Financial Accounting Report 2022

Contents
Page
Introduction 3
Part 1:
Management Accounting 4
Financial Accounting 4
A comparison between management and financial accounting systems 4
Types of management accounting systems 5
Cost Accounting 5
Benefits of cost accounting: 5
Inventory Management System 5
Benefits of Inventory System 5
Job-costing systems 5
Issues with Job-costing systems 6
Price-optimizing systems 6
Benefits of price-optimizing systems 6
Different Methods used for Management Accounting Reporting 6
Job Cost Reports 6
Inventory Management Reports 7
Performance Reports 7
Variance Report 7
A Profit and Loss Report (P&L) 7
The Cash Flow Statement 8
Customer Survey Reports 8
Part 2:
Innocent Drinks UK -
Prepare an Income Statement using Marginal and Absorption Costing 9
1.1
Absorption Costing 9
W1 Calculation of full production cost 9
W2 Calculation of value of inventory and production (valued at £8 per unit) 9
W3 Under/over absorbed fixed production overhead 10
Absorption costing profit statement 10
Net Profit 10
Marginal Costing 11
W1 Variable production cost 11
W2 Value of Inventory and production 11
Marginal costing profit statement 11
Net Profit 12
Reconciliation of profit figures 13
1.2 INNOCENT DRINKS UK - DAIRY FREE RANGE OF DRINKS
a). Break-Even Point for the next year 14
b). Margin of Safety for next year – Expressed in Quantity and Sales Value 15
c). Break Even Point using Graphical Method 16
0

The advantages and disadvantages of different types of planning tools used for budgetary
control 17
Zero based budgeting system 17
Activity based budgeting (ABB) 17
Incremental Budgeting 17
How organizations adapting to management accounting systems 17
Balanced Scorecard 18
Benchmarking 19
Key Performance Indicator (KPIs) 20
Budgetary control and variance analysis 20
Compare how organizations are adapting management accounting systems 21
Conclusion 23
Bibliography 24
Name: Vajira L Hettiarachchi [HE07657] Unit 5 – Management Accounting
1

Introduction
This report consists of two parts in which the first part is an explanation of the management accounting
system and how it is beneficial in organisations future planning and decision making. This section also
discusses how important the management accounting to be integrated into the organisation processes.
The second part the of the report consists of a financial report where range of management techniques are
used to the accounting figures provided by Innocent Drinks UK to produce a Financial Report with
working to determine the profit and loss status. It also explains the advantages and disadvantages of
different types of planning tools and budgetary control in details.
A discussion on management accounting and financial accounting has been included to cover the types of
management accounting system.
Calculation of absorption costing and marginal costing have been carried out for the Innocent Drinks UK
company for its Super Smoothies with the reconciliation statement and the profit figures too are included.
Under the section 1.2 Income statement using Marginal and Absorption costs have been shown. The
financial report together with breakeven points including graphical method have been included.
The comparisons of Unilever and Tesco’s management accounting reporting have been discussed in the
report. The balance scored card method used by Unilever as a part of its management accounting and how
Tesco is benefitted using an advance just-in-time inventory management system haven also been discussed.
The concluding section assesses the importance of management accounting in a critical context with its
advantages in the modern-day organisations.
Part 1:
Name: Vajira L Hettiarachchi [HE07657] Unit 5 – Management Accounting
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Management Accounting:
Management accounting is defined as a process of identification, analysis, preparation, communication
and interpretation of both qualitative and quantitative data provided to managers within the organization so
that they could take strategical decisions as well as control day to day operations. (Burns, et.al.2013).
The management accounting information helps the internal managers of the organization, its employees
and senior executives in decision making and to improve performance. The future success of an
organization depends on information provided in the management accounting reports. Also, these
management accounting reports enhance both customer and shareholder value (researchgate,2018).
Financial Accounting :
This is a branch of accounting in which financial statements are produced of the transactions made to
show its financial position to the people outside the company. These people may include investors,
suppliers, creditors and customers. Producing financial account statements is also a regulatory requirement
that all companies and organizations must adhered to. There are several main functions of financial
accounting and these include, budget preparation, planning, cost control and prevention of fraud.
(Financial accounting and reporting, 2019)
A comparison between management and financial accounting systems.
.
Management Accounting Financial Accounting
Detailed information relating to department,
product, customer and employees are needed.
Only the summarized data is required.
Not mandatory. Mandatory as external customers could be waiting
for it.
Need to follow the accepted accounting rules. Need to follow the accepted accounting rules.
Information is bound by the time period. Precision past performance information is
required.
Types of management accounting systems:
Name: Vajira L Hettiarachchi [HE07657] Unit 5 – Management Accounting
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Cost Accounting:
Cost accounting deals with calculating cost of goods and services provided and also in terms of
organizational units such as departments.
The details of various costs that are needed to control the existing operation are provided to the
management using cost accounting. There are large manufacturing organisations like Ford and General
Motors who uses cost accounting and from retailers Tesco and ASDA are known examples.
Benefits of cost accounting:
Cost accounting could determine precise cost of a product which is important in taking marketing decision.
It also helps to decide on the selling price of a product, calculating profitability and also to meet
competition.
Inventory Management System:
The inventory management system is a stock control system to determine the stock levels and how much
should be maintained and when it should be replenished. The inventory may include raw materials
supplied by the vendors but not yet used or added any labour, finished goods that are still in the factory or
possession of the firm and also work in progress items which are partially complete.
Benefits of Inventory systems:
It gives assurance against knowing the exact status of the stock level so that uncertainty can be avoided.
Also, it helps to avoid any shortages of materials and to address any shortages of demand. In addition, it
would support strategic plan and be able to take advantage of economies of scale.
Job-costing systems:
It is a system to accumulate costs of material, labour and overhead for a specific job or task. This system
of costing is ideal for ‘one off’ custom jobs which are different from customer to customer.
Issues with job-costing:
Name: Vajira L Hettiarachchi [HE07657] Unit 5 – Management Accounting
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It is difficult to set price for a job and to include the expected profit. Also, there is an issue of finding the
actual spent for the job. There is a possibility that profits could be negatively impacted due to the
differences in actual and expected costs.
Price-optimising systems:
By using price optimising system an organisation would be able to find how sensitive the existing clients to
price changes of the products and arrive at various profitability levels. The method is useful in setting
prices for different customer segments based on how they respond to changes in different pricing scenarios.
Benefits of price-optimising systems:
If an organisation’s main task is to keep the customer retention at current level and increase the profits,
then the optimal pricing is useful. It is used to understand how sensitive the customers to changing prices
of the product or services and obtain targeted profitability levels.
Different Methods used for Management Accounting Reporting:
The purpose of management accounting reports is to help the management of an organisation to take
informed decisions. These reports contain not only financial information but also non-financial data that
could facilitate decision making.
Presentation of Management account reporting could be:
1. Using visual aids, charts and tables.
2. Printed Reports.
3. Verbal presentation (may include use of above).
Job Cost Reports
Job cost reports show the ongoing costs of a project (e.g. construction). These reports are usually
compared against the estimates of revenue so that the company could have an idea of the profitability.
These reports could be used to identify the higher earning areas so that the company could focus on those
leaving the lesser profitable areas.
Inventory Management Reports:
Name: Vajira L Hettiarachchi [HE07657] Unit 5 – Management Accounting
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