Management Accounting and Reporting in Innocent Drinks

This document provides an overview of management accounting and reporting in Innocent Drinks. It explains the essential requirements of different types of management accounting systems and the different methods used for management accounting reporting. It also discusses cost analysis techniques and the use of absorption and marginal costing. The document includes a discussion on the benefits and disadvantages of various planning tools and how organizations are dealing with financial problems using management accounting systems.

Management
accounting

Table of Contents
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems...........................................................................................4
P2 Explain different methods used for management accounting reporting. .........................5
M1: Benefit of system of management accounts and its application.....................................7
D1: Integration of system of management accounting and reporting of organisation process7
TASK 2............................................................................................................................................8
P3: Cost analysis techniques & use of absorption and marginal costing...............................8
M2:Application of techniques of management accounting....................................................8
D2: Application & interpretation of financial reports:...........................................................9
TASK 3............................................................................................................................................9
P4: Benefits and disadvantage of various tools of planning...................................................9
M3: Analysing the various planning tools............................................................................10
TASK 4..........................................................................................................................................10
P5: Compare how organisations are willing to deal with the system of management
accounting to deal with different financial problems and issues..........................................10
M4 : Analysing the financial problems and management accounting.................................13
CONCLUSION..............................................................................................................................13
REFERNCES.................................................................................................................................14

INTRODUCTION
Management accounts is a function that consist of activities like gathering of data.
Analysing the collected data and then further reporting of overall financial information about
operations of a business. It is very helpful for the management in their decision making process
and can be used by management for their internal & external functioning. Management
accounting is very helpful in management and controlling of all function that are part of financial
department of a organisation (Youssef, Moustafa and Mahama, 2020). Present report is based on
Innocent drinks that is a medium sized organisation dealing in products like juices, smoothies
that are sold in different coffee shops, supermarkets and other different outlets. They are selling
approx 2 million smoothies every week. Present report is based on discussion of different
management accounting systems and methods that are used for reporting. The situation of
spending of COVID-19 Virus has resulted into business failing and not able to survive in the
external environment situations. So in case of Innocent drinks there is discussion of how the
organisation cam maximise the use of financial resources so that they are able to survive in this
situation. Further there is calculation of cost based on use of require techniques by application of
absorption and marginal costs. There is discussion of advantages & disadvantage for budgetary
control. Lastly there is comparison on how organisations are adapting to different systems of
management accounting.
TASK 1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems
According to Institute of management accounts: Management accounting consist of
function like planning, analyzing and making financial reports that is used by management to
have assistance in the process of effective implementation of various organizational strategies
(Maas, Schaltegge and Crutzen, , 2016).
Key functions:
Providing data: It consist of collection of information that is related with all different
functions of business such as helping all other functional managers in planning, controlling and
finally decision making.

Analysis & interpretation of data: The data has to be collected and then analysis is made
so that there can be proper & relevant statements that can be made with regards to decision
making.
Means of communication: Management accounting is a very important tool that can be
used for gathering information and then further analyzing it so that there can be proper
communication channels that can be established to achieve some comma goals.
Facilitation of control: business accounts have to be managed so that unnecessary
expense can be controlled and avoided.
Some of common accounting systems that can be used in Innocent Drinks for the purpose of
managing their accounting function are mentioned below: Financial accounting system: It is a main objective that can be used for maintaining of
financial accounts to collect fanciable data of all transaction that is debit and credit
account balance so that there can be formation of financial statements, income statements
are also used for controlling of all losses and detecting of errors (Otley, 2016). System of cost accounting: It is a framework that can be used for making correct
estimations of product cost so that there can be further analysis of profits and then
maintaining of inventory. It will help Innocent drinks in their different stages of
production so that efficiency is achieved by maintaining of wastes. Tax accounting: It is a system that is having focus on management of taxes so that all
rules & regulations are govern by the Internal revenue code in preparation of tax returns.
It is a system that is very helpful in making calculations of amount of taxes so that further
government intervention can be dealt.
 System of management accounting: It is a system that is helpful in measurement and
evaluation of process so that there can be timely information that can be communicated to
managers (Quattrone, 2016). Reports are also prepared according to the different
financial activities so that management of expenses can take place in a appropriate
manner in Innocent drinks.

P2 Explain different methods used for management accounting reporting.
Management accounting reporting is regarded as a process that is sued for preparation of reports
that can be used by managers in Innocent drinks in their decision making process. Some of its
types are mentioned below:
Account ageing reports: This is a report that consists of details about the different credit
transactions of a organisation that can be used by managers in making a analysis of amounts that
is pending from their debtors (Qian, Hörischand Schaltegger, 2018). It is helpful in the overall
collection policies and reduction of bad debts. It is also going to help Innocent drinks in
managing their liquidity.
Inventory reports: This is a report that is used for providing information about inventory
in a business so that there can be maintaining of a balance between customer service and
inventory investment (Holopainen, , Niskanen and Rissanen, 2019). This report is in Innocent
drink will consist of per unit overhead cost, labour cost and all wastages that are part of
inventory that can be managed effectively to reduce high inventory that is a burden for any
organisation.
Job cost report: This is a report that can be used for identification of expenses, cost and
enhance the financial efficiency of each job so that there can be more profitable projects. There
can be proper evaluation of wastage areas so that overall cost can be controlled and proper
effectiveness is maintained.
Objective of financial statements:
P&L accounts: It is used for understanding of the criteria of net profits & all types of
losses that are taking place in business in the end of every financial year.
Cash flow statement: It is used for making assessment of the cash position of a business
that is all details about the inflow& outflow of cash.
Cost of products sold: It is used for providing the information related to cost that is part
of selling of products.
Balance sheet: It is used for making a evaluation of liabilities and assets of a
organisation at end of every financial year.
Types of system of management accounting:

Price optimization: It is a system that is used for determination of prices according to products of
company by making a evaluation of demand fluctuation so that changes in prices level can be
recorded. In Innocent drinks this can be used for tailoring of prices of various products based on
customer demand. There is use of techniques like discount pricing promotional pricing and initial
pricing.
System of inventory management: It is a technology process that is used for the purpose of
determining and maintaining of product cost so that different cost can be properly maintained in
different stages of product, manufacturing in Innocent drinks used so that there can be reduction
in cost & maintaining of efficient use of resources (Rikhardsson and Yigitbasioglu, 2018).
Job costing system: It is a system that is used for determination of price of each individual
products. It will help Innocent drinks in keeping a detail record of all expenses according to units
cost.
M1: Benefit of system of management accounts and its application
Management accounting Benefits Application in Innocent drinks
Inventory system It is a system that can help in
reduction of storage cost
(Abernethy, and Wallis,
2019).
Company can maintain their
level of stock according to
their per day demand. Such as
if demand is high during
weekends then there has to be
more stocking of raw materials
so that there is no wastage.
Cost accounting It is used for formation of
policies to manage overall cost
of labour, material cost and
overhead cost.
Organisation can make use of
this system to understand their
fixed cost per bottles of drink.

Price optimization It can help in determination of
prices according to customer
demand that can help in
maximization of profits.
Organisation can apply this
system to maintain their
operational cost & overall
prices.
Job costing It is used for determination of
profitability according to
individual projects
There can be termination of
cost according to the producer
requirements.
D1: Integration of system of management accounting and reporting of organisation process
Type of reporting Integration with Innocent drinks
Budgetary report In this Innocent drink is focussing of
achievement of higher profitability in business
so that objectives can be achieved (Ameen,
Ahmed, and Abd Hafez, 2018).
Accounts receivable It leads towards collection of all reachable
accounts and then making of policies related to
collection of finances.
Job cost reports It is used for determining the product prices
according to its variants. Such as drink that are
consuming high prices fruits will be relatively
expensive as compared to other different
varieties.
Inventory management It can be adopted for management of inventory
and the manufacturing cost of different
products.

TASK 2
P3: Cost analysis techniques & use of absorption and marginal costing
Cost is the total of amount in monetary value that is used in the process of manufacture of
product and then use of resources labour, raw material, opportunity cost, time risk and labour
time. It is used for preparation of income statements by adoption of absorption and marginal
costing. That is according to variable figures of Innocent drinks there is preparation of these
statemented as mentioned below:
Marginal costing: It is a technique that is used for understanding of the variable and marginal
cost per unit of a products. Variable cost leads to to Changes in total cost when high quantity is
produced. It increases with every increase in unit of production cost.
Absorption costing: This method is used for product of one unit of a product that it consist of
both fixed and variable cost. In this methods there is association of product cost directly with
accumulated cost.
Based on the provided figures there is a calculation of marginal costing & absorption
costing. There is use of break even point analysis further to understand the situation of no profit
& no loss for this organisation.

M2:Application of techniques of management accounting
There are some accounting technique that can be used for operation of financial reports
so that actual position of a organisation can be properly analysed and then further decisions are
made so that position can be improved (Hutaibat, and Alhatabat, 2019). There are various
methods of costing like absorption costing and marginal costing that can be used for calculation
if production cost. Marginal costing is a better technique than absorption costing as here is use of
both variable & fixed cost both that are charged for calculation of profits. In the process of
decision making this technique is very useful in estimation of total cost of production.

D2: Application & interpretation of financial reports:
The financial reports of a organisation has to be prepared by using some techniques of
marginal and absorption costing that can be used in identifying the pre unit cost of each product.
Based on such reports there is one variable cost that is being taken in consideration for
calculating the marginal costing. Many times it does not provides the exact detail as there is
ignorance of fixed cost that can be neglected by organisation. Cost per unit of product includes
both variable and fixed cost that helps in calculation of exact profits.
TASK 3
P4: Benefits and disadvantage of various tools of planning
Budget: It is a statement that consist estimated sales, liabilities, sales, cost and overall
expense that is used for a specific time period. It is helpful for a organisation in their internal
management that so used for measurement of performance and then making decisions.
Budgetary control is regarded as a process that leads to determining the actual sales according to
budgeted figures for limited period in every organisation (Nitzl, 2016).
There are some tools that can be used in process of budgetary planning:
Flexible budget: It is a tool that can be used in the process of budgetary control so that
overall volume and activities can be according to organizational requirements (Collis, and
Hussey, 2017). Innovation drinks can adopt this method so that they are able to monitor the sales
procedure according to budgeted figures.
Benefits: It is very helpful for a organisation that there can be determination of
production level in materials and according to it further modifications can be done. In Innocent
drinks it will help in facilitation of product quantity that is required to achieve higher profits.
Limitation: This tool is having limitation as there is requirement of competent staff and
skill management so that there can be proper management according to performance changes.
Flexible budget is a costlier approach and is depended on financial disclosures as if it is not done
properly then there can be a situation of entire budget getting lapse.
Master budget: It is a budget that consist of different lower level of budgets. It is a
divisional budget that is summed in one particular budget that is prepared by different budgets
and are combined in one department. It consist of cash flow forecasting, financial planning,

budgeted statements of profits and losses. In Innocent drinks this budget has to be prepared for a
period of one financial year.
Benefits: It is a budget that is acting as a summarised information for management and all
owners. It is reflecting overall expense and revenue of different departments. Every department
is dealing with a particular functioning so it is very important to understand the problems that are
associated with various functional departments (Qian, Burritt and Monroe, 2018).
Limitations: It is many times difficult to upgrade budget so there is a requirement to make some
changes so that proper & timely steps can be taken to maintain whole budget requirements.
M3: Analysing the various planning tools
There are different types of planning tools that can be used by a organisation so that there
can be identification of some issues that are faced by organisation and they are suffering from
shortage of funds. Many times also there are instances if duplication of activities as there are
situations of overlapping that is taking place in a organisation because of similarity of functions
that are part of every organisation. Ion Innocent drinks these instances can be dealt by using of
master budget and the flexible budget situations to anticipate overall revenues and expenses.
Flexible budget is also very helpful in planning in every organisation so that they are able to
deal with all changes in a respective manner.
TASK 4
P5: Compare how organisations are willing to deal with the system of management accounting
to deal with different financial problems and issues
Financial issues are those that are related to inadequate supply of financial resources. These are
some of very common issues that can arise in a organisation when they do not posse adequate
plans, this mainly happens because of defaults, misrepresentation's or default that arise because
of mistakes that can be made by financial Managers or financial departments. These are some of
common financial issues are mentioned below:
High expenses of promotion: There are situations when a organisation has to conduct lot
of promotional expenses so that they can make their target segment of customers aware about
their new launches of products and services. Such as in Innocent drinks there are new launches
that are being made by this brand and that have to be used as a strategy to attract large number of
customers apart from their existing loyal base of customers. So, in this case there is need of high

budget so the requirement of marketing department can be fulfilled as they are willing to adopt
the strategy of launching some promotional campaign where they will be using some places like
public parks and streets to make people try their new flavours by differing them free samples.
After this if they like the taste they will be making a repeated purchase (Joshi, and Li, 2016).
Over expansion: There can be a situation where organisation is failing to expand their
lines of operation by making a analysis of their Financial strength that is because of huge losses
that are taking place in the organisation. So, there is a need to deal with this situation so that
losses can be avoided.
Benchmarking: It is a very useful approach that can be used by any organisation in order
to determine the objectives based on other competitive brands that are part of same industry. This
is a approach that can be adopted for the purpose of having higher level of performances to be
more successful. Usually in medium sized organisations like Innocent drinks there can be a
situation of high losses that has to be dealt by setting up of specific benchmarks of the budgeted
expenditure of each functional department so that there can be standard set (Van der Stede,
2017). This will help in ensuring that all activities are within decide budget of the organisation.
Financial governance: It is a method that can be used by a organisations for collecting
of financial information so that all accounting requirement can be met. It helps in ensuring that
all the financial information is authentic. Further decision are made based on such financial
information only. These activities have to be managed so that there can be timely decision
making based on collected information.
Comparison between two organisations that are belonging to same industry:
Basis Innocent drinks Mars drinks
Products Innocent drink is a brands that
is dealing in smoothies, juices
that are sold in supermarket,
coffee shops and such other
outlets. It is 90 percent
acquired by well known
brands that is coca-cola.
It is a brand having
specialisation in coffee
mechanisms and this different
systems at workplace. They
are dealing in coffee business
in UK, France, Japan, Canada,
north America. They are
having a workforce of approx

900 people.
Financial issues There are some problems that
are faced such as because of
prevailing situations of
COVID-19 there has been
situations of lock-down and
apart from this people are not
willing to prefer outside
eatables (Azudin and Mansor,
2018).
There are some problems that
is related to not able to meet
up the overalls sales targets.
Management accounting
system
The system of cost accounting
has to be used effectively so
that there can be proper cost
ascertainment such as
manufacturing cost, fixed cost,
variable cost. So that there can
be calculation of the exact
profits from the total revenue.
There is use of system of
inventory management so that
maintaining cost of inventory
can be reduced.
Tools used There are some tools that can
be adopted by Innocent drinks
for purpose of dealing with all
issues that are faced by the
organisation.
Issues can be resolved by
setting up of benchmarks. It
will help in utilisation based
on adoption of strategies

M4 : Analysing the financial problems and management accounting
It is very important for all the organisations to conduct a financial analysis as it is helpful
for estimating and managing the budget properly. There are various ways for managing the work
properly and maintaining the budget effectively. There in increase in financial problems in any
project. Thus, it is very important to manage the effectiveness of company properly. There are
different ways of management accounting that are chosen while managing projects. These
include resolving the financial problems and facilitating the problems in proper manner. It is
important for all the projects to plan a proper budget for managing effectiveness of work.
D3: Evaluation of use of planning tools for dealing with accounting issues
There are various financial problems that occur while managing the work. There are
different planning tools present within the financial scenario that are used for managing the cost
estimations for various projects. The planning tools are used for estimating the expenses that are
required for conducting the sales volume and sales expenses. There is need for companies to
manage the functioning properly so that profits can be achieved in less time frame. A proper
financial planning is helpful to take effective decisions for the company. When forecasting
regarding the budget is done properly then business activities are properly managed.
CONCLUSION
From the above report it can be conclude that ingratiation is using different types of
management accounting principles so that they are able to make their decisions. Every
organisation needs certain tools to deal with financial issues that they are facing while they are
managing their finance function. In Present scenario of macro environment there is widespread
situation of COVID-19 virus that is leading to downfall of business. It leads to requirement of
managing all aspects of finance department in such a manner that there can be achievement of
higher efficiency in overall functioning of the organisation. It can be concluded that financial
management is one of most crucial functions that can help a organisation in understanding the
way their available resources are being managed.

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