Management Accounting: Types, Methods, and Tools

This report provides an overview of management accounting, including its essential requirements, different methods, and tools. It discusses the benefits of management accounting systems and their application in organizations. The report also explores various planning tools and their advantages and disadvantages. The case study focuses on Innocent Drinks, a manufacturing company dealing in ice cream and juices.

Management Accounting

Contents
INTRODUCTION...........................................................................................................................................4
Task 1...........................................................................................................................................................4
P1 Management accounting and essential requirement of different types of management accounting
.................................................................................................................................................................4
P2 Different methods uses in management accounting..........................................................................5
M1 Benefits of management accounting system and their application ..................................................6
D1 Evaluation of various system and reports integrated with organisation process ..............................7
Task 2...........................................................................................................................................................8
P3 Cost calculation using appropriate techniques of analyses to prepare income..................................8
Task 3.........................................................................................................................................................10
P4 Advantages and disadvantages of different planning tools..............................................................10
M3 Uses of different planning tools and their application ....................................................................13
Task 4 ........................................................................................................................................................13
P5 How organizations are using accounting system to respond financial problems..............................13
M4 How management accounting can lead organisation to sustainable success..................................16
D3. Evaluation of the ways planning tools respond appropriately to solve financial problems as to lead
sustainable success................................................................................................................................16
CONCLUSION.............................................................................................................................................17
REFERENCES..............................................................................................................................................18

INTRODUCTION
Management accounting, which is also commonly known as managerial accounting, is a
method that deals with financial data collection and involves authentic leadership of this detail.
This is used for strategic planning and decision-making by the inner managers and other
stakeholders. This study focused on the crucial role of management accounting in addressing an
organization's economic challenges (Bedford, 2015). This report based on the Innocent drinks
which is manufacturing company and deal into ice cream and juices. The study covers principles
such as accounting management systems, reporting structures, and costing methods that are
being used even more in the implementation of management documents. This also requires
management techniques with their strengths and budget management limitations. Furthermore,
financial issues that are overcome using processes and correct accounting methodology are
addressed so that enterprise can contribute to measurable development.
Task 1
P1 Management accounting and essential requirement of different types of management
accounting
In present period, management accounting has grown over time and its principles allow the
internally and externally stockholder to gain the valuable information about the business's results
within a year. As it is a structured method of capturing and retaining useful knowledge regarding
firm's success over brief amount of time.
Inventory management system: Inventory management system is a type of system that
monitors stock in factories and also checks the accessibility of raw resources, properties and so
on. This program is very beneficial to companies of all kinds, particularly those engaged in
designing. That is why it monitors the quality of material product as it goes into the
manufacturing system and monitors the commodity until it is sold. In summary it can be assumed
that this program assists in the control of the distribution chain. Innocent drink implements this
stock control program that will be of benefit to them as it solves the supply management issue.
Price optimization system: Price management program allows an enterprise to establish a
price range that is appropriate for both business and consumers alike. It includes of different
techniques that help to take into account different demand for goods and services by amount of

potential clients. The program makes it simple for the business to fix rates. Innocent drink senior
management uses this tool when identifying specific rates. This program will assist the industry
in setting a price that will help achieve the priorities and goals of the firm. This can also enable
ABC ltd gain a competitive edge across compared to the standard.
Job costing system: Job costing system presents a formula for measuring the unit cost for
each task. Within these organizations, that generate various kinds of products and services, this
sort of program is necessary. For such companies, the value of the system of every other item is
measured separately and if the variable cost per unit is large, it just aims to establish appropriate
cost management techniques. Innocent drinks take effective measures and can verify the price of
the component of every one of the goods (Brewer, Garrison and Noreen, 2015).
Cost accounting system: Cost accounting system provides executives with full expense
details that let firms develop strategic planning. This method operates in a similar way, first
tracking the cost in manufacturing, then evaluating it and allocating it to another item, and if the
risk is lower, however this system offers guidance to the highest price control strategy. This
system is used by Innocent drinks in cost control since this system allows a thorough cost
comparison after development.
P2 Different methods uses in management accounting
Accounting reports from the management are beneficial in preparation, decision taking
and measuring progress. Based on these documents several major decisions are made. These
documents are continually compiled throughout an accounting cycle. There have been some
specific records that are as follows:
Performance report: It offers a snapshot of the company's core results and also an
overview of every other individual employee results at the end of a specified time span.
Evaluating each staff member's output is very important to make sure potential association's
development and success. The study is useful in the early identification of defects if there would
be any time remaining with the client in the operation of the organization for appropriate action.
Innocent Drink prepares performance reports for the entire company and also for growing
individual in a quick and timely manner changed organizational learning and effectiveness
(Smith, 2015).

Budget report: Budget report is a form of document drawn up for internal purposes.
Within this report on the framework of these benchmarks there have been some defined core
principles which contrast the current outcomes with predicted performance. This report mainly
seeks to evaluate results. Each study contains an estimate of a single project's revenue or
expenditures and is intended for a limited time period. It is necessary to note that this study is
composed of financial information only. Innocent drinks reports on the budget to calculate the
economic results and to assist in the function as per the document.
Accounts receivable agin report: The study is usually prepared for those companies
who make almost all of their credit card purchases. When a product requires a payment
ecosystem with an entity, then the agreement will be published in this report by the entity.
Generally this study assists in determining the business's financial accounts. Use this study at
Innocent drink. This will make the organization confirm how often cash significantly benefited.
This will also contribute to making business cash flow as it is linked to obtaining cash
(Brustbauer, 2016).
Cost managerial accounting report: Cost Management Accounting Report is a study
that compares gross manufacturing costs to income received after net sales. The study covers all
forms of manufacturing costs such as price of goods, labor costs, cost of energy, price of labeling
and branding, etc. It also allows sum of all costs and measures sales volume number with price
since pricing all goods. It demonstrates not just whether income is gained. When sales quantity
seems more than price then it should be benefit and if cost is lower than sales quantity then it
will be client loss. This study is used by Innocent drinks to assess income and expenses.
M1 Benefits of management accounting system and their application
Innocent drink's supervisor implements various frameworks such that maximum
outcomes can be obtained for the company that promotes potential market development and
expansion. Every management accounting system has important benefits, which are described
below:
System Benefits
Cost accounting system  It helps executives to analyze and monitor the total cost
associated manufacturing products within business.

 It also helps organizations in assessing accurate selling
quantities for goods.
Inventory management system  Even with support inventory management team are able
to strengthen productivity and profitability of company
by retaining inventory.
 This program help to clusters amount of clear details of
stock because then manufacturing process keeps
happening (Quattrone, 2016).
Job costing system  With the help of this program administrators assess the
success of individual research performed inside an
entity.
 It provides comprehensive proof of cost including such
wages and expenditures that are included in particular
job in Innocent drinks.
Price optimisation system  This method allows an organization to set appropriate
cost of goods such that business can achieve benefit in
potential
 The pricing system help to business to broaden its target
market by offering right quality at reasonable cost.
D1 Evaluation of various system and reports integrated with organisation process
It has been analyzed according to the above mentioned reports and system and their
advantages which accounting report and system are quite important with each market
organization to develop their company and create public reputation. Because those report and
program benefit to documents and broaden company and increase income within a particular
year. All critical program and reports provides function content to control expense, overall value
owned by lenders and real or existing economic condition and position of business. Supervisor of
Innocent drinks uses cash budget in there managerial cycle as it is useful in estimating entire

amount, account receivable reports allow the management to reinforce the credit strategy and
gathering information (Granlund and Lukka, 2017).
Task 2
P3 Cost calculation using appropriate techniques of analyses to prepare income
Absorption costing: In this approach all fixed costs are known as commodity costs in
relation to variable costs. This excellent illustration and equal cost of each commodity and hence
more obviously demonstrates the absorption of all costs such as level of manufacture, cost of raw
materials, etc. Financial statements of Innocent Drink business can be seen here for deeper
understanding of this process through using absorption costing tool.
Marginal costing: According to this methodology the whole cost improves in
manufacturing of additional unit cost of production. Through the appropriate assessing of
production revenue is to decide the greatest decision for a business organization that help to
accomplish the full benefit. Marginal costing is a monetary system by which extendable payment
are convicted to cost items and the total fixed elements to the invention describes is engraved off
during filled against both the feedback for such a time frame (Otley, 2016).

Task 3
P4 Advantages and disadvantages of different planning tools
Budget: This is well-defined calculation of expenditures and income for a comprehensive
period of time span. A financial plan is generated by an establishment's managers and
administrators by using previously gathered figures and current business drifts. This is an
articulated report that encourages for executing managerial occurrences in a suitable effort to
accomplish the planned goal.
Budgetary control: Budgetary control is alluded as the procedure via which institutions
organize spending plan for long term and start comparing that spending plan from current ability
in attempt to discover out the differences, since no occur. Through contrasting the expenses and
revenues with real ones, the leadership of an organization help to find out differences and
therefore suggest proactive strictly increasing with little pause (Hall, 2016).
Planning tools for budgetary control: Each company uses many planning resources to
manage its activity and functioning. The main purpose of using various planning tool for
budgetary controls is to lower the number of resources consumption and achieve cost potency.
Innocent drinks also makes use of make and receive preparation devices, some of which are
discussed as below their advantages and inconveniences:
Master budget: A master budget integrates all of the lower budgets inside the company
and transforms everything into one annual budget, so they can get a detailed summary of your
company's expenditures. The master budget incorporates the HR, advertising, and all other
departmental budgets to generate an aggregate cohesive budget. Typically, firms generate a
master budget annually. The one year budget preparation document covers all other schedules; it
corresponds with the financial period and could be divided into divisions that further, into
periods
Advantage:
 The master budget is deemed among the most essential planning methods for an
organisation. When preparing, top-level management addresses the overall performance

and the assets and liabilities performance of a company. Of this, the financial plan has
been used.
 Master budget tests the efficiency of the company as a whole. It assists in different
departments monitoring and sets up individual departments responsibility. It improves the
effectiveness.
Disadvantage:
 The division series staff is pushed for the accomplishment of goals despite it having
logistical problems in obtaining the very same.
 The master budget is not simple to alter. To add, adjust or delete minor adjustment needs
a number of measures in the whole budget (Kerr, Rouse and de Villiers, 2015).
Zero based budget: These types of budgets primarily allows an organization to explain
all expenditures and authorized it with each particular model to business. The principles
essentially start from either a Zero base such that each market feature of Innocent drinks can be
analyzed for its expenses and requires. Effectively, the administration must start from the
beginning and examine at every project as well as every occurrence to decide if it is worth
investing the corporation's money. The company also will establish out spending plan targets.
Advantage:
• It tends to boost the extreme weather of workers at each and every stage since great deal of
work is needed from each stage to fulfill expenditures.
• With all the help of ZBB corporation is capable of bringing efficiency of the business climate.
Disadvantage:
• The key downside is to emphasize short term gains to the detriment of long term objectives.
• It also gives demoralized to employee as budgetary control requires longer energy.
Capital budget: It is described as the method which is used by corporation in order to
decide that potential acquisitions of current cost this should approve and which can only be

refused. For establishing steal funds of any possible fixed asset investment, capital budgeting is
employed, thus provide reasonable justification of making big decisions. This assists managers
of Innocent drink in assessing future significant investments or ventures. Several of the
advantages and disadvantages for organization of allowing use of fundamental analysis are listed
elsewhere here:
Advantage:
• Capital budgeting allows Innocent drink to calculate which choice of expenditure will produce
highest return (Kolk and Perego, 2015).
• It allows management in making informed choices on expenditure by evaluating all the
possible alternatives.
Disadvantage:
• The choices made in fundamental analysis are unpredictable and uncontrollable which are for
long-term.
• A bad decision containing a specific capital budgeting can influence longer - term sturdiness of
institution.
M3 Uses of different planning tools and their application
Financial regulation is typically exercised using the planning methods. These methods are
being used by effective budget planning to set expectations, set priorities, manage spending,
delegate roles, communicate objectives and track efficiency. Scheduling instruments along with
the capital budget, zero base budget and master budget are used to assess and make predictions
situations by budget forecasting.
Task 4
P5 How organizations are using accounting system to respond financial problems
Financial Problem: This form of issue relates primarily to the financial meltdown, which
leaves a company unable to pay its obligations on time and thus reduces its buying power.
Limited resources cause challenges in buying raw product as well as in recruiting new workers.

Essentially, this will delay or interrupt the production cycle that will minimize revenue and
thereby reduce shareholders wealth (Liff and Wahlstrom, 2018).
Reason of financial problem: Key causes of financial difficulties are lack of appropriate
budgeting and control of revenue, sudden decreases in earnings and other capital, inadequate
leadership and managers' misestimating. All those other variables contribute to economic
difficulties that make it more difficult to efficiently and effectively manage or create a business.
Innocent drink's primary financial challenges are as described in the following:
Poor fund management: Money is known as the foundation from every organization. Until
significant income no company will thrive or intend for potential growth. Innocent drink faces a
crisis because the administrators are incapable of adequately handling resources that are
accessible with company.
Uncertain expenses: Different costs arise in the competitive setting which are unpredictable in
nature or are not already expected. Innocent drink is passing through a really crisis, too. In
unknown issues such as system maintenance and upgrades of new computer, they really had to
make enormous transactions which reduce income resources on organization.
Decreasing profit margin: The chosen business is also known to be suffering a financial burden
due to the lower productivity of its workforce. It is believed that the supervisors will not offer
workers bonuses or other incentives that reduce their performance to function with dedication
that influences the competitiveness of the company leading to low profitability.
Poor accounting system: This question occurs due to inadequate bookkeeping or reasonable fee
neglect. In Innocent drinks, studying for exams or delaying routine change documentation
contributes to economic issues occurring as appropriate records are not accessible (Malmi,
2016).
Late customer payment: Innocent drink is a wide company, providing big credits to
immeasurable customers to draw more customers. Different times these customers fail to pay on
time which influences the amount of money in circulation for operating processes.

There are a variety of process improvement techniques and methods that are responsible
for the organization's management accounting framework that is used to fix or resolve money
difficulties. Many of those management accounting systems approaches used to fix financial
concerns are discussed elsewhere here:
Key performance indicator (KPI): This is a measurable measure used only to represent
institution's capacity to achieve its goals and policies. This also offers relationships between
employee purpose and personal desires, and an acceptable combination. Chosen entity may use
monetary extension to non - monetary metrics to better solve all the problems related to the
economy or even other company.
Balance scorecard: Any of the business management tools with the framework will assist an
organization’s financial managers in defining and making adjustments to other business
processes in order to produce beneficiary’s performance. Such a method can aid chosen
associations in successfully managing reporting systems to improve inner functions that are
essential to organizational performance.
Activity based costing: The approach that allows organizational goods to be allocated all the
associated expenses. Innocent drinks may use this approach to evaluate and allocate the correct
expenses to different types of domestic practices.
Benchmarking: This produces or identifies the best results any organization can achieve. This
will help Innocent drinks Systems managers equate internal strategies with those of competitors
so they can test their structures for defects or impediments. This would provide more
opportunities to improve and guarantee continued progress and performance before the goals
have been achieved (Meidell and Kaarbøe, 2017).
Financial governance: It describes all the ways an organization collects, handles, tracks, and
regulates knowledge in the sense of finance. Compliance with accounting laws of the time they
control funds or prepare accounting reports is important for the business considerations. Using
such a strategy will help to reduce incentives when handling the assets.
Comparison between organizations-

Basis Tesco Sainsbury's
Financial problem Tesco is facing the financial
problem of excessive
overheads which is creating an
impact on the organization as
its expenses have increased.
Sainsbury's is facing the
financial problem of
mismanagement of stock
which is creating an impact on
the organization as its stock
items are not being managed
properly.
Management accounting
system used
Tesco can make the use of
Cost accounting system which
will help in the assessment of
the different types of costs
effectively and efficiently.
Sainsbury's can use Inventory
management system so that the
assessment of the inventory
costs can be made in a proper
manner.
Application of the system Cost accounting system can be
applied by identifying the
areas where the overheads are
excessive so that by making
the use of this system the costs
can be reduced and the profits
can be maximized.
Inventory management system
can be applied by identifying
the areas where there is
excessive cost of inventory so
that the reduction in the cost of
inventory can be made.
From the above comparison, it can be concluded that both Tesco and Sainsbury's make
the use of management accounting systems to solve financial problems. Also by making the use
of cost accounting system the problem of poor fund management can be solved, uncertain
expenses problem can also be solved by using it, using inventory management system the
problem of decreasing profit margin can be solved, using cost accounting system will solve the
problem of poor accounting system and by making the use of cost accounting system the
problem of late customer payment can be solved. Thus it can be said that the use of management
accounting systems can be made so that the problems which are related with the organization can
be solved which will help a lot in the attainment of goals and objectives without facing problems
and issues.

M4 How management accounting can lead organisation to sustainable success
Accounting management promotes decision taking, recognizing financial reports, crisis
management, managing activities and finding weak points. Within management accounting,
different costing methods are associated which play vital positions in efficiently fixing disputes.
Company organizations have different objectives, priorities and utilize reporting as per their
individual desires. Innocent drink analysts may use the KPI analysis to solve out client-side
problems due to the payment errors. It will modify situations as consumer pressurization
techniques can be introduced, resulting with well-timed rewards and addressing financial
resource constraints that eventually contribute to the improvement results (Monden, 2019).
D3. Evaluation of the ways planning tools respond appropriately to solve financial problems as
to lead sustainable success.
Planning tools bring strategies into practice to make budget forecasts such that funds and
activities are handled (Nitzl, 2016). Management of Innocent drinks establishes plans to calculate
and control cost and exponential rise the ongoing evolution of employee and also of company
firm. Appropriate use of preparation method shows an essential part to grasp in risky situation
and financial challenging that that moves up in results in the generation. Business uses changed
reporting approaches to address these challenges.
CONCLUSION
This can be derived from the above-mentioned project inference, management accounting
strategies play a crucial role in preserving strong accounting arrangements. Accounting
management methods such as costing system and inventory control enable effective cost
estimation and help maintain appropriate stock quantities. Management accounting also ensures
that financial statements are accurately documented and addressed by various reports such as
budget reports and performance reports. Availability of marginal costing and absorption is also
measured. More insight may also be made on the advantages and disadvantages of the planning
approach.

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