Management Accounting

Management Accounting

Contents
INTRODUCTION.....................................................................................................................................3
MAIN BODY.............................................................................................................................................3
Part 1.......................................................................................................................................................3
Part 2.......................................................................................................................................................8
Part 3.....................................................................................................................................................13
CONCLUSION........................................................................................................................................18
REFERENCES........................................................................................................................................19

INTRODUCTION
The accounting mainly deals to those transactions which have link with finance, though
there are some other distinct accounting approaches like management accounting (MA) which
emphasis on all forms of transactions. MA is an accounting which is responsible to track and
record financial and non-financial information (Tan, 2019). This information is used to produce
internal reports at the time whenever managers need. MA is specially designed for managerial
aspects in order to take corrective steps related to monetary and non-monetary resource
utilization. In this report, a company is chosen named as Innocent drinks limited. This company
is a client of AJ and sons that offer consultancy services related to accounting. The report is
categorized into three parts under that first one covers information related to MA systems and
reports. While second part contain some financial techniques and their practical implication on
given data set. In the end part of report, contribution of planning tools and MA systems have
been discussed in order to deal with financial concerns of companies.
MAIN BODY
Part 1
Types of MA systems and essential need.
MA- It is defined as an accounting that is targeted towards gathering and assessing key
information from transactions occurred in a business during a financial year (Hutaibat and
Alhatabat, 2019). This act is performed to produce internal accounting reports which are directed
by managers to take important decisions.
Purpose of MA- The main purpose of this accounting to play a key role for internal stakeholders
in the context of decision making procedure. This accounting contributes to managers by
providing them needed information on time which is used as a framework for decision making.
Along with this accounting also acts as a controlling mechanism for companies which lead to
improved performance. In relation to above Innocent drinks limited they can adopt this

accounting for their operations with an aim of enhancement of performance under both
perspectives including financial and non-financial.
Distinction between MA and financial accounting:
Base for
comparison
MA Financial accounting
Users This accounting is mainly designed
for internal stakeholders.
It is used by both internal and external
stakeholders.
Regulations There are no rules and regulations
under this accounting to prepare
internal reports (Tekathen, 2019).
This accounting contains serval
regulations which need to be considered
by accountants.
Type of
company
It can be applied in any form of
business. This accounting does not
require any listed company.
While this accounting is a mandatory for
those companies which are listed in a
reputed stock exchange.
Types of MA systems:
This accounting has a link with each and every segment of business. Due to which there
are a range of accounting systems which are explained below in such manner:
 Cost accounting system- This accounting system is formed with a process of tracking and
controlling all those expenses which occur in a business during an accounting cycle.
Under it, each items’ cost is recorded and compared with standardized cost (Zandi,
Khalid and Islam, 2019). Due to which, this becomes easier for managers to find out
efficiency and progress of different tasks in terms of expenses. In manufacturing
companies’ this accounting system gather information about expenses related to direct
material, labor etc. In relation to Innocent drinks limited, finance managers can obtain
key information from this accounting system about cost of different activities along with
variance. This may lead to take a suitable step in terms of need of fund or eliminating
those activities which are higher cost consuming.

Essential requirement- The need of this accounting system to control unwanted expenses
so that revenues can increase. It becomes possible because of regular tracking of cost
consumption over each operation. In the Innocent drinks limited, this accounting system
is essential to apply for eliminating cost of unnecessary activities. As well as it leads in
preparing effective strategies for correct activities which are resulting in more expense.
 Inventory management system- It is known as an accounting system which is linked with
managing all forms of stock of firm. This is done by recording stock report on regular
base that include information about consumption of raw material, prepared stock etc. As
well as this accounting system enables firms to use inventories for production in
sequence that is done by help of different approaches named as FIFO, LIFO etc. The
main aim of this accounting is to maintain cost of storage lower by making production in
accordance of available number of prepared stock and demand. In above company, their
managers can use this accounting for better utilization of available number of raw
materials so that cost of storage can be controlled.
Essential requirement- This accounting system is essential for companies for making
effective usage of stored quantity of each types of stock. In innocent drinks limited, it is
essential for managing raw material like fruits, sugar for production as well as making
new output in accordance of stored number of prepared juices and drinks.
 Price optimization system- This accounting is directed to set a range of price for each
product as per the market demand. It is done in accordance of customers’ response for a
company’s product as well as by evaluating competitors’ steps for pricing. The main
feature of this accounting is that under it prices are set by practical approaches like
analysis of demand, market trend, competitors policies. Due to which a business can set a
price at a level which can become suitable for each customer segment. Under innocent
drinks limited, sales managers can apply this accounting system for new product or an
existing product to set prices. This can be done by analyzing customers’ response over
product quality, price etc.
Essential requirement- The essence of this accounting is to increase number of customers
and revenues by setting prices as per different key factors (Łada, Kozarkiewicz and
Haslam, 2020). For innocent drinks limited, it is compulsory to apply for those drinks

whose sell is lower or for new product. This can be done by assessing customers’ reaction
over existing price level and their expected price for a particular product.
 Job costing system- This is an accounting system which emphasis on tracking cost of job
or task aligned in procedure of completing an operation. The aim of this accounting is to
measure of cost of each particular unit so that further decision can be carried out. In the
context of above Innocent drinks limited, this accounting system can be introduced with
an objective of finding cost of job or task for each activity along with per unit cost. The
essence of this accounting system is explained below in such manner which is as:
Essential requirement- This accounting is necessary to identify number of job allocated in
finishing an activity as well as to measure cost of each unit. The managers of innocent
drinks limited can apply this accounting system because they have a large product
portfolio for various drinks. Therefore, it is essential for them to find out cost of each
produced drink.
MA reporting.
MA reporting is defined as a process of preparing various kinds of formal written
document containing information different segment of a business. There are a number of
reports which are used by business as per their need. Mainly, these reports are used by
administrative of companies in order to take suitable steps for decision making.
Underneath explanation of some reports is done:
 Inventory management report- This is a type of document which contains information
related to each types of inventory in a systematic manner (Alabdullah, 2019). Under it
information about quantity of material used, remained material, needed material etc. is
recorded that is used by managers for decision making for production. In the aspect of
above Innocent drinks limited, they can prepare this report with an objective of getting
information regards to stored material for juice or drinks manufacturing, prepared items
etc.
 Accounts receivable ageing report- It is a form of report that is mainly used by finance
department of a company. As this report includes information related to name of debtors,

date of transactions, payable amount with interest etc. By help of this report, managers
can prevent to make credit transactions with those debtors who are not paying debt
amount on time. For instance, in above company, their finance managers can make plans
for collecting debt amount from number of debtors by help of this report.
 Performance report- This can be defined as a type of written document that contains
information regards to overall and individual performance of a firm. Mainly, this report
contributes in measuring financial performance of a company. Under it, detailed
knowledge for profitability, return, loss, cash availability etc. is included. The manager of
innocent drinks limited can rely on this report in order to take further steps as per the
need.
Benefits of MAS:
MAS Benefit
Cost
accounting
system
This accounting system beneficial for companies to address those areas in
which companies’ expenses are higher. For instance, in above company they
can get advantage from this accounting system by getting information about
cost of each material and comparing with estimated expenses.
Inventory
management
system
It is useful for companies in order to optimum utilization of available
number of stock (Labrador and Olmo, 2019). Innocent drinks limited
company’s managers can get benefit of this accounting by getting
information related to daily consumption of raw material, sold number
drinks and available goods.
Price
optimization
system
This accounting system is advantageous for companies to determining prices
of items as per the external environment factors. In the context of above
company, this accounting system can be useful in setting prices of various
kinds of drinks and juices in accordance of analyzing customers’ feedback.
Job costing This accounting system contributes in assessing cost of each job or task

system involved in finishing an activity. In relation to above company, their
managers can get useful information from such accounting system. Like they
can address the cost of each produced juice or drink.
Integration of MAS and MA reports.
The various forms of MAS and MA reports are aligned with companies’ process that
leads to organizational success. In the aspect of above part of report, a range of accounting
systems have been discussed such as cost accounting system which is aligned to finance
department of innocent drinks limited. Along with MA reports are also linked like inventory
report is connected to production department of companies. This integration contributes to guide
managers for better decision making which leads to sustainable success of businesses.
Part 2
Accounting techniques to prepare financial reports.
Marginal costing- It is a technique which is associated with preparing income statement by
considering variable expenses as main(product) cost and fixed expenses as periodical cost (Amir,
Rehman and Khan, 2020).
Absorption costing- It is a technique which is associated with preparing income statement by
considering variable expenses and fixed expenses as main(product) cost.

MA techniques to prepare financial reports.
There is different form of accounting techniques which are used by accountants to
prepare financial reports (Johanson and Madsen, 2019). These techniques provide a framework
to users to follow a systematic procedure to get desirable outcome. As in the above part, two
distinct techniques are used to prepare income statement that are marginal and absorption costing
method. Both techniques produce different amount of outcome due to way of consideration of
cost.
Interpretation of data.
In the above part of report two income statements are produced which are interpreted
below in such manner:
From income statement prepared under marginal costing, this can be find out that there is net
profit for both months including April (£13000) and May (£22000). There is variation in net
profit because of higher sales in month of May. On the other hands, under absorption costing net
profit is of £19000 and £25000 for similar time period. The rationale behind difference in total
net profit under both techniques because of way of taking fixed and variable cost in process of
income statement preparation.
Part 3
Different planning tools.
Budgetary control- It can be defined as a type of technique that is related with preparation
different budgets for upcoming time period with an aim of monitoring performance by
comparing actual outcome with estimated values (Bhimani, 2020). This technique has a link with
all forms of business entities in order to manage financial performance of companies by finding
different types of variances. In the context of Innocent drinks limited, following planning tools of
budgetary control can be applied:
1. Capital budgeting- It can be understood as a form of budgeting approach which is used to
measure effectiveness of proposed financial plans. This evaluation of efficiency of
projects’ is done in accordance of various methods named as net present value, payback

period etc. The objective of this budgeting is to guide managers to take suitable steps for
making huge investment in any project. In above Innocent drinks limited, this can
contribute to finance managers in order to evaluate different types of alternatives.
Advantages- This approach is beneficial for companies to protect them from future
financial risk as it guides managers to choose best alternative among different
alternatives. As well as it is useful for companies to keep adequate control over expenses
related with an investment.
Disadvantages- The techniques that used for measuring efficiency of project are based on
assumptions which may lead to wrong estimation. Along with this cannot be applied in
small companies and for tiny sized projects.
2. Cash budget- It is a type of budget which contains information about those activities
which are aligned to cash inward and outward during a particular accounting period
(Gamayuni, 2019). By help of this budget, it becomes easier for managers to assess need
of cash in upcoming time period. For instance, in above company this budget can be used
to proper management of cash by evaluating cash incoming and outing activities.
Advantages- This budget is useful for companies in order to allocate cash in accordance
of budgeted activities. Along with it plays a key role in the context of addressing need of
cash for making payment of day to day operating activities.
Disadvantages- The main drawbacks under this budget is that companies become
restricted to use their cash due to pre-determined plan. As well as it does not provide
accurate projection of cash receipts and payments due to impact of external
environmental factors on companies’ performance.
3. Static budget- This budget is also named as fixed budget which has nature of remain
constant during an accounting cycle. The activities of this budget cannot be changed in
accordance of company’s willing. This budget does not impact due to fluctuation in
number of production or sale. The objective of budget is to maintain a target for income,
cost etc. The managers of innocent drinks limited can use this budget for those activities
which are expected to remain unchanged such as rental charges, insurance etc.

Advantages- This budget is suitable for all types of companies as it does not need to be
changed during an accounting period. Along with it contributes to managers in order to
determine particular target for employees regards to different kinds of aspects.
Disadvantages- It is not beneficial in the conditions which companies are intended to
make changes but cannot do because of this budget. Like due to any pandemic sales can
reduce by huge margin and accountants cannot make change in sales value under this
budget.
Planning tools to forecasting of budgets.
Planning tools of budgetary control can be useful for managers in order to prepare
budgets. It can become possible because planning tools like cash budget, capital budget offer
information about estimated financial values (Steccolini, 2019). This data can be used by
managers in order to make projection of other types of budgets. For instance, under above
company, they can use three described budgets and each of them can contribute to their
accountants and managers to forecast financial values.
MAS to solve financial issues.
Financial problem- There are a numerous financial problem which are faced by companies due to
lack of management. It is difficult for managers to find out any particular cause of financial issue
or responsible person. Below some issues are mentioned that are faced by two different
organizations:
Inconsistency in sales revenue- It is a type of financial problem which is related to fluctuation in
sales revenue due to internal weakness or higher competition (Le, Tran and Nguyen, 2020). This
financial issue results in decreased graph of growth of a business. For instance, in above
Innocent drinks limited they faced this financial issue due to ineffective pricing pattern.

Unwanted higher expenses- This is a form of financial issue under which companies’ managers
fail to keep control over expenses. It can raise in firms due to many possible reasons such as
ineffective budgeting, unskilled employees. In a competitive company of Innocent drinks
limited, they faced this issue.
Accounting techniques:
Benchmarking- It is known as an approach which is aligned to making comparison of a
company’s financial performance with industrial companies’ average performance. This is useful
for addressing those areas in which a company’s performance is weak or excellent.
Key performance indicator- This is defined as a type of accounting approach under that both
financial and non-financial aspects are measured. In the financial aspects information about
profit, expenses, return etc. is included. On the other hands, in non-financial aspects information
regards to turnover, political condition etc. are included. This is helpful for assessing cause of
financial issues.
Financial governance- It is known as a method of keeping financial information of a business in
systematic manner (Lowe, 2019). This specified information can be used by managers in order to
deal with any financial issue.
Comparison:
Base for
comparison
Innocent drinks limited George’s drinks limited
Financial
issue
This company faced the problem of
lower sales revenue in last accounting
cycle. It resulted in decreased growth
in all perspectives.
They faced the issue of higher cost of
operating different operations. As a
consequences, their sales revenues
started to reduce along with total net
margin.
Technique
to
Their managers used benchmarking
approach in order to make comparison
The administrative of this company
used KPI approach for identify their

recognize
issue
of financial performance with
industrial companies’ average sales
revenue.
financial issue. This was done by
focusing on financial aspects related to
revenues, expenses etc.
MAS They used price optimization system
with an objective of solving their
financial issue. In accordance of this
accounting system, they set prices of
their products at a level on which
customers are satisfied. This had been
done by analyzing customers’
feedback. As a result, customers
started to show interest in their
products which resulted in increased
sales revenues.
This company’s manager used cost
accounting system. As per this
accounting system, they categorized
their activities as per the expense level.
After that they compared actual
expense with estimated values. Thus,
they confronted on those activities
which were consuming unwanted cost
and their financial issue resolved.
MA to solve financial problems.
Different types of accounting systems have an integration with company’s process and
operations (Napitupulu, 2020). This integration helps to companies in the aspect of solving
financial issues in an adequate manner. For instance, in above sections two distinct financial
issues have been solved by help of price optimization system and cost accounting system. This
shows that MAS contribution is vast in the context of dealing with numerous financial problems.
Planning tools to solve financial issues.
The aim of planning tools for budgetary control is to giving detailed information to
managers related to estimated income and expenses (Horvat and Mojzer, 2019). This projected
information can be used by administrative to solve financial problems. Such as in the aspect of
above company, they may imply different planning tools such as cash budget, capital budgeting
etc. These financial plans can contribute in dealing with financial obstacles.

CONCLUSION
On the behalf of prepared report about MA, this can be stated that without
implementation of MA in process and plans a company cannot run for long. From part one of the
report this can be concluded that MAS and MA reports are crucial for success of companies as
each element of these have integration with process. The second part of report concludes that
distinct financial techniques play a key role in order to produce financial reports. While the end
part of report articulates that any form of financial issues can be solved if a firm manages their
operations under MAS.

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