Management Accounting: Concepts, Reports, and Techniques

This document provides an overview of management accounting, including its concept and essential requirements. It discusses different types of management accounting reports used for reporting purposes. The document also explores the calculation of absorption and marginal cost and various management accounting techniques for financial documents. Additionally, it examines the benefits and disadvantages of planning tools in budgetary control. The case study focuses on Innocent Drinks UK, a dairy-free smoothie company.

Management Accounting

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
TASK 1............................................................................................................................................1
P1 Concept of management accounting and its essential requirements......................................1
P2. Explain the different types of management accounting reports which are used for reporting
purpose.........................................................................................................................................3
M1 Benefits of MAS and its application.....................................................................................3
D1. Accounting systems and reporting........................................................................................4
TASK 2............................................................................................................................................5
P3. Calculation with help of absorption and marginal cost.........................................................5
M2. Various management accounting techniques for financial documents...............................8
D2. Financial reports for various business operations.................................................................8
TASK 3............................................................................................................................................8
P4. Benefits and disadvantages of various planning tools...........................................................8
M3. Use of various planning tools for forecast........................................................................10

TASK 4..........................................................................................................................................11
P5. Comparison of various organization are adapting management accounting systems.........11
M4. Management accounting systems leads to sustainable success by responding financial
problems....................................................................................................................................13
D3. Planning tools helps in solve financial problems...............................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting has several methods in the field of finance that are employ by
organisations. Further, this can be regarded as a process of accounting where professionals
analyze financial & non-financial data for management aspects reporting (Arnaboldi, Lapsley
and Steccolini, 2015). For corporate organizations this accounting has specific number of
functions and responsibilities. For the better understanding of this concept, Innocent Drinks UK
selected which offering dairy free range of smoothies. The report includes numerous forms of
MAS and organizational positions. In addition, different kinds of accounting reports used for
reporting purpose. Furthermore, financial statements are also generated in accordance with MAS'
commitment to the resolution of financial problems encountered by business entities.
MAIN BODY
TASK 1
P1 Concept of management accounting and its essential requirements
Management accounting:
It may be interpreted as a method of accounting process wherein qualitative knowledge is
routinely handled to be implemented in order to produce internal reports (Busco and Quattrone,
2015). Management accounting plays a vital role in several aspects where it helps in business
planning, decisions making process, for better control of operational process etc. There are
several accounting systems which are followed by the managers of Innocent Drink UK, these are
discussed below:
Different management accounting systems:
Cost accounting method: It is known as a framework which is best related to the
calculation process for potential spending by corporate organizations. The function of this
accounting system is not restricted until calculation, but also helps in identifying cost variance.
This accounting system is important in businesses to help control operational activities, such that
the sum of expenditures can be minimized. Underneath the Innocent Drinks UK, this
management accounting system is presented with the objective of minimise the cost of their daily
free products in comparison to the estimate.
Price optimization system: This accounting system is correlated with a method of
determining price of their product & service according to the product's demand and reliability. It
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is feasible as it gathers data regarding the demand of the consumers and the price is fixed. As for
all the selected company, on the support of this quality, their sales team uses valuable
information regarding their daily products such as Smoothies and classify their demand in
various market segments.
Investment management system: It is another type of system which is concerned with
the method of retaining power of all items that are purchased and shipped out by organisation for
a particular time. In Innocent Drinks UK, stock valuation is done in combination with various
techniques, including the LIFO, FIFO method and the (WACM) weighted average cost method.
These techniques play an essential role for businesses to monitor precise quantities of inventory
required at the moment. As in the case of the Innocent Drinks UK, their production team uses
crucial knowledge regarding storage raw material for production.
Job costing method: This can be interpreted as some kind of management accounting
system which is correctly related to the measurement cost process within each unit generated.
The aim of MAS is to help reduce total job costs (Cooper, 2017). Owing to small range of
products this method is not appropriate for small companies. It is effective for enterprises that
have a broader product range. In respect of the above-mentioned business, this accounting
scheme is extended to tackle the expense of every product of Smoothies made by the
manufacturing unit.
Essential requirements of MAS:
 Reliable: One of the main essential requirements of management accounting systems is that
collected information is reliable and which represent the final outcomes are accurate.
 Up-to-date: For the correct results, accountant should use updated data or they need to
update their financial statement on quarterly or yearly basis for effective decisions making
process.
 Accountable: Accounting experts and managers need to accountable for their actions,
berceuse of this accountability of financial information is essential for management
accounting system.
 Accurate: Collected information should be accurate which leads towards accurate results
and further managers made their decisions accordingly to achieve their business goals &
objectives. It will be only possible when data is accurate.
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P2. Explain the different types of management accounting reports which are used for reporting
purpose
Reports of management accounting can be interpreted in systematic manner as those
detailed reports that contain of data information and facts. This information is commonly used
against business enterprises or management team to take appropriate action. In the Innocent
Drinks UK, their accountants use the following reports for reporting purpose:
Cost accounting report: This analysis is being compiled using cost accounting framework
incorporation. The study provides reports on expenditures that result in the execution of critical
sales and operational tasks (Fleischman and Parker, 2017). All activities are classified as per the
expenditure’s amount intentioned in this report. Main goal of this study is to focus on specific
elements in terms that absorb higher cost volumes. With respect to the Innocent Drinks UK, this
report uses key details from their accounting department that allows them reduce overall expense
or further formulate strategic decisions accordingly.
Inventory management report: This could be interpreted as another type of report
containing information on estimated amounts of material contained in warehouses. This report
was also compiled with the support of the inventory management system. The main goal of this
research is to help in the production department to take proper measure to determine the number
of unites needs to be manufactured. Within the range of the selected organization, production
department produces Smoothies by absorbing critical details through such a report in a
economical manner.
Accounts receivable report: This is a report that correctly organizes details about the
amount of borrowers that are responsible by corporate companies for the date of sale. The task of
drafting this document is to help the department of finance in keep the plans & practices correct.
Finance team of Innocent Drinks UK, uses crucial details of business in this report, which helps
to allow plans to raise debt from specific debtors. It further helps the managers to make strict
credit policies to deal with defaulters list.
M1 Benefits of MAS and its application
MAS Benefits & Application
Cost accounting system By measuring correct amount of differences, it is consistent with
the dimension of managing total costs of specific activities (Gray
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III, 2015). They are using this accounting system respect of
Innocent Drinks UK to have control over the manufacturing
expenses to deal with specific operations whose expense is far
more than estimate.
Price optimisation system This is effective for undertake the issue of product price in line
with the latest industry cycle. The sales department fixed the price
of Smoothie as per consumer demand in context of Innocent
Drinks UK. In addition, organization also considers the actions of
their rival organizations.
Inventory management
system
Under this system, value of company’s retained stock is examined
in a better manner. The purpose of inventory management system
is to hold down the cost of inventory. With regards to Innocent
Drinks UK, their marketing team is incorporating this method in
their operations so as to reduce cost of production.
Job costing system It is effective for organizations to quantify cost of every product
manufactured. They use this accounting system in the sense of
Innocent Drinks UK to calculate the expense of each beer created
by assigning and calculating the cost of the work.
D1. Accounting systems and reporting
There is a broad variety of management accounting systems and reports which comply
with the processes and activities of the business (Gullberg, 2016). With regard to Innocent Dinks
UK, their separate divisions are related to individual department’s vital resources. In order to
maximize sales revenue, such as price optimization system is incorporated into the sales team
and formulate strategies accordingly. Management accounting reports are indeed related to
corporate operations, close to the accounting structures. For example, the inventory report is
related to the manufacturing department in selected organization such as Innocent Dinks UK, to
take corrective measures on production. It is linked to finance department as well as expense
analysis.
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TASK 2
P3. Calculation with help of absorption and marginal cost
Absorption Costing:
Income statement for month of April as per absorption costing:
Income statement for month of May as per absorption costing:
Marginal Costing:
Income statement for month of April as per marginal costing:
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Income statement for month of May as per marginal costing:
Working note:
Calculation of cost per unit under marginal costing:
Fixed manufacturing cost (18000/6) = 3
Variable cost per unit= 5
Total cost per unit (3+5) = 8 pounds per unit
Reconciliation statement:
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Calculation of BEP and MOS:
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M2. Various management accounting techniques for financial documents
Many income statements are compiled in the form of financial reports as per the absorption
and marginal expense processes. In relation to Innocent Drinks UK, their profit statements are
drawn up using absorption and marginal expense methods. All these methods have some
advantages and disadvantages. There are several other ways to prepare income reports, such as
regular costing process, activity-based costing process, etc., apart from these approaches. This
can be claimed in the context of traditional costing as it is linked to the estimate of revolutionary
costs as was used as forks for contrast. Although, expenses are distributed and calculated for the
various categories and it further helps in making strategic decisions to maximize the production
as well as profit margin.
D2. Financial reports for various business operations
According to the income statement of Innocent Drinks UK, the number of net income can be
viewed as varying in 2 months (Harrison and Lock, 2017). The income statements are formulated
by using cost analysis strategies such as absorption and marginal costing methods. The
estimated net loss of April months by using marginal value approach is £7000 and for the month
of May, it was profit of £17000. Apart from this, the measured net income of organization for
the month of April and May is £13,000 loss and £15,000 of profit by using absorption method.
Here, it is important to recognize this study that in all approaches the value of the financial
information is comparable but the volume of net income is distinct. That is because of the total
expense of operational activities under absorption and marginal costs are known.
TASK 3
P4. Benefits and disadvantages of various planning tools
Budgetary Control: It is a process that are used to determine that the real sales and
expenses of an entity conform strictly to its budget schedule. Budgetary control is a cost-control
concept that integrates budgeting process, team collaboration and reporting, matching overall
performance with expected performance, and acting on outcomes to maximize profitability. In
order control their budgetary system; managers adopt the several planning tools which help in
achieving their goals & objectives. In context of Innocent Drinks UK, there are various tools of
planning that could be employ for budgetary control and it has several advantages and
disadvantages which are as followed:
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Cash budgets: This type of budget is an an approximation of flow of cash for a specific
time period. (Hoque, 2018). This budget is being used to examine that there is enough amount of
cash in the organisation to function. It is really significant to have cash budget particularly for
businesses that operate on a small level. It helps a business to decide the line of credit it may lend
to its business clients without facing any issue of liquidity. A cash budget effectively prevents a
cash crunch during times where a business faces a significant amount of expenses. This planning
tool ahs some advantages and disadvantages which are as follow:
Advantages Disadvantages
It is a tool that involves regular attention
in detail, monitoring particular spending
patterns and careful management must ensure
that adequate funding is still responsible for
taking care of any need.
They have to consider ways to conserve cash,
meaning organization have to remove all the
waste within the budget. Through tracking
each penny (or equivalent) that goes in and out
of the working capital, companies find how
they can better monitor spending and discover
new forms of production.
Currently, several firms have avoided taking
cash for such operations. They could find it
difficult to purchase things without getting at
least one debit card at the disposal to access the
cash.
However, if organization wants to make the
order online, cash won't be an acceptable
choice. Many, but not yet, regional areas have
abolished the method of cash on delivery
(COD), which involves direct payment for
goods or services. It was almost useless to seek
to accept a cash transfer on an e-commerce
platform.
Master budget: This budget incorporates all the lower budgets within the company and
transforms them through an aggregate budget, helping them to have a detailed rundown
of finances of their company (Hoque And et.al., 2017). To generate an aggregate cohesive
budget, the budget contains the HR, marketing, and all departmental budgets. It has various
advantages and disadvantages which are required to evaluate by the managers of Innocent Drinks
UK and these are as follow:
Advantages Disadvantages
One of the advantages of master budget is to
provide an outline of the firm’s spending to the
One of the limitations of master budget is
that lack of information. The revenue
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corporate owner or client executives. Although
small budgets by each division just include the
costs and profits for each region of the corporation,
they will need to sum up all budgets of such units
to see the overall company's total revenues and
expenditures. The master budget indicates how
much more the company receives and invests as a
whole, which reveals that the corporation is in
positive or poor financial shape.
numbers written mostly on master budget
create an absolute value of all the costs and
profits of the agencies. For example, they
wouldn't even be able to tell expenditure
done by marketing department on a regular
basis because the total would be applied as
one number of all the other team
expenditure.
Operational budget: This is a form of budget based on making estimates of revenue and
expenditures for a stated amount of time (Kure, Nørreklit and Raffnsøe-Møller, 2017). Using this
method, it is better for administrators to determine the amount of material required to execute the
various activities. Within the context of Innocent Drinks UK, its accountants are preparing this
budget to assist their management teams. Their administrators take appropriate steps to handle
various forms of activities with the aid of this program. It has following advantages and
disadvantages which are as follow:
Advantages Disadvantages
This budget is useful to businesses in handling
their operating expenditures. When
organization control current expenses, the
value of operating budgets is clear.
A focal point for this budget is fixed payroll
expenses, such as office space and workers
wages. These are not the kinds of costs which
can be deducted unless organization can reduce
their employees or working hours.
This strategy still has drawbacks, in addition to
the gain. Such as this planning tool takes too
much time to prepare final budget and it is also
costly to prepare that small organisations
unable to bear.
When drawing up an operational budget, the
real operation costs within each division may
not equal the estimates that they produce.
Balanced Scorecard: It is a method of management because it is the good way of
looking at the company that reflects on the main strategic objectives. It also lets them pick the
best things to calculate so that they can achieve those goals. Traditionally, businesses have
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measured their wellbeing by the money they've made. This planning tool also has some
advantages and disadvantages which are as follow:
Advantages Disadvantages
Overall, a balanced scorecard allows
businesses to concentrate on success
assessment in even more than one region. With
a balanced scorecard planning tool, various
leaders and teams still can tailor their success
metrics, but all of this fits under a fixed
framework which can be recognized
throughout the organisation. It allows everyone
in the business a standard practice to assess
success.
When there are so many benefits of
introducing a balanced scorecard method in the
organization, such as a balanced scorecard is
intended to provide a structure on which to
function, it will also have to be tailored to any
company that uses this system. It requires time
and effort to recognise the framework itself
from all balanced scorecards.
Inventory control: Inventory management is the method of handling the product as it
appears at a factory, store and perhaps other storage site. It includes the planning of sales and
inventory-outs, the optimising of inventories for optimum profit and the avoidance of the
accumulation of dead stock. There are some advantages and disadvantages of inventory control
which are as follow:
Advantages Disadvantages
Many businesses can benefit from the
low wholesale costs by buying greater
quantities of products. This makes perfect
sense for the daily products that the company
knows would sell, also because the business is
assured that the commodity will be easily
transported and not left behind. Based on the
price ranges of the commodity, the lower costs
may be important.
Over-stocking of goods is at risk of commodity
being redundant. This is particularly true in
technology fields such as phones and television
sets, but no industry is excluded. Also the
current kid's game craziness may encourage
them to put a big order. If the sensation
disperses rapidly and the kids are not looking
for just a game, individuals will be left with a
lot of stock users can't move around.
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Variance analysis: It is a study of variations in real activity from predicted or anticipated
actions in financial planning or accounting. This is mainly concern with how disparity between
real and expected behaviours shows how business output is affected. This planning tool has some
advantages and disadvantages which are as follow:
Advantages Disadvantages
It is a valuable method for evaluating the
managerial performance, but caution must be
exercised while using it, so as not to make
expensive errors and conclusions. The reality
that variance analysis is performed on a
product / individual departments basis
which makes it very simple for managers,
departments or units to be kept responsible for
any material variation from the expected
operation. Again, great caution should be taken
while using an analysis of variance for
transparency.
The variance analysis has a significant
downside in that, it takes long time to analyse
the impact of the variance and thus the
immediate measures is delayed. The
monitoring tool leads in a substantial amount
of time and thus the introduction of risk
controls would be delayed indefinitely.
Another performance indicator is the tolerance
that defines the output variance that can be
related to the interfacial properties. Sensitivity
analysis decides the real outcome of the impact
if it varies from the expected activities.
M3. Use of various planning tools for forecast
There have been various types of planning tools that organisation use in order to take better
and effective financial decisions (Monden, 2019). The entire above discussed budget are suitable
for managing their fiscal sources efficiently, and also for producing reliable estimates of various
projects and events. The accounting professionals are planning critical set of forecasts such as
cash forecast, production budget and distribution budget in the sense of Innocent Drinks UK. All
these forecasts play a significant role in the field of reliable expenditure and revenue calculation.
This is feasible as the above-mentioned firm’s managers evaluate previous years budgeted
information to anticipate future operations.
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TASK 4
P5. Comparison of various organization are adapting management accounting systems
Financial issues: Every entity has experienced financial crises that impair its operating
efficiency and margin of profit. That would be due to financial issues now affecting the business
and it is quite important to fix them as soon as possible. There are several specific financial
problems that impact the productivity or output of the business and some of them discussed
below:
 Unequal cash balance: Poor business financial management results in inconsistent cash
balance that maximizes expenditures or minimizes cash inflow. Managers have to adopt
proactive techniques that either minimize costs or increase the profit.
 Waste of raw material: Business faces the circumstances in which stock would be
wasted for many reasons; this is the financial issue which mostly organizations face.
Managers should adopt better inventory management practices to minimize the level of
wastage or fix this financial issue.
Management accounting techniques:
 Key Performance Indicators (KPIs): These metrics reflect improvement toward an
desired goal (Roslender and Monk, 2017). KPIs offer a platform for institutional and
strategic progress, provide an impartial framework for decision-making and primarily
focus about what issues are urgently relevant. It lets the management recognize certain
financial or non-financial considerations and then make their more successful appropriate
decisions.
 Balance scorecard: It is a method of strategy development and appraisal used by
companies to demonstrate what they have been seeking to accomplish. Equilibrate a
routine work for the approach which everyone uses. Having a premium on projects,
products, and services. It lets the company to track its success on a regular basis and
makes decisions to address the financial problems currently faced by the organization.
 Financial governance: This is the norm of business and the way financial information is
handled and obtained that lets management handle everything. By doing this,
management would be able to track financial reports and report the accounts that allowed
inventory to be drawn.
Comparison of organizations:
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Basis Unilever P&G
Problem Company now faces
difficulty where average capital
inflow is smaller than cash outflow,
which allows a liquidity balance
unequal.
In P&G, management team facing
issues that high wastage of raw
material which raises the cost of
overall manufacturing expenses.
Management
Accounting Systems
While using cost management
method, Unilever will control the
expense of each commodity and
aim to minimize net cost or
increase profit margin. It lets
management decide things reducing
running costs or increasing cash
inflow (Ruch and Taylor, 2015).
To address the problems around
merchandise wastage, P&G has to
incorporate inventory control
program to overcome this
problem or keep records of stock
amount and purchase additional
quantities as appropriate. It helps
to avoid waste generation as well
as conditions of shortage.
Techniques Unilever uses KPI methods to
address these problems that help to
identify financial or non-financial
metrics and then made strategies
accordingly.
Balance scorecard often used
overcome above
discussed challenge to make
aware of this situations and use of
this techniques can develop more
strategies.
Large size organizations adopt the different accounting systems to resolve their financial
problems, such as inventory control, cost control, price allocation etc. Such accounting systems
help to address issues like inventory wastage, higher cash outflow etc. Moreover, using various
management accounting strategies that help companies optimize their profitability by
recognizing variables that are obstacles in optimizing overall output efficiency.
Above discussed management accounting systems helps in improving operational
performance of Innocent Drinks UK. With the help of it, managers able to done effective
planning, control the entire process through regular monitoring and review of each activity.
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Effective implementation of different management accounting systems also helps in improving
overall efficiency as well as effectiveness of work.
M4. Management accounting systems leads to sustainable success by responding financial
problems
Using various management accounting systems are the only way to
resolve financial problems in minimum time period. In context of Innocent Drinks UK, their
problem has indeed been successfully solved via the price optimization, cost and inventory
management system. As they faces a uneven cash balance and waste of raw material during
manufacturing of dairy products. They revamped their strategies and financial dilemma of this
business is solved. These accounting systems lead the business operations towards sustainable
success or achieve their organizational goals & objectives.
D3. Planning tools helps in solve financial problems
Above discussed budgets helps the Innocent Drinks UK to resolve their financial problems
(Smith, 2015). By using master budget, managers able to identify expenses of each division and
resolve the issues regarding uneven cash flow. That will further leads towards sustainable
success or support to achieve business goals & objectives. There are other planning tools as well
that helps managers to response their actions accordingly which also leads towards sustainable
success.
CONCLUSION
From the overall analysis it has been summarised that management accountings plays
crucial role in the organization and also allow managers to manage operational and other
business activities. Cost accounting system helps in control each activity cost, inventory
management systems helps in tracking stock level and price of products will be set by using price
optimization system. In addition, all the collected information from such accounting systems
recorded in the different accounting reports for managers to make future strategies on the basis
of it. Along with is, there various planning tools which can be used to resolve financial problems
and helps in archiving sustainable success.
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