the market. Technical analysis is done under this method to forecast the price of the
stock to observe the forms in which the trends are moving. It gives investors an idea
before investing in any stock. It also helps the company to predict how the product will
perform and how much revenue can be generated. It also predicts the future movements
of an asset.
 Key Performance Indicators These are performance measuring models that are used by
the firms to evaluate how the departments are doing in terms of operations and
production. It analyzes how efficiently a company is achieving its objectives and can it
surpass its set targets. It is very useful in formulating strategies. Renishaw Industries
uses this method to solve its financial problems by measuring the areas that are
productive and non-productive. Then it evaluates the cost that is attained in the non-
productive areas and how much capital is drained out from the system.
 Cash Flow Analysis This is a very important planning tool for the organization to
recognize the flow of capital. It is important for the firm to have sufficient capital in
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order to achieve all its financial goals. The firm has to make key decisions regarding
expansion, the introduction of a new product line and merging with another company
(Cooper, et.al., 2017). Cash Flow Analysis aids the managers in key investment
decisions. Unilever is a company that deals with production of multi products. It uses the
method of Cash Flow Analysis to resolve its financial problems. It analyses the
allocation of cost to different areas and evaluate the percentage of productivity according
to the capital incurred.
 Benchmarking Another important tool used for companies to compare the business
practices of other companies dealing in the same industry. It is used to set standards that
are applicable to all the departments so as to collectively achieve the firm’s goals. It
focuses on the internal areas that can be improved. There are several types of
benchmarking such as Competitive, Process, Strategic, Product, Corporate and External
(Dobroszek and Szychta, 2015). The main aim of Benchmarking is to emphasize on
Quality.
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