Management Accounting

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 & reporting of organisation process 7
TASK 2............................................................................................................................................8
P3: Cost analysis techniques & use of absorption and marginal costing...............................8
M2:Application of management accounting techniques .....................................................12
D2: Application & interpretation of financial reports:.........................................................13
TASK 3..........................................................................................................................................13
P4: Benefits and disadvantage of various tools of planning.................................................13
M3: Analysis of planning tools............................................................................................14
TASK 4..........................................................................................................................................15
P5: Compare how organisations are willing to deal with the system of management
accounting to deal with different financial problems and issues..........................................15
M4 : Analysing the financial problems and management accounting.................................17
D3: Evaluation of use of planning tools for dealing with accounting issues.......................17
CONCLUSION..............................................................................................................................18
REFERENCE.................................................................................................................................19

INTRODUCTION
Management accounts is regarded as a function which includes collection of data,
analysing the data collected and then reporting of the collected information. It helps in managing
the financial resources of a organisation (Maas, Schaltegger and Crutzen, 2016). Present report
deals with with Innocent drinks that is offering products like smoothies, juices that are offered in
supermarkets, coffee shops, cafes and such type of outlets. They are able to sale approximately 2
million smoothies each week. There is discussion of management accounting system & different
types of methods that are used for accounting purposes. There is a critical analysis of budgetary
control and further comparison is made on the way organisation are willing to adapt system 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 accountants (IMA) Management accounting is
described as a profession that consist of partnering with decision planning, management decision
making, performance management system and offering expertise of financial reporting. All this
is used to assist in controlling and further formulation & implementation of strategy of a
organization.
According to chartered institute of management Accountants, London cost is defined as
the amount of expenditure both notional and actual that is attributable or incurred on a particular
activity or a thing.
The process of ascertainment of cost is regarded as costing that consist of rules and
principles for governing the procedure of detection of cost of services and products. There are
different types of cost such as fixed cost, prime cost or sunk cost (Hopper and Bui, 2016). Cost
accounting or management accounting is based on three major objectives for every organization
and in case of Innocent drinks being a medium sized organization it has three main objectives:
 Cost controlling
 Cost ascertainment
 Cost presentation

Key functions of management accounting are mentioned below:
 Providing information: It is related to collection of data for performing management
functions like planning, organizing, directing and controlling.
 Analyzing the collected data: In this step the data is analyzed so that further reports can
be prepared and assist managers in decision making.
 Means of communication: Management accounting helps in communicating the
collected information and then analyzing it so that there can be Establishment of
coordination & integration among various functional departments.
 Facilitation of control: Business accounts can be managed in such a way that
unnecessary expenses can be controlled and managed.
Management accounting systems are mentioned below: Cost accounting: It is used for estimation of product cost so that overall profits can be
calculated. Inventory is manage and cost are controlled. It helps in reduction of cost on
unnecessary expenses (Quattrone, 2016). Cost accounting is used to prepare budgets,
determination of actual cost, standard cost that can further help in identification of
operations cost, activities, process and products cost. Tax accounting: This is a system that is focusing on management of taxes by following
of all the regulations and rules that are part of internal revenue code to prepare tax
returns. This system helps in calculation of exact tax amount.
 Financial accounting: The main objective is to maintain the financial records by
debiting and crediting according to transactions. These financial statement are audited on
annual basis and helps in determination of actual business position. Income statements
are to be prepared in such a way that correct profits & losses can be calculated.
P2 Explain different methods used for management accounting reporting.
Management accounting is a basic process of internal reporting that is adopted by
financial managers to assist them in decision making. Accounting is a term associated with
classifying, recording & allocation of expenses to determine the product cost. Further there is
presentation of suitable arranged data for the objectives of management guidance and laying
controlling measures. Some of types are mentioned below:
Account aging report:

This is a report which includes the details of all the credit transaction of a organization so
that managers are able to make a analysis of total receivables. It is also helpful in reduction of
bad debts and managing overall liquidity position.
Job costing report:
These are management tools for evaluation of projects and production performance
against a estimated standard. This is used by specific industries. The main purpose is to identify
beneficial results and discrepancies in form of financial values (Messner, 2016) These are
customized reports driven by respective standards of industry. It is a report that helps in timely
identification of all the expenses, cost and ensuring financial efficiency so that profitable projects
can are given more attention. It leads to prevention of wastage of available financial resources
and controlling of cost.
Inventory Management Reports:
Inventory control reports are used for showing the stock of inventory. It is used for
ensuring that valuable capital is invested. There are different element such as stock book that is
used in case of small business for tracking manually the inventory. Barcodes are also used for
tracking of stock and stock on hand is a inventory management software that is used for exactly
showing up the stock. This is a report that provides information related to inventory of business
so that there is a balance between customer services and inventory management.
Operating budget report:
It shows the projected revenue & associated expenses for a future period of time. It
consist of summary schedule and is supported by a back up of each line item that is part of
budget.
Objective of financial statements:
Cash flow statement: It is adopted for making a detailed assessment of the present cash flow
position of business with inflow and outflow of cash flow.
P&L accounts: It is adopted for developing understand of the creation of profits and losses that
are part of business at end of each financial year.
Balance sheet: It is prepared after P&L accounts to evaluate the assets & liabilities of
organisation at end of financial year.
Types of management accounting:

Inventory management: It is used for determination of product cost so that different stages of
production can be managed. It consist of collection of raw materials, processing of raw materials
and finally converting them in final products. All this leads to efficient usage of resources.
Price optimisation: In this there is determination of prices so that there is evaluation of
fluctuation in demand to record Changes taking place in prices, in Innocent drinks there is use of
tailoring of process according to demands of target customers. There is use of promotional
pricing or initial pricing according to situation (Malina, ed., 2017).
M1: Benefit of system of management accounts and its application
Management accounting Benefits Application
Inventory This system helps in reduction
of storage cost of raw
materials and finished products
(Gibassier, and Alcouffe,
2018).
Organisation can help in
maintaining of stock level
according to demand. In case
of holidays and weekends
demand is high so there has to
be more stocking.
Cost accounting This system is used to form
policies in order to manage the
labour cost, overhead cost and
material cost.
It helps in situation of fixed
cost in every unit of
production.
Job costing This is used to determine the
profits of individual projects
Each job has associated cost
that is determined based on
producer requirements.
D1: Integration of system of management accounting & reporting of organisation process
Reporting type Integration with the organisation
Accounts receivable It helps in collection of receivable accounts.
According to trade receivables there is
formation of policies.
Inventory management It is used for managing of the manufacturing

cost and maintaining of the inventory cost of
the wide range of products.
Job costing This technique is used to determined the prices
of products according to the variants. The
manufacturing prices will be affected by the
cost of raw materials if prices of fruits increase
then it leads to overall increase in prices to be
paid by customers of that particular variant.
TASK 2
P3: Cost analysis techniques & use of absorption and marginal costing
Cost is the total monetary value that is used in manufacturing of products and application
of recourse such as raw materials, labour, financial resources etc. this helps in preparation of
income statements by use of marginal and absorption costing as techniques (Nørreklit, 2017). In
case of Innocent drinks there are below mentioned statements that have been prepared:
Marginal costing: It is used for understand the marginal cost and variable cost of each
unit of product. Variable cost leads to changes in total cost when large quantity is produced. It
varies with every additional production.
Absorption costing: This method consist of cost that has both the element of variable
and fixed cost. There is association of product cost with accumulated cost (Alsharari, and Al-
Shboul, 2019).
According to the given figures there is preparation of financial statements as stated below:

M2:Application of management accounting techniques
There can be use of techniques of management accounting for preparation of financial
reports. It is very helpful in determination of organisation's position. Management accounting
techniques such as standard costing, budgeting & cost volume profit are some of the
measurements that are used as integrated approaches in Innocent drinks to calculate their actual
cost against some pre set standards (Malmi, 2016). There are further approaches such as Just in
time, Activity based costing that helps in allocation of cost according to specified activities.

D2: Application & interpretation of financial reports:
Financial reports are very helpful in determination of techniques of absorption costing
and marginal costing so that per unit cost of every product can be identified. Variable cost is the
most important element in marginal costing (Gamayuni, 2019). It is the guiding factor that helps
in fixing the selling prices. It helps in making a decision whether there should be investment or
not. In Innocent drinks there is comparison of suppliers prices with the marginal cost of each
product. Decision making is process that consist of making a choice among different available
options and then choosing the most suitable option. Financial managers in Innocent drinks are
focussing on focusing a level that covers marginal cost but also is making a contribution towards
covering of fixed overheads.
TASK 3
P4: Benefits and disadvantage of various tools of planning
Budget:
It is statement that consist of estimation of sales, cost and total expenses for a specified time
period. It helps a organisation in the process of internal Management to measure the
performance.
Budgetary control:
It is used for determination of actual sales according to budgeted figures.
Some of the tools that are part of budgetary planning are discussed below:
Master budget: It is the aggregation of all the different types of lower level budgets that are
produced by different functional areas of a organisation (Suryaputra, 2019). It consist of
budgeted financial statements, forecasting of cost and preparation of a financial plan.
Benefits: Master budget helps in identification of issues and plans. It depicts the budgeted
statements beyond one department. It is used for understanding the expected expense and
revenue figurers of different department.

Limitation: It is sometimes difficult to timely update the budget and make smaller Changes as
there are lot of steps that are involved and has to be taken to deal with whole budget.
Flexible budget: It is used as a planning tool of budgetary control where activity and volume are
changes according to requirements. Innocent drinks can apply this budget to make modification
in sales level, production level according to changes of business functions (Erawati and
Krisnadewi, 2018). It leads to proper planning & controlling.
Benefits: It helps in determination of production level so that production level can be easily
modified. Innocent drinks quantity can be adjusted to achieve higher profitability level.
Limitation: There is need of competent and skilled staff so that Changes can be frequently
managed. Flexible budgets are costlier and sometimes not accurate that can lead to ambiguity for
the organisation.
Zero based budgeting: It is also a technique that can be used in case the estimated revenue is
equal to future estimation of expenses, this difference is generally zero. If there is any excess of
amount that has to be adjusts, this technique is helpful in controlling the amount spend every
year.
Benefits: There is use of flexible budgets at lower cost. There are more focused operations that
helps in disciplined execution.
Disadvantages: It consist of the possibility of intensive use of resources, biased towards short
run planning and manipulation by savvy managers that can affect the authenticity of zero based
budgeting.
M3: Analysis of planning tools
There are different types of planning tools that includes financial planning the main
objectives is to analyse the Present cash postilion of a business organisation. Such as master
budget can be adopted by Innocent drinks to get a summary of all the different budgets in one
single budget. Manage information system as a part of the planning tools is also used for the
purpose of collecting the necessary information and then using it to discharge duties and make
quality decisions. It helps in avoiding any type of duplication and increasing effectiveness ifd all
the functions.

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 occur when there is difference between supply and demand. There
are some common issues that can arise in organisation if there is no proper planning. These occur
because of defaults, petty mistake of financial managers and financial departments. Some of
common issues in financial management are discussed below:
High promotional expenses: There is need to conduct lot of expenses when Innocent drinks is
making a new launch of product. There is requirement to form a strategy that can help in creation
of awareness for the target segment of customers.
Financial governance: This is a method that can help a organisation in collection of information
so that all the accounting requirement are timely complied (Qian,, Hörisch and Schaltegger,
2018). It helps in making financial statements more authentic and further strategies formed based
on such information will also be correct.
Benchmarking: It is a approach where organisation has to determine several objectives or
standards that have to be achieved on course of organisational functioning. In case of medium
sized organisations like Innocent drinks there are situation of losses that have to be dealt by
setting of benchmarks is that expense take place in the identified benchmarks only. It also leads
to providing information regarding the specific budgets for each functional departments.
Comparison of organisation:
Innocent drinks Vita coco
Products Innocent drinks is dealing in
juices and smooths that are
sold in coffee shops,
supermarkets. It is owned 90
percent by the coca cola brand.
Smoothies are primary product
of Innocent as it consist of
Vita coco is a producer of
coconut drinks and is
distributor of healthy products.
They are serving different
nutrient flavours that is
helping their customers in
living a healthy lifestyle.

crushed juices and fruits with
special use of ginger and
carrots in some of their drinks.
Financial issues Presently in Innocent drinks
because of the situations of
COVID-19 Virus there has
been complete lock-down
since march 2020. this has lead
to a sudden downfall in their
sales and this situation
continues till end of year 2020
because of the low preferences
of people towards outside
eatables.
Cost has been serious issue in
the category of coconut
market. Though sales have
been very high since 2004 but
there has been issues of
consistency of raw material
and fragmentation of supply
chain in delivering of raw
materials to their manufacture
and changes in the cost of raw
material.
Management accounting Different aspect of
management accounting
techniques are used by
innocent drinks in order to
manage overall cost of
organisation such as fixed and
variable cost. It helps in
inculcation of profits from
total revenue.
Inventory management system
is used in order to effectively
manage the available limited
sources with the organisation.
Tools There is use of techniques such
as budgetary control methods
that can help in dealing with
all the issues that are faced by
medium sized organisation like
Innocent drinks.
There is use of variance
analysis to deal with overhead
and labour cost.

M4 : Analysing the financial problems and management accounting
It is very crucial for organisation to make a financial analysis in order to estimate the
overall budget requirement and then analyse it to reach to specific conclusions. There are
different ways to manage the tasks and available budget in a effective manner. Financial
problems can be easily identified by a management accountant by use of present P&L
statements, balance sheets and this can be submitted to top Management this report actuality
disclose the weakness and strength of different functional areas of Innocent drinks. So, that
further cations can be taken based on these results. This helps management in enhancing better
control and further carry on the function of decision making.
D3: Evaluation of use of planning tools for dealing with accounting issues
Financial problems are those that are very commonly faced by organisations and have to
be resolved by use of different management and accounting tools. Planning tools help in making
correct estimation of sales and other financial figurers. Further comparison has to be made in
order to locate the deviations. If there is decline in sales then reasons for such decline have to be
identified so that proper and accurate planning can help in the proper decision making. Financial
statements help in understanding the financial stability that can lead to preparation of future
budgets.

CONCLUSION
It is concluded that organization can adopt different management accounting methods
and techniques that can help in effective decision making. Organization has to use different tools
to deal with financial issues. For this different accounting systems can be adopted to evaluate
the performance. The main objective of management accounting and all the aspect of
management accounting is to understand the Present and future earning capability of a
organization. It leads to getting insights of the present financial position so that future results can
be foretasted.

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Online
Job Costing Reports – Introduction (Part 1), 2018 [online], Available
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