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Explanation of Management Accounting & its Requirements of Rowlinson Knitwear

University: University of Liverpool

  • Unit No: 5
  • Level: Undergraduate/College
  • Pages: 11 / Words 2761
  • Paper Type: Minor Case Study
  • Course Code: BBAC501
  • Downloads: 72
Question :

This assessment will cover following questions:

  • Rowlinson Knitwear company is the leading manufacturer in apparels. What role is performed by the accounts management department?
  • Explain the application of marginal and absorption costing for calculating cost?
  • Analyse the pitfalls and drawbacks associated with the planning tools used for budgetary control?
Answer :
Organization Selected : Rowlinson Knitwear

INTRODUCTION

Management accounting is a branch of accounting which deals with managerial activities. It is directly related to financial transactions but may have major impact in decision-making related to such transactions (Commerford and et.al, 2016). Furthermore, it is used by the internal management to take major decisions which can be implemented in the entity. The main purpose of this is to help with proper administration of activities in a company. In this report, Rowlinson Knitwear has been chosen which has its headquarter in United Kingdom. The assignment covers explanation of management accounting along with essential requirements of different types, different methods, application of marginal and absorption costing to calculate the costs, advantages and disadvantages of types of planning tools for budgetary control and use of specific examples for conducting comparison of management accounting systems.

P1. Explanation of management accounting together with essential requirements of different types

Management accounting: It is a technique used by manager for the purpose of taking decision by identifying, analysing, measuring and communicating essential financial information. In other words it is a process of collecting essential financial information in order to make plans and policies for the organisation. Management accounting also known as “managerial accounting”. It is used by internal department of an organisation. The company use various management accounting system in order to collecting necessary financial information of each department of the company. These are the vital part of managerial accounting process, theses system helps the organisation to record essential financial data of their daily basis operational activities. Without using these system company never took decision regarding budget policy risk assessment policy and investment policy. Essential requirements of management accounting system are mention below:

Job costing system: This system is used to assigning cost to each product of the company and then calculate and measuring cost of each order company receive free their customer. Company use this system when their products are identical. Company make products according to the demand of their customers (Cools, Stouthuysen and Van den Abbeele, 2017). This system of managerial accounting helps in identifying market demand of customers and useful in making and implementing decision of the company.

Price optimizing system:It is an essential system of management accounting. Manager use this this system for analysing pricing policies of their rivalry industries and then make price policies according to the stage of life cycle of an product. At initial stage they use penetration pricing policy,company offer discount at initial stage. At boom stage they use skimming price policy. Company use this system for the purpose of optimum utilization of their resource prices.

Cost accounting system: Company use this system for measuring cost of manufacturing products and then calculating profitability rate of the entity. Job and process costing are the part of cost accounting system. Cost accounting system is the essential part of managerial accounting system,manager uses this system in making policies identifying risk and built risk assessment policies,controlling cost, reduce wastage of products (Kastberg and Siverbo, 2016). This system also helps in performance appraisal method. Company use this system for analysing capabilities of their workforce.

Inventory management system: It is a tool which use software and hardware devices for the purpose of maintaining stock level of the organisation. Company uses various technique like EOQ ,LIFO,FIFO methods for identifying requirements of the company. The manager use ABC analysis,JIT analysis,for the purpose of controlling wastage of stock within the organisation. Inventory management system are useful in order to achieve optimum utilization of resources, it helps in enhancing capabilities of works, save time and cost of organisation ,provides goods to customer at their prescribe time.

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P2. Different methods of management accounting reporting

Manager use management accounting reports for the purpose of making business level strategies, taking decision and measuring performance of their workforce. Following are the methods manager uses for making management accounting reports:

Budget reports: In this method organisation use to built budget reports in order to analysis their workforce performance. Budget report is based on the collection of provisos data. In this method managers set a target which must be fulfilled in prescribe time limit. After that managers identifying differences of set target and achieve target and then make policies to reduce the gap of current and budget target.

Account receivable ageing report: This is the most vital method of management accounting policies. Management department made rigid credit policies to their customers. This report is made to maintain cash flow and liquidity of the business entity. Management department made policies for those customers who did not give back payment of the company. They should make those polices which charges fines and penalties to default customers. Only after that an organisation can maintain their liquidity level (Qian, Hörisch and Schaltegger, 2018).

Job cost report:Organisation make job reports to calculate cost of overall process of manufacturing each product within the entity. Job report is a summery of overall expense incurred by an organisation. Managers use this report in analysing expenses of product and making price policies regarding cost of product. Company uses this report in identifying their profits.

Performance report:This is most essential method of managerial accounting report. Performance report are made to identify the overall performance of organisation,which included labour performance employees and employers performance also. Manager use this report for the purpose of making incentive policies. Company gave rewards and recommendation to their employees after reviewing their performance. This report is help in identifying low skilled workforce within the organisation.

Inventory report: This report is prepair to maintain stock level of the organisation. Inventory report is the summery of overall stock level of entity. It describes minimum,maximum and dangerous level of products. Manager use this report to maintain stock of raw materiel and finished goods of the company,so that organisation can provides good at prescribe time to their customers.

You may also like to read - Various Types of Management Accounting System 

P3. Calculation of costs on the basis of marginal and absorption costing method

Marginal costing- This technique involves only the variable costs and fixed costs are completely ignored. The cost is calculated by taking into account direct material, labour, expenses and variable overheads (Saleem Salem Alzoubi, 2016).

Cost per unit:

Direct Material = 8

Direct Labour = 9

Variable overhead = 2

Variable expenses = 4

Total cost = Selling price + Direct material + Direct labour + Variable overhead + Variable expenses

= 30 + 8 +9 + 2 +4

= 53

Income statement of Rowlinson Knitwear

Marginal Costing method

Particulars

PER UNIT

Budgeted

   

50000

Sales Revenue

30

 

1500000

COST OF SALES

     

Cost Of Production: Variables

     

Direct Material

8

   

Direct Labour

9

   

Variable overhead

6

   

Opening Inventory

 

0

 

Less : Closing Inventory

 

0

1500000

       

CONTRIBUTION

   

1500000

Fixed Overheads

   

160000

Fixed selling and administration costs

   

60000

Profit

   

1280000

Absorption costing- The costing is the one in which all the costs viz. Variable as well as fixed are included. In other words, it comprise of every expenses incurred by the entity irrespective of its nature.

Income statement of Rowlinson Knitwear

 

PER UNIT

Budgeted

   

50000

Sales Revenue

30

 

1500000

COST OF SALES

     

Cost Of Production: Variables

     

Direct Material

8

   

Direct Labour

9

   

Variable overhead

6

   

Fixed Overheads

   

160000

Less : Closing Inventory

 

0

1660000

       

CONTRIBUTION

   

1660000

Fixed selling and administration costs

   

60000

Profit

   

1600000

P4. Explanation of advantages and disadvantages of different types of planning tools of budgetary control

Budgetary control- It refers to set of procedures used for estimating the revenues and expenditures of an organisation. It aims at helping the entity in designing financial plan. Furthermore, budgets are important for controlling unnecessary costs.

Fixed budget- This budget is rigid in nature. In this tool, it remain unchanged during a fixed period of time. No matter what turnover rate, volume of output and input doesn't change the budget. A fixed budget reduces the conflicts in the organisation as no changes are needed through out the whole year. Also, management are able to focused on core activities of the firm. Whereas, static nature of this tool is unable to track the uncertain or lifetime expenses.

Flexible budget- In this, difference between fixed as well as variable cost is determined and depending upon other factors such as, output and input volume, number of employees etc. Thus, different budget costs are analysed in flexible budgeting. This, helps in calculating of sales, net profit etc. at different parts of operations in accounting. Whereas, it is dynamic in nature it took time to determine those variable costs (Scapens, 2012).

Zero budget- It is the budgetary control in which the expenses for a new period should be zero. In other words, the functions are carried from nil base which are take to a stage from which an organisation can achieve the target. Also, there must be justification for every costs which are being utilised in the company. In the context to Rowlinson Knitwear, it can use this for starting a new project which may require all the costs to be zero.

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P5. Use specific examples for a comparison of organisations in the context with management accounting systems

Financial problem:It is a situation when companies are unable are unable to fulfil their organisation needs due to lack of capital. Financial problem arise due to uncertainty in monetary transaction (Youssef, 2013). Bad debts and high account payable ratio are main reason of financial crises arises in company. Customers are not take initiatives to pay their money,thus organisation could not collect money and this effect the account payable ration of the entity,due to lack of capital and high interest rate policy of creditors. organisation cannot fulfil requirements of their creditors and company suffers from financial problems. At present time Rowlinson Knitwear is suffers from financial problem. Following are the methods to reduce their financial problem:

Benchmarking : It is a technique of evaluation of performance appraisal. Benchmarking is a process in which organisation compare their business practices and performance with their rivalry industries. Management department compare quality, price,customer satisfaction,performance level of their employees with other ones. Benchmarking is essential technique of reducing financial problem of the company by setting target to achieve within fix period of time.

Key performance indicator: It is method which are used managers to analysis how effectively workforce of the entity performance in order to achieve organisation goals. This technique helps in removing financial problem of the entity by reducing cost and other expensive activities of organisation.

These problems can be resolved with the use of any of the above-mentioned technique so that the issues can be resolved within the limited period. However, if key performance indicator is being used, then there should be a company which has set the example (Windolph and Moeller, 2012). The strategies of that company be set as standard for measuring the results of Rowlinson Knitwear.

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CONCLUSION

From the above report, it has been concluded that management accounting is important for the organisation for helping the management to make decisions which can be create positive outcomes in the form of growth. Also, there are various methods in budgetary control which should be used in controlling the unnecessary costs. Furthermore, management accounting provides principles and reporting system which can be take into account.

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