Management Accounting at Rolls Royce

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Management Accounting at Rolls Royce

MANAGEMENT ACCOUNTING







INTRODUCTION

Management accounting is the profession that includes partnering in management accounting decision making that devises the planning and performance management systems and offering the expertise while financial reporting and control for benefiting management in implementation and formulation of the organisational strategy (Nasution et al., 2020). This report, therefore, emphasis on the ideas of management accounting and its methods for planning methods as well as reports, the competitive strategy is attained and thus, it has an opportunity for the development of the organisation. This report will also present the board of directors at Rolls Royce because of which the organisational success and enhancement are achievement is achieved by applying the strategies and methods in accounting management.

COMPANY OVERVIEW

Rolls Royce is the British automotive organisation which was established in 1998 and has its headquarters in Good wood, West Sussex, England, and United Kingdom (Rolls Royce, 2020). This company serves worldwide. It manufactures the automobile customisation with the parent company BMW and presently, there is 1,300 number of employees working in this organisation.

Figure 1 Rolls Royce Logo

Source (Rolls Royce, 2020)

LO1 UNDERSTANDING OF MANAGEMENT ACCOUNTING SYSTEMS

According to Baker (2017), the management accounting is the profession that includes partnering in management accounting decision making that devises the planning and performance management systems and offering the expertise while financial reporting and control for benefiting management in implementation and formulation of the organisational strategy. Dasgupta (2018), stated that the tool for planning decreases the expenditures and also makes the functions efficient which guides management so it will make efficient decisions for the organisation.

EFFICIENT PLANNING

For the management of accounting at Rolls Royce planning is done which will lead in the effective utilisation of resources improperly. Thus, the role of management of accounting in planning is essential because of which various tools of planning are used so that every one of them can effectively understand the targets and roles and thus, the development opportunities are higher (Hilorme et al., 2019).

MANAGEMENT ACCOUNTING ROLE

Irrespective of the organisations size the management accounting in developing the values in the organisation is interconnected with organisational development as well as success. At Rolls Royce, the management accounting is essential because of which the bigger organisation for managing the operations of management that has important functions and roles for business which are dependent on applying the management accounting (Erokhin et al., 2019).

MANAGEMENT ACCOUNTING LEADING TO GOAL ACHIEVEMENT

The main objectives of Rolls Royce management accounting have an important role for effectively making the understanding for each member of staff and so the objectives of the target attainment can take place. The direction of the work is allotted by the workforce and thus the targets are attainted. The direction of management accounting is allotted by the manager that can work as per the various merits as well as d-merits for the organisation (Ghasemi et al., 2016).





DIFFERENCE BETWEEN FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING

BASIS

MANAGEMENT ACCOUNTING

FINANCIAL ACCOUNTING

Legal requirements

In accounting management, there are several kinds of legal needs in which the company has to be understood (Nasution et al., 2020).

Also, the financial accounting the organisation has to necessarily offer financial accounting.

Nature of information

Non-financial and financial data is effectively used in this aspect.

Many times the utilisation of financial information which is done in business (Hilorme et al., 2019).

Objective of information

The data is utilised and is done in management accounting for doing the planning, decision-making and controlling for the operations of the business.

For analysing the performance of financial accounting for the financial year in the end the statements are also made in financial accounting.

Information produced for

For managers and the staff members, the information is provided in management accounting (Jetter et al., 2018).

For the external utilisation for bankers, leaders as well as government the data is produced under the financial accounting.





METHODS USED FOR MANAGEMENT ACCOUNTING SYSTEM

According to Kastberg and Siverbo (2016), the filtering of the organisational results and the data that is beneficial for the procedure of management accounting is done and the approaches are of diverse types which are utilised as per the requirements and demands of the organisation. By the effective use system of management accounting at Rolls Royce it will be effective in lessening the costing for the manufacturing of efficient management which develops the place from it. Given under are some types of the management system of accounting-

Price strategy

The organisation is considered as different actions because of which it adopts an efficient policy for pricing that also enhances the competitive level for the current competitors in the market. The use of this price strategy is completed in business for developing the higher margins of profit for achieving efficient products for its consumers (Jetter et al., 2018).

Inventory management system

Management accounting system also works on the inventory level that is maintained as well as balanced in the organisation (Nasution et al., 2020). Also, the inventory system has some time because of which the organisation that can manually manage it but sometimes they also utilise the methods the tool for software. It will also benefit for inventory management that demonstrates the exact mission-related with the stock which is present in the organisation and therefore, the decision is linked with the further stock in the organisation which is easily taken. At Rolls Royce, the use for this system in company benefits creating more and more finance so the operations of the business are balanced and thus, there is not any fund shortage in the organisation assets (Hilorme et al., 2019).

Price optimisation system

The use of costing is efficient in understanding the nature of consumers by having changes in pricing. This procedure for management accounting is important as it benefits in price fixation and develops the business profits (Jetter et al., 2018).



Cost accounting system

The system of cost accounting shows the price that is applied for the organisation's product and the entire costing is analysed in detail with the procedure. This process, therefore, at Rolls Royce will be advantageous in analysing the whole pricing that related to the products which efficiently lessens the price that is extra so the benefits are also enhanced at Rolls Royce. The final pricing for the goods is identified for the cost accounting system which includes the price of labour, materials and expenses. This system will lead to the efficient working of the organisation and it will efficiently enhance the income level at Rolls Royce. The use for pricing the accounts are done for controlling the cost that is variable therefore the business will have a positive impact on it. With some of the direct as well as indirect costing is controlled accordingly (Ghasemi et al., 2016).



LO2 A RANGE OF MANAGEMENT ACCOUNTING TECHNIQUES

Preparation of income statement by using the marginal cost method

For the year ended March 2020

PARTICULARS

£ IN (000)

£ IN (000)

Sales (£1,500,000)

£3000


Fewer COGS



Opening stock

0




Production cost

£700


Variable marketing and Admin

£1000


COGS

£1700



£83,000

Less fixed cost



Marketing and Admin

£400


Production overheads

£700


£1100

Operating profit


£400





Preparation of income statement by using the absorption costing

For the year ended March 2020

Rolls Royce Income Statement (Absorption Costing)

£ IN (000)

£ IN (000)

Sales

£3000


Cost of sales



Beginning inventory

0

£400

Cost of production

£1400

£1200

Ending inventory

£400

£240



£1000

Gross profit


£2000

Marketing and Admin Expenses



Fixed

£400

£400

Variable

£1000

£1200

Operating profit


£600







RANGE OF MANAGEMENT ACCOUNTING TECHNIQUES AND PRODUCE APPROPRIATE FINANCIAL REPORTING

Some of the significant tools and techniques are explained as under-

Financial planning

The main target of the business company is maximisation for the profits as the primary target is attained by making effective and sound financial planning. Therefore, financial planning is also considered as an effective method for attaining the business targets (Baker, 2017).

Financial statement analysis

P&L account as well as balance sheet in significant financial statements. Also, this statement is identified for the various period. In this kind of analysis, it benefits the management for knowing the growth rate for the business of Rolls Royce. This identification is also done with comparative financial statements, ratio analysis and size statements (Agarwal, 2020).

Cost accounting

The system of cost accounting shows the price that is applied for the organisation's product and the entire costing is analysed in detail with the procedure. This process, therefore, at Rolls Royce will be advantageous in analysing the whole pricing that related to the products which efficiently lessens the price that is extra so the benefits are also enhanced at Rolls Royce. The final pricing for the goods is identified for the cost accounting system which includes the price of labour, materials and expenses (Brown et al., 2017).

Fund flow analysis

The analysis has found that the fund's movement from one period to another, however, this identification is very useful for identifying the finance that is effectively utilised in the year when compared with the last years. The capital of working modifies the finances from the functions that are also identified through this analysis (Dasgupta, 2018).

Cash flow analysis

The movement for cash from a single period with another is identified with this identification. Besides the reasons for the cash balance and modifications amongst two periods are also identified (Duqi et al., 2018).

LO3 ADVANTAGES AND DISADVANTAGES OF DIFFERENT TYPES OF PLANNING TOOLS

For having the efficient control for the expenditures and the pricing which is essential for the functioning for opting the methods of planning that leads and it does not decrease the pricing which also makes the efficient operations and it develops the rate of profits. The tool of the budget is used for planning because of which different strategies and formulate according to the targets of the company for the business becoming easier for attainment. Budgeting maintains an efficient control because of which the resources allocation takes place which will work on variance analysis for the quantity (Baker, 2017).

Production budget

Production budget at Rolls Royce is important because of which the company has the scale as well as the size of the organisation which is bigger and therefore, it becomes important for taking effective decisions. While working on the budget for production at Rolls Royce the effective decisions and the efficient estimating is done as well as the utilisation of previous performance and the reports are completed (Erokhin et al., 2019).

Benefits

  • While budgeting for manufacturing the efficiency is developed and it also has lesser chances for extra production therefore, it is said that this approach saves many resources and funds (Nasution et al., 2020).

  • The extra costing is lessened while working in the budget of manufacturing at Rolls Royce and therefore, in the production department it has a vital role (Ghasemi et al., 2016).

Disadvantages

  • Many different efforts are needed as compared with different methods for budgeting in the case that is not a suitable method as the planning for tools are also failed.

  • The budget for production requires the information planning and decreasing for the planning which will come up with negative results, therefore, it requires the highly skilled individuals which also works on it (Hilorme et al., 2019).



CASH FLOW BUDGET

This method is important because of which the cash flow is done and the sources of funding are identified due to it. The outflow and inflow of cash are advantageous in making the advance decision with the tools for budgeting which limits the members of staff and the management from extra expenditures (Langfield-Smith et al., 2018).

Benefits

The organisation on the other hand has some liquidity for short-term positions that are maintained with it and thus, it will also be an effective approach which is needed for day to operations of the business. The business operations are efficient and there is no additional cash which is used in the organisation (Atieh et al., 2016).

Disadvantages

Aimed at efficient forecasting the budget is done in the company which will also work on various types of budgeting approaches for effective implementation of planning. There are also some different advantages for each method of planning which are discussed for effective understanding of the d-merits which is identified. Both are essential as the correction action on the correct time that will lessen the chances of nonconformities and thus, efficient performance will be developed in Rolls Royce (Baker, 2017).

SALES BUDGET

The sales budgeting is the approach which is adopted by the organisation for forecasting and predicting the sales that are developed in a particular time and it also makes the employees aware regarding the role of job in the particular direction. With the sales budget at Rolls Royce, the efficient resources are utilised as well as the profits for the time are also developed through it (Brown et al., 2017).

Benefit

  • At Rolls Royce the allocation of resources takes place and the members of staff are fortified so that they do not get the diverse units which are budgeted and sold in the organisation (Donev et al., 2020).

  • The employees at Rolls Royce also incorrectly work in the management direction that will monitor the employee's performance so that the success, as well as the development of the organisation, is simpler and thus, it will effectively be increased (Nasution et al., 2020).

Disadvantages

  • The capitalisation and the required time on the research is the development which is higher and therefore every organisation won’t work on the sales budget.

  • The employees of Rolls Royce are not included when working on budgeting for sales which will have many different chances of losing the level of encouragement of the employees (Nasution et al., 2020).

USE OF DIFFERENT PLANNING TOOLS

Affinity diagram

An affinity diagram is the planning tool which is used for arranging the bigger amounts of some disorganised data in different groups which are based on natural relationships and affinity. It is usually used for resolving the issues of Rolls Royce which seem for being very difficult in management. An affinity diagram is the kind of brainstorming methods which enables in creating, organising and consolidating the information concerning difficult issues (Donev et al., 2020).

Prioritization matrices

The prioritisation matrix is the method which sorts as well as ranks different options in different order of significance that uses the weighted criteria. This tool of planning is used for analysing different issues which are the most significant for solving. The prioritization matric is graphically displayed option as well as criteria in the column and row format. This matrix enables the company to analyse the importance of an item by calculating a numerical value. It also enables to choose as well as prioritize different options (Langfield-Smith et al., 2018).



Process decision program chart

The process decision program chart is the planning tool that is used for analysing and documenting the steps that are needed for attaining the entire procedure.it is intended to benefit for preparing the contingency plans for routing the conceivable events that take place when moving from issues for possible solutions. This method enables to systematically analyse the plan. Thus, it can develop suitable contingency plans for risk limits (Duqi et al., 2018).



LO4 HOW ORGANISATIONS ARE ADAPTING MANAGEMENT ACCOUNTING SYSTEMS

In Rolls Royce, it is large and small financial complexities which are faced with business and help in resolving the financial problems for the utilisation of management accounting tools as the system should be done effectively. The issues for finance at Rolls Royce is solved effectively by identifying as well as working on the problems in an incorrect way. The main issues at Rolls Royce are the flow of cash because of which there is a need for strictly working on the statement of cash flow which is the planning tool for cash flow. It also influences the whole working for the company and therefore the focus is decreased on the tool of cash flow which leads in causing the issues for insufficient cash and thus the operations of management is difficult (Agarwal, 2020).

While the company is working on the efficient flow of cash budgeting approach the chances for covering the finance issues are linked with the cash that is resolved at Rolls Royce. On the other hand, it also has good control over the expenses and therefore, it becomes important to effectively utilise the methods at the organisation (Atieh et al., 2016).

The expenditures are not necessary as the issues lead in some financial issues which can be controlled through working on the inventory and the system of cost accounting at Rolls Royce. With the use of KPI method for controlling the expenses the monitoring will be advantageous in managing the issues which are faced by Rolls Royce (Brown et al., 2017). At the organisation, the approach of KPI is used because it is advantageous in managing the issues for business that lessens the financial problems which are faced by Rolls Royce. In this company, the approach of KPI is used by the company which is advantageous for covering the financial complexities. This approach is not used by Rolls Royce therefore, the financial complexities are not resolved and the company also faces the shortage of finances. The ratio of Rolls Royce is evaluated with the help of KPI and thus the decision-making is enhanced and the impact is for the effective financial status of the company, therefore, Rolls Royce is important for the use of KPI approach (Baker, 2017).







FINANCIAL PROBLEMS, MANAGEMENT ACCOUNTING CAN LEAD ORGANISATIONS TO SUSTAINABLE SUCCESS

At Rolls Royce, the organisation has to approach the final targets that utilise various types of concepts for management accounting and the tool of planning. The use of KPI approach is the balanced scorecard which is achieved by the organisation and the tools effectively benefits in solving the financial problems and thus, the attainment of the targets of targets is simpler. With the benefit of KPI at Rolls Royce, the entire monitoring and operations take place and it enhances the profit rates. Also, because of the problems for lessening the profit rates of the company it uses the KPI which is advantageous for the profits, therefore, it is stated that the financial problems are also solved (Donev et al., 2020).

On the other hand, the increment of stock the financial issues are also faced for covering it with efficient planning tools that are used and thus, it will support incoming with the efficient budgeting tools. At Rolls Royce, the use of balanced scorecard is attained which is advantageous in balancing for the efficient control on various factors and thus, the impact for the development of financial issues of Rolls Royce (Duqi et al., 2018).



CONCLUSION

Thus it is concluded that this report also presents the board of directors at Rolls Royce because of which the organisational success and enhancement are achievement is achieved by applying the strategies and methods in accounting management. It, emphasis on the ideas of management accounting and its methods for planning methods as well as reports, therefore, the competitive strategy is attained and thus, it has an opportunity for the development of the organisation. It is also concluded that management accounting is the profession that includes partnering in management accounting decision making that devises the planning and performance management systems and offering the expertise while financial reporting and control for benefiting management in implementation and formulation of the organisational strategy.



REFERENCES

Agarwal, A. (2020). Investigating design targets for effective performance management system: an application of balanced scorecard using QFD. Journal of Advances in Management Research.

Atieh, A. M., Kaylani, H., Al-abdallat, Y., Qaderi, A., Ghoul, L., Jaradat, L., and Hdairis, I. (2016). Performance improvement of inventory management system processes by an automated warehouse management system. Procedia Cirp, 41, 568-572.

Baker, T., Collier, D. and Jayaraman, V., 2017. A new pricing strategy evaluation model. International Journal of Operational Research, 29(3), pp.295-316.

Brown, J. L., Fisher, J. G., Peffer, S. A., and Sprinkle, G. B. (2017). The effect of budget framing and budget-setting process on managerial reporting. Journal of Management Accounting Research, 29(1), 31-44.

Dasgupta, A. K. (2018). Different Ways of Resolving the Crisis. In Income Distribution, Market Imperfections and Capital Accumulation in a Developing Economy (pp. 59-68). Palgrave Pivot, Singapore.

Donev, V., Hoffmann, M., and Blab, R. (2020). Benefit maximisation based on aggregated condition indices: drawbacks for selection of pavement treatments. International Journal of Pavement Engineering, 1-18.

Duqi, A., Tomaselli, A., and Torluccio, G. (2018). Is relationship lending still a mixed blessing? A review of the advantages and disadvantages for lenders and borrowers. Journal of Economic Surveys, 32(5), 1446-1482.

Erokhin, V., Endovitsky, D., Bobryshev, A., Kulagina, N., and Ivolga, A. (2019). Management accounting change as a sustainable economic development strategy during pre-recession and recession periods: evidence from Russia. Sustainability, 11(11), 3139.

Ghasemi, R., Mohamad, N. A., Karami, M., Bajuri, N. H., and Asgharizade, E. (2016). The mediating effect of management accounting system on the relationship between competition and managerial performance. International Journal of Accounting and Information Management.

Hilorme, T., Perevozova, I., Shpak, L., Mokhnenko, A., and Korovchuk, Y. (2019). Human capital cost accounting in the company management system. Academy of Accounting and Financial Studies Journal, 23, 1-6.

Jetter, J., Eimecke, J., and Rese, A. (2018). Augmented reality tools for industrial applications: What are potential key performance indicators and who benefits?. Computers in Human Behavior, 87, 18-33.

Kastberg, G., and Siverbo, S. (2016). The role of management accounting and control in making professional organizations horizontal. Accounting, Auditing and Accountability Journal.

Langfield-Smith, K., Thorne, H., and Hilton, R. W. (2018). Management accounting: Information for creating and managing value. Sydney: McGraw-Hill Education.

Nasution, F., Puspitasari, W., and Saputra, M. (2020, June) Automation Financial Processing in Account Receivable for Integrated Hospital System using ERP and Quickstart Approach. In Proceedings of the 2020 the 6th International Conference on Frontiers of Educational Technologies (pp. 204-211).

Rolls Royce, (2020). Rolls Royce about us. Online available at (https://www.rolls-roycemotorcars.com/en_GB/home.html). Last accessed November 2020.

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