Comprehensive Analysis of Management Accounting for Rowlinson Knitwear

This report provides a comprehensive analysis of management accounting practices, focusing on the case of Rowlinson Knitwear. It delves into various aspects of management accounting, including essential requirements, different reporting methods, and the benefits of implementing such systems. The report examines cost accounting systems, inventory management, and job costing techniques. It also explores marginal and absorption costing methods, planning tools, and the adaptation of accounting systems to address financial problems. The report offers insights into evaluating financial issues and planning tools for forecasting and responding to financial challenges, providing a valuable resource for understanding and applying management accounting principles in a business context.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essentials requirements of various type of management
accounting systems ................................................................................................................1
P.2 Different methods used for management accounting reporting ......................................1
M.1 Benefits of management accounting systems.................................................................2
D.1 Management accounting system and management accounting reporting.......................3
TASK 2............................................................................................................................................4
P3. Calculate cost using marginal and absorption costing.....................................................4
M.2 Management accounting techniques and appropriate financial reporting document......6
D2 Financial report that apply for interpret business activities..............................................7
TASK 3............................................................................................................................................7
P4 Advantage and disadvantage of various planning tools....................................................7
M.3 Evaluation of various planning tools and their application for forecasting....................9
TASK 4............................................................................................................................................9
P5. Adaption of management accounting system to respond financial problems..................9
M4. Evaluation of financial issues.......................................................................................10
D3 Evaluation of planning tool for responding to financial problems.................................11
CONCLUSION .............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting forms an integral part of of economic knowledge with main
objective to provide informative and analytical assistance to the firm. It helps managers to make
rational and effective economic decisions on optimum and most efficient use of all limited
available resources. Rowlinson Knitwear is a small scale company which are the manufacturer
and retailer of different types of garments such as school wear and corporate wear. (Zopiatis,
Constanti and Theocharous, 2014). The report will discuss about various methods of
management accounting and its techniques of cost analysis that is useful in preparing income
statements. Moreover it will provide a detailed information about benefits and disadvantages of
various tools of planning. Further it will provide synopsis of ways in which company is utilizing
management accounting to deal with its various financial problems.
TASK 1
P1 Management accounting and essentials requirements of various type of management
accounting systems
Management Accounting can be described practical science of value creation and to
account resources within company. According to Institute of Management Accountants it is a
professional practice comprising various roles and responsibilities like formulating plans and
policies, preparing accounting reports, taking financial decisions etc. in order to achieve
organisation's pre determined objectives within specific timeline. It is a process to identify,
analyse, interpret and communicate financial data and information so that management could
accurately and timely prepare various financial reports and plans. It assists senior management of
Rowlinson Knitwear to effectively handle routine business related tasks as per benchmarks and
set standards that ultimately reflects down in firm's growth and success. Thus, management
accounting assist management to attain sustainability and growth by minimizing its cost and
expenses incurred on various business operations (Zainun, Tuanmatand and Smith, 2011). Also,
it provides a number of benefits that are mentioned below:
 Management accounting includes preparing budgets for monitoring and managing
various firm related expenditures that are probable to be incurred in coming future. Thus,
through management accounting Rowlinson Knitwear is able to identify, analyse and
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differentiate between its most important cash expenses and other postponable expenses
that ultimately reduce its overall costs.
 Another important benefit to Rowlinson Knitwear in applying management accounting is
that it provided authentic and accurate financial forecast in relation to probable impact of
price modification in economy, customers demands, potential sales volumes etc.
Therefore, enabling Rowlinson Knitwear to produce right quality and quantity of
products and services as per customers requirements.
 Also, the financial information that is revealed by management accounting assist owners
and top management of Rowlinson Knitwear to review, identify and capture the
prevailing opportunities in business market through qualitative analysis for making
authentic decisions related to business activities.
Thus, accounting management system of Rowlinson Knitwear supports company to handle and
secure its financial security, to ascertain its position in the market and to overcome and avoid
various problems by driving its overall management and strategies (Windolph and Moeller,
2012). Mentioned below are certain importance of management accounting for Rowlinson
Knitwear:
 Qualitative Data and information: For attaining efficient control over business
operations and for their execution as per planed strategies, it is of the utmost significance
that information that has been gathered for analysis should be reliable, accurate and
applicable. Thus, management accounting helps Rowlinson Knitwear to collect most
realistic and authentic information by thoroughly identifying and studying various micro
and macro market factors and their probable impact on firms profitability and
productivity. This, helps management to be proactive in finding solutions and deciding
future course of actions for likeable issues and business related problems (Mistr,Sharma
and Low, 2014). Identifying and analysing rate of return: Rowlinson Knitwear prior embarking heavy
investment on any business project or program conducts in depth study about its expected
rate of return along with time period for gaining those profits. Also, it assists Rowlinson
Knitwear to choose between any two or more investing opportunities, to known firm;s
break even, fund and cash flow statements etc.
Types of accounting systems
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 Cost Accounting system: It is the process of measuring and identifying the total
expense that Rowlinson Knitwear incurs on its production process, projects and products.
It helps in recording and reporting correct amount in various financial statements(What
are the Different Types of Management Accounting Systems. 2017). Cost Accounting
includes various types of costs like indirect – direct costs, operating and flexible costs etc.
A proper estimation and analysis of these expenditures helps Rowlinson Knitwear to take
accurate business decisions.
 Inventory Management System: Inventory management system monitors and identify
goods and other raw materials that Unicorn Grocers make use of by recording its
inventories amount, quantity,weight, dimensions and locations on regular basis.
Therefore, it make it easy for managers to place orders of raw material, to refill goods
etc. before they reach out minimum level (Klychova, Faskhutdinov and Sadrieva, 2014).
Thus, it ensures that firm is having regular stock of required quantity and quality so that
they is no hindrance in its production process. In this system Rowlinson Knitwear applies
Just in time approach and economic order quantity technique.
 Job Costing: This technique includes dividing production expenses into overhead,
direct labour and direct materials in order to ascertain their actual value. Job Costing
assists Rowlinson Knitwear to effectively handle and control its raw materials, labour
hours and equipments by properly segregating costs that is been incur on each consumer
order separately.
These techniques helps managers of Unicorn grocers to order right quality and quantity
of materials at right point of time and to properly store and handle them at right place. Therefore,
inventory management make sure that uninterrupted and smooth functionality could be
maintained in its production and other operations. This will ultimately help company to enhance
its productivity with minimum wastage of its resources and to get higher returns.
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P.2 Different methods used for management accounting reporting
Management accounting reporting is a method of calculating the financial and non
financial data and information (Turan, 2015). It helps in evaluating the performance of company
which is important for smooth functioning of the organization. Company has to maintain proper
accounting records so that all transactions can be performed in effective and efficient manner.
Accounting reports contain all data and information about the firm and records all transactions. It
helps the enterprise to compare the performance of current year with previous year. In this
manner business can create effective plans and strategies so that they can improve their
performance. They also properly manage the reports so that firm can keep the data and
information confidential.
Organization can also create strategies and policies related to future. Firm can also
evaluate risks and create policies to reduce the risk. Management accounting helps in evaluation
and monitoring of inside activities and tasks in reliable manner through detailed information of
business. This helps in increasing the efficiency and effectiveness level of the firm. Hence
company can accomplish the objectives and goals. Company can earn more revenues and they
can enhance the market share. Different accounting systems which are used by Rowlinson
Knitwear are described below: Inventory management report: In every enterprise, company has to manage the
inventory level so that there is no problem of over stocking or under stocking. For this
organization has to use the management accounting system so that all activities related to
manufacturing sector can run effectively and efficiently. They also had to create a report
which involves staff member's cost, inventory cost and per unit overhead cost. After that,
firm can compare their performance and improve the plans and policies so that so that all
activities and tasks can run successfully. Different techniques are applied so that
organization do not face the issues related to overstocking and under stocking. Account receivable report: It is a difficult tool for company to manage the cash flow
statement of organization give credit to customers of their firm. It is an accounting report
which consists of details regarding payments and also contain the time when the
customers make the payment to enterprise (Taylor, Doherty and McGraw, 2015).
Manager uses this report so that so that they can determine the problems and issues
related to methods of collection by firm. If users do not make payment then company has
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to create strict rules and regulations so that they can reviver the amount of debtors
(Springer, and et. al. , 2014). Job cost report: It is a report which consists of all details regarding the expenses for a
project which is financed to small companies. It also monitors the revenues for profits
related to occupation. This report help in determining the areas through which they can
generate more profits and do not focus on areas which cannot give revenues. It helps in
evaluating the costs and company can create plans and policies so that organization can
reduce the expenses. Hence organization do not have to waste the time and money on
these activities. This helps in increasing the effectiveness level of firm and company can
earn more revenues.
 Performance report: It is a method in which organization compares the performance of
current year with previous year. Hence organization has to create plans and policies so
that they can monitor there performance and can perform strategies to earn more
revenues. Firm also evaluate the budgets so that company can reduce the expenses and
can enhance the market share. This is important so that firm can expand their operations
and activities. This helps the organization to reduce their money and there is no wastage
of time. In this manner enterprise can maintain positive image in minds of all users.
M.1 Benefits of management accounting systems
Management accounting plays an important role in taking effective and efficient decisions.
Benefits in Rowlinson Knitwear are described below:
Inventory management system: Through forecasting company can take important
decisions related to management of stock (Schaltegger and Csutora, 2012). This helps the
company in reducing the issues related to over stocking and under stocking.
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Source: Inventory management, 2017
It is interpreted from above image that inventory management consists of product
management, inventory status report, purchase module, challenge management, in and out word,
customer master.
Job costing system: It is related with statistical and financial evaluation for administrator
so that they can find the cost of products (Riisgaard and Gibbon, 2014).
Price optimization system: This method helps in evaluating the financial data and
information so that they can set the price of products and can earn more revenues. Hence they
can enhance the market share.
D.1 Management accounting system and management accounting reporting
Management accounting reporting and accounting system is related with evaluating the
financial data and information so that they can create plans and policies related to future.
Through this all managers can take important decisions. It also helps the organization to create
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Illustration 1: Inventory management

strategies to reduce the risk related to future and enterprise can earn more profits. This also helps
the firm to enhance their market share and company can enhance their reputation in the market.
TASK 2
P3. Calculate cost using marginal and absorption costing
Management accounting is used by the firm to prepare the report and decrease the cost of
business activities. It can be defined as the procedure of identifying, determining, measuring,
communicating and interpreting information to manager to attain company's goals and objectives
more effectively. This consist several cost approach that helps Rowlinson Knitwear in
accomplishing better results:
Marginal costing: This approach is useful in increasing and reducing the cost of manufacturing
by producing one more extra unit(Christ and Burritt, 2017). Marginal costing merge the
budgetary control with the standard costing that helps in providing great control on the cost.
Absorption costing: It is another type of approach that is based on the assumptions that incurred
cost can recover from selling price. In this method, all the amount related to production of
products and services are taken into account when deciding the selling price of a commodity.
Table describes about the comparison between marginal and absorption costing:
Basis Marginal costing Absorption costing
Meaning Marginal costing can be
defined as the decision making
tool by determining the total
amount of manufacturing.
Absorption costing means the
calculation of production cost
with the overhead
expenditures.
Cost recognition The variable cost is known as
the production amount and
fixed cost is considered as the
period cost(Barth and et. al.,
2012).
In the absorption costing, both
fixed and variable cost are
taken into consideration as
manufacturing cost.
Profitability Under marginal costing, the
profitability is measured by
utilising profit volume ratio.
In absorption costing,
profitability is directly affected
as it includes fixed cost.
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Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis: An essential point where all the revenue and expenses are equal for
Rowlinson Knitwear and that point is consider as break even point. This depicts the positions of
firm where they do not generate profits and not incur any loss.
 Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of break even point in accordance to sales revenue
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Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
c. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: It can be defined as the volume of firm's sales looses before it reaches to break
even point. This can be more effective and appropriate way for managing the intrinsic value of
inventory at market cost.
d. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M.2 Management accounting techniques and appropriate financial reporting document
Absorption and marginal costing helps in evaluating the cost of activities and finds the
cost of all sections of company. Two types of accounting techniques which are used to calculate
profitability of Rowlinson Knitwear are described below:
 Marginal costing tools: It is an effective tool which help in collecting the data and
information related with business decisions. It is the change in opportunity cost when one
unit of quantity produced is incremented. Absorption costing: It is the costing method which evaluates the cost by monitoring
chances in cost.
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