Management Accounting and Techniques for Financial Reporting

This document provides an overview of management accounting and the different types of management accounting systems. It discusses the methods used for management accounting reporting and the benefits of management accounting systems. The document also explores the income statement under marginal costing and the range of management accounting techniques used for financial reporting. Additionally, it examines the advantages and disadvantages of different planning tools used for budgetary control.

Management accounting

Table of Contents
INTRODUCTION ..........................................................................................................................4
MAIN BODY ..................................................................................................................................4
PART 1 ...........................................................................................................................................4
P1 Management accounting and types of management accounting systems..............................4
P2 Methods used for management accounting reporting............................................................5
M1 Benefits of management accounting systems and their application within an
organizational context.................................................................................................................6
D1 Management accounting systems and management accounting reporting is integrated.......6
PART 2............................................................................................................................................7
P3 Income statement under marginal costing:............................................................................7
M2 Range of management accounting techniques and produce appropriate financial reporting
documents...................................................................................................................................9
D2 Financial reports that accurately apply and interpret data for a range of business activities
...................................................................................................................................................10
TASK 3 .........................................................................................................................................10
P4 Advantages and disadvantages of different types of planning tools used for budgetary
control.......................................................................................................................................10
M4 Use of different planning tools and their application for preparing budgets and forecasts11
TASK 4..........................................................................................................................................11
P5 Management accounting systems to respond to financial problems....................................11
M4 Responding to financial problems, management accounting can lead organizations to
sustainable success....................................................................................................................12
D3 Planning tools for accounting respond appropriately to solving financial problems..........12
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is defined as the process of handling and managing transactions
associated with finance. There are different type of transactions involved in business and it is
necessary to have a proper analysis of managing it in order to record and track all the financial as
well as non financial data and information. Internal reports are made for managing the financial
reports and data effectively (Napitupulu, 2020). There are non monetary as well as monetary
resources available within organisations which is used for managing the organisational activities.
Following report is based upon company naming Innocent Drinks limited. This is a company
which is client of AJ and sons. It is involved in offering consultancy services and accounting
management. Basically, there are three parts in this report. Part 1 includes information of
management accounting reports and systems. Part 2 includes financial techniques and practical
implementation for the data of company. Last part discusses about planning tools involved in
management accounting systems.
MAIN BODY
PART 1
P1 Management accounting and types of management accounting systems
There are different type of managerial accounting systems involved within the business
processes. The concept of management accounting is defined as managing data and information
associated with transactions of previous year in order to develop good internal reporting system.
Managers have to take effective decisions in order to manage the functioning of company. In
context of Innocent drinks, it is said that accounting operations can be adopted by the manger of
this company in order to improve the way of working. It is important for the company to manage
the financial decisions effectively so that company can earn profits and make huge amount of
money. For running successful business, it is important to manage the financial aspect of
working effectively (Horvat and Mojzer, 2019). There is need to develop strategies which will
help in making effective financial decisions. It develops strong strategies which leads to
managing of all operations and activities in a way that company makes huge profits.
Purpose of Management accounting- The concept of management accounting is involved in
developing if effective decisions which leads to manage data and information effectively. There

are several internal stakeholders associated with the companies. All the financial data and ratio
affects them.
Distinction between MA and financial accounting:
Base for
compariso
n
MA Financial accounting
Users This accounting is mainly designed
for internal stakeholders.
It is used by both internal and external
stakeholders.
Regulatio
ns
There are no rules and regulations
under this accounting to prepare
internal reports (Tekathen, 2019).
This accounting contains several
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.
P2 Methods used for management accounting reporting
Management accounting reporting refers to the effective process that used for preparing
different kind of formal written documents that includes information about the different segment
of business. Thus, it is crucial for organisation to analysis all the aspects before implementing
reports. With the help of this, management of business organisation can easily take appropriate
decision and at the same time also develop positive performance.
Inventory management report: This type of document is also play a significant role in
business as it used for managing inventory. It includes the information about quality of material
that used in company, needed material and so on (Tan, 2019). This can be beneficial in taking
appropriate judgement in regards to stock. As it help in increasing the profitability level of the
company at market place.
Accounts receivable report: It is refers to the effective type of document that is used by
finance department of company with the aim of managing their performance level. Along with
this, it includes various type of information about debtors, payable amount along with interest,
debtors and many more. In this manager of the company can prevent to credit transactions that

are not paying debts amount. This can be beneficial in managing expenses and unnecessary cost
of company.
Performance report: This type of accounting report is consider as a written document that
includes all the necessary information about the organisation and its individual performance as
per continuous basis. With the help of this report, company can analysis their actual
performance. Mainly, it includes knowledge about cash availability, losses, knowledge of
profitability and many more. This can be beneficial for Innocent drink to improve their positive
performance.
M1 Benefits of management accounting systems and their application within an organizational
context
Management accounting system play a significant role in business organisation as it
provide all the financial information about the company that contributes in maximising the
profitability level. In this regards, there are some appropriate accounting systems along with its
benefits are as follows:
Cost accounting system: This type of accounting system is beneficial for company
because it help in evaluating the areas in which expenses are higher. With the help of this,
organisation can easily acquire information about the estimated expenses (Hutaibat and
Alhatabat, 2019).
Inventory management system: It is also consider as an important and effective system
that used for managing stock. It is used by company to optimum utilization of available stock
that contributes in increasing the profitability level. In context to this, innocent drinks limited get
benefits of this accounting system information related with daily consumption of raw material
and at the same time also determine the sold products.
Job costing system: It is an effective system that help in evaluating as well as assessing
the cost of entire activities includes in completing the financial aspects. By using this, manager
of company can easily get necessary information about the job cost that may assist in improving
the profitability level of business organization.
D1 Management accounting systems and management accounting reporting is integrated
There are different forms of MA and MAS reports which are aligned with process of firm
that mainly leads to success of business. There has been discussed about the accounting systems
like cost accounting system that mainly related to the finance department. MA reports are

inventory report that is related to the production department. This kind of integration contribute
for guiding managers to take positive decision making in order to make the business sustainable.
PART 2
P3 Income statement under marginal costing:
There are different accounting techniques used to prepare the financial reports mention
below:
Marginal costing- This is principle whereby the variable costs are charged to the cost
units and also fixed cost attributable to necessary period is to be written off against contribution
for that time period. This technique is related with preparing the income statement through
including the variable expenses as main cost and the fixed expenses as the periodical cost.
Absorption costing- This technique is related with developing the income statement
through including fixed expenses and variable expenses as main cost. This method of calculating
product cost or company through taking into an account the indirect expenses and direct costs.
Both cost are beneficial for company in managing expense that may contributes in
maximising the profitability level (Tekathen, 2019). Thus, it is crucial for management of
business organisation to effectively analysis the financial reports for calculating the overall cost.
Within the assistance of this, Innocent drinks can improving their performance level and attain
competitive growth are market place.
Particulars April £ May £
Sales revenue 56000 70000
Less: Marginal cost of sales 20000 25000
Variable manufacturing cost 30000 30000
Opening stock 0 10000
Closing stock 10000 15000
Contribution 36000 45000
Less: Fixed cost
Fixed Non-Manufacturing Cost 5000 5000
Fixed Manufacturing Overhead 18000 18000
Net profit 13000 22000

Working 1:
Marginal cost per unit April £ May £
Variable production cost 30000 30000
Number of units produced 6000 6000
Per unit cost 5 5
Income statement under absorption costing:
Particulars April £ May £
Sales 56000 70000
Less: Cost of goods sold 32000 40000
Variable Manufacturing cost per unit 30000 30000
Fixed manufacturing cost 18000 18000
Opening stock 0 16000
Closing stock 16000 24000
Gross profit 24000 30000
Less: Fixed non-manufacturing cost 5000 5000
Net profit 19000 25000
Working 2:
Absorption cost per unit April £ May £
Variable Manufacturing cost per unit 30000 30000
Fixed manufacturing cost 18000 18000
Total cost of goods sold 48000 48000
Number of units produced 6000 6000
Per unit cost 8 8
Reconciliation statement:
Particulars April £ May £
Profit/loss under marginal costing 13000 22000
Add/less: Closing stock 6000 3000

Profit/loss 19000 25000
Profit/loss under absorption costing 19000 25000
Calculation of BEP:
BEP (In units)= fixed cost/contribution per unit 12727.27
BEP (In revenues)= Fixed cost/PV ratio 763636.36
Calculation of MOS:
Margin of safety (In units)= Budgeted sales units-BEP in units 7272.73
Margin of safety (In revenues)= Budgeted sales revenue-BEP in revenue 436363.64
Working 3:
Particulars £
Variable Materials 20
Variable Labour 14
Other Variable Costs 12
Variable Administration and Selling 3
Variable cost per unit
£ 49 per
pack
Working 4:
Particulars £
Fixed Production Cost 80000
Fixed Administration and Selling 60000
Total fixed cost £140000
Working 5:
Particulars £

Selling price 60
Variable cost per unit 49
Contribution per unit (S-V) 11
Working 6:
Particulars £
Selling price 60
Contribution per unit 11
PV ratio (C/S*100) 18.33%
M2 Range of management accounting techniques and produce appropriate financial reporting
documents
In business organization various accounting techniques that used by company to develop
or prepare a financial report that help in maintaining the whole financial information of business.
As it provide proper framework that contributes in attaining desirable outcomes. In this context,
there are two type of techniques such as absorption and marginal costing that used to prepare an
appropriate income statement. With the help of this techniques, organization can maximize their
profitability level and at the same time also evaluate their actual performance. One of the main
advantage preparing financial report is to determine the losses and income level of the company.
D2 Financial reports that accurately apply and interpret data for a range of business activities
In above part, there are two different income statements produced interpreted in detailed
manner. From preparation of income statement under the marginal costing, it can examined that
there is the new profit for April (£13000) and May (£22000) months. There is a differentiation in
the net profit due to high sales value in May month. In context to Absorption costing, new profit
is £19000 and £25000 for same period of time.
TASK 3
P4 Advantages and disadvantages of different types of planning tools used for budgetary control
Budgetary control- This is a technique used for managing budgeting and accounting
problems that are involved in the business process. There is need to manage the work of the

company and have financial budget and data that will help in making effective decisions. There
are several techniques used for managing the budget and money related factors which are
affecting the profits and finance of the company. There is need to evaluate and manage the
functioning as it helps in developing effective budget which will lead the managers to take good
financial decisions. It is important for innocent drinks to manage the finacial planning effectively
so that goals can be attained effectively (Zandi, Khalid, N. and Islam, 2019). This is important
for innocent drinks to manage the planning if financial budget so that organizational goals are
achieved. 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:
Capital budgeting- This is defined as the budgeting process in which there is need of
measuring the importance of effective financial planning and budgeting (Bhimani, 2020). The
projects are accomplished on the basis of different methods including net present value, payback
period etc. The budgeting process in involved in developing effective budget and financial plan
that can be used by the company. In context of innocent drinks, it is seen that financial managers
are managing the budgets properly.
 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.
Cash budget- It is a type of budget that includes costing data and information. There are
card inward and card outward involved within accounting period. This is essential for the leaders
and managers that cash is managed properly. Budget management is important as it leads to
development of cash activities.
 Advantages- It provides help to innocent drinks in order to allocate cash in accordance of
budgeted activities.

 Disadvantages- The drawback of cash budget is that it does not provide accurate
projection of cash receipts and payments.
M4 Use of different planning tools and their application for preparing budgets and forecasts
The planning tools related to budgetary control can be useful for the managers to develop
the budget effectively. This can be possible because the different planning tools for an instance
capital budget and cash budget which provide the detailed information regarding estimation of
the financial values (Johanson and Madsen, 2019). In regards to this, data can be used through
the managers to make projections of the other budget type. In this report, there have been Capital
budgeting, Cash budget and Static budget used which contribute to the managers and accountants
in order rto forecast the financial values.
TASK 4
P5 Management accounting systems to respond to financial problems
The comparison is given below:
Base for
comparison
Innocent drinks limited George’s drinks limited
Financial
issue
Innocent drinks limited faced issue
related to the minimum sales in its last
accounting cycle. This resulted in
reduced growth and development in its
all perspectives.
This company faced problem regarding
high operating cost of performing
various business operations. As
consequences, sales revenue began to
minimize with the net margin.
Technique
to
recognize
issue
The managers of Innocent drinks
limited used the benchmarking
approach to make the comparison
related to financial performance with
the average sales revenue of industrial
companies’ average sales revenue.
Management of this firm used the Key
performance indicator approach in
order to determine the financial issue.
This was done by focusing on financial
aspects related to revenues, expenses
etc.
MAS Innocent drinks limited mainly used
the price optimization system with an
aim of solving the financial problems.
In relation to the accounting system,
they mainly set the cost of goods at
level on which the the consumers are
mainly satisfied. It has been done
through examining feedback of
customers. As outcomes, consumers
began to show interests in goods that
resulted in enhance the sales revenue.
Manager of company used the cost
accounting system. On the basis of
accounting system, they are mainly
compare the actual expenses with the
estimated values. They are mainly
confronted on activities which
consuming the unwanted cost as well
as resolved the financial issues.

M4 Responding to financial problems, management accounting can lead organizations to
sustainable success
There are various kinds of accounting system have proper integration with process of
company as well as operations. It helps to the organizations in aspect to solve the financial
problems in an effective manner. In the above sections, there are two different financial issues
solved with the help of using price optimization as well as the cost accounting system.
D3 Planning tools for accounting respond appropriately to solving financial problems
Main aim of the budgetary control planning tool is to providing the detailed information
to managers concerned with estimation of expenses and income. This can mainly used through
the administrative to solve all the financial issues (Amir, Rehman and Khan, 2020). Company
rely the various planning tools like capital budgeting, cash budget etc. in order to deal with the
financial obstacles.
CONCLUSION
As per above mentioned report it has been evaluated that management accounting play a
significant role in business organization. The main reason behind this is that it support in
implementing as well as running business activities in an effective manner. In addition to this,
management accounting system and MA reports are also consider as an important aspect that
used by company with the aim of attaining competitive success at market place. It may assist in
determining the actual expenses and income of the company. Thus, it is significant for
organization to effectively manage and integrate all the report and system of management
accounting so that profit can be easily maximized. In addition to this, financial techniques also
refers to the important aspect that contributes in producing the financial reports to effectively
maintain the positive performance of company.

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