The objective of this report is to analyze role and importance of management accounting in the context of a small business firm. These kind of practices will assist in determining how financial activities of a firm can be controlled.
- Determine an understanding over management accounting system of Rowlinson Knitwear.
- Discuss an application of management accounting techniques in Rowlinson Knitwear.
- Evaluate the uses of planning tools in management accounting.
- Provide a comparison that determine how an organisation can use management accounting in order to resolve financial problems.
Nowadays, it has been huge issues that management is not able to analyse their financial transaction in proper manner. They want an effective system which can provide them better techniques to record all their financial transactions into their respective format in more right ways. Management accounting systems are considering that kind of tool and techniques which can be useful for them. As the main aim of managers to attain maximum return by the help of all essential resources of the company. Management accounting is utmost important aspects for an organisation like “Rowlinson Knitwear” in present time. This project is all about discussing crucial objects like types of accounting systems as well as reporting methods those are useful for the company in planning their business operations. Apart from this, use of different costing method can be vital for calculating net incomes generated by the company during the accounting period (Gond and et. al., 2012). However, various ways in which planning tools can be utilising in controlling budgets of the company. Likewise, effective measure to deal with various types of financial issues those are faced by various organisation in their everyday operations.
P1: Concept of management accounting and associated requirement of various types of systems
In current era, business atmosphere and their related wants to be track overall performance information that goes beyond the cost related data those are related with historical ledger concepts. These are entirely relying on old accounting system and so called traditional financial accounting information. Effective accounting is associated with as responsibility to concern managers to manage ledger variety of crucial management accounting data with the help of accounting techniques. In more common manner, managerial accounting is said to be utmost important process for searching, evaluating and recording of financial information so to internal management which can be use it for future planning and decision making (Abdel-Kader, 2011). The primary objective of inside managerial accounting system is to deliver data to managers so they can be sufficient enough to make better decision in coming period of time. The motive is not to be associated with external demands. Just like that of bankers, while rather to collect valuable information which will be further use to manage and organise business in better ways. Financial accounting data is being taken into account for effective decision making through external users. Like investors and outside parties. This is also reliable aspects of preparing management report and statistical data to managers to make mid and short term decision regarding proper utilisation of resources those are being use during the time of production process.
As per the IMA (Institute of management accountants): Management accounting is said to be profession that consists of partnering in effective decision making, diversified planning and performance management system and guide expertise about financial reporting and assist department in formulation of correction actions those are beneficial for an organisation in longer run.
Importance of using management accounting system:
There are various crucial aspects those are more reliable for making better decisions in coming period of time. Some of them are:
- Enhance productivity: Every managers uses management accounting to make sure that all data recorded into their statements are sufficient enough to attain more suitable outcomes in near future (Bennett, Schaltegger and Zvezdov, 2011). This will assist them to attain maximum profit by selling maximum products to their customers.
- Increase efficiency in forecasting: In order to make planning for the future, managers always tried to make crucial decisions those are effective enough for the company in longer run. Rowlinson Knitwear is always tried to enhance their business growth by effective decision making.
Types of management accounting system:
- Cost accounting system: As per this type of accounting which included normal historical costing that are consider basis of cost system, and job costing as accumulation method. It is considering more effective process costing that are used by department, operations manager or other concern. It is known as internal reporting system for an organisation in respect to own management for effective decision making. There are various types of cost which will be lead to control the additional cost for the company. Such as standard, normal and actual cost incurred during the production of product and services.
- Inventory management system: Inventory is considering as overall quantity of products that are owned and stored by Rowlinson Knitwear that is intended for resale or keep as raw material and element used in developing products that are produce by the company. The most valuable strategy is being used by mentioned company is Just in time to enhance efficiency and reduce waste through retaining products only as they required in manufacturing process. Such kind of methods are essential enough in forecast demand properly. Although, there are certain techniques which are responsible enough to deal with any kind of difficult situation such as FIFO, LIFO and AVCO methods.
- Price optimisation system: This seems to be consider as utmost important system which is use as numerical analysis by Rowlinson Knitwear to analyse how customers will react to various prices for their product and services by using various mode (Hiebl and et. al., 2015). This is also considering that kind of prices those are determine will be more best meet their needs as well as objectives within the set limited period. Such as increasing operating profit the company.
- Job costing system: This refers to be used in order to accumulate cost at small level of unit. Like for examples, job costing is valuable for deriving cost of constructing a building, office or any other batch of products. Basically, it is used for the purpose of standardised products mainly reliable for very small manufacturing units. There are various types of job costing which are taken into account for the manager while planning for productions. Such as process costing. Batch costing and standard costing.
P2: Different methods used for management accounting reporting
As Rowlinson Knitwear is operating in small business units which conducting their everyday business directly to other companies. They do not supply directly their product to the public. Most of the time, they used to deal with various retailers that can made easy for the company to increase their chain of business. A report is always prepared by the company for the purpose of detecting all essential changes and growth position. It provides a formal account of or detail statements of deficit and surplus Rowlinson has generated during the period of time. This seems to provide information regarding serious wrongdoing or reliable modification they are done in the last couple of year. Accounting reports are associated of financial data that are derived from all financial record collected from a business. These are considering to be custom made reports those are intended for a particular objective (Al and McLellan, 2011). It is used to provide sense of firm’s financial investments and save time as well as money with outsourced financial reporting activities. There are various ways from information can be gather for reporting purpose. Some of them are taken from statement of cash flows, profit and loss and balance sheet of the company. These report are made for the purpose of taken in better overview of present performance as compare to their companies. After making suitable analysis, manager present this report in front of various investors and shareholder that are known as valuable aspects for the company. They use this to make analysis of financial position and make future decision regarding capital investments.
Types of reporting methods:
Performance report: It is considering as one of the effective activity in project communication system. It consists of collecting and disseminating information, progress of projects and proper utilisation of resources all are taken into account under this report. These are presented for each employees of an organisation and might assist an administration to assess the success of a project or services (Laine, Paranko and Suomala, 2012). This reports are more reliable aspects for attaining better outcomes in coming period of time.
Account receivable report: This seems to be utmost important report that consist lists of unpaid customer detail invoices and unused credit memos. This is primary tools which will be used for the collection information from debtors. AR are the balance of money that are due to a business for production of products and services. The report assists them to record total time frame of recovery all amount that are outstanding for longer period of time.
Inventory management report: According to this particular report, managers uses to various tools and techniques which will be consider for effective management and control of their stock. It is mainly considering as effective element of supply chain to supervise the flow of products from one place to another one. The all crucial detail information about opening and closing of stock details are taken into account.
Job cost report: It is utmost important reporting method which will be consider for recording of cost of individual products manufactured. A project manager and accountant need to track and keep record of each job, maintain information which is often relevant to business operations (Amoako, 2013). These report assist departments to control overall cost that are bared by the company within an accounting period of time.
M1: Benefits of using management accounting system
In accordance with getting more reliable outcomes from the available resources of the company they need to make use of better accounting systems. It will assist and organisation to attain more reliable outcomes in coming period of time. All those above mentioned accounting systems are having reliable benefits that can assist them to use more effective results during an accounting period of time. Cost accounting systems are more reliable for controlling all cost and expenses those are made within an organisation. While inventory management system is used to record all stock those are order by the company. Price optimisation is more accurate system that can assist the department to make use of that price which is more affordable in coming period of time.