Management Accounting and Essential Requirements

This document provides an overview of management accounting and its essential requirements for different types of accounting systems. It discusses various methods used for management accounting reporting and evaluates the benefits of management accounting systems within a firm. The document also explores techniques of cost analysis to prepare an income statement utilizing marginal and absorption costs, and discusses the advantages and disadvantages of planning tools used for budgetary controls.

Management
Accounting

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
P1 Management accounting and essential requirements of different types of management
accounting system........................................................................................................................3
P2 Different method used for management accounting reporting...............................................5
Evaluation of benefits of management accounting system and their application within firm.....6
LO 2.................................................................................................................................................6
P3 Techniques of cost analysis to prepare an income statement utilizing marginal and
absorption cots.............................................................................................................................6
LO3................................................................................................................................................11
P4 Advantages and disadvantages of planning tools used for budgetary controls....................11
LO4................................................................................................................................................12
P5 Comparison of Organisations adapting accounting systems for responding to financial
problems....................................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is essential for any organisation as it helps in providing both
qualitative and quantitative information to manager so that accurate decision can be taken for
growth and development of organisation. It helps in improving overall performance of firm,
support strategic goals and objectives, facilities decision making which contributed in effective
achievements of company goals. This report is about innocent drink that makes coffee,
smoothies and juices to be sold in supermarket in order to earned maximum profit margin.
Report has highlighted crucial information related to definition of management accounting and
its essential requirements of different types of management accounting system. It also discussed
about method used for management accounting and advantages, disadvantages of different types
of planning tool used for budgetary. At last, it compare and contrast the way organisations are
responding to financial problem by adapting management accounting system for sustainability of
business.
LO1
P1 Management accounting and essential requirements of different types of management
accounting system
Various account of company need to be effectively managed and controlled so that
manager can plan for future by taking accurate decision regarding operation of business. It
makes use of information related to cost of products and services, actual expense company have
incurred and profit earned during particular years (What Is Management Accounting, 2019).
Main difference between management accounting and financial accounting is that management
accounting offers information which helps manager while finance for external parties of
business. So on the basis of all such information and data manager of Innocent drink make
correct decision which could help in effective growth and success of enterprise. Essential
requirements of different types of accounting system for innocent drink can be illustrated as
follows:
Cost accounting system: It is one of the best accounting method that is applied or used by
innocent drink to measure actual cost of products that assist manager in analysis of profitability,
cost control and inventory valuation. There are two basic method which are used to allocate
actual cost to products of company such as traditional and activity based costing. Innocent drink

have make use of activity based costing to estimate actual cost or price of products of
organisation. It helps manager in understanding actual cost that company have incurred to
manufactured particular products therefore it add input cost or variable cost with fixed cost
(Machine, building). Thus, innocent drink manager can easily measures, record and control
financial performance of organisation by comparing actual performance with resulted output
(Endenich, Trapp and Brandau, 2017). Therefore, it can be stated that cost accounting system is
most useful concept of management accounting that contributed in effective management of
budget, financial performance, standard and marginal cost of business.
Job costing method: This is a type of techniques that is used in case good processed is highly
differentiated form each others. In another words, job costing is effective allocation of
manufacturing cost to batches or group of items or production job. Direct material, labour and
overhead are three basic information’s which are require or accumulate in job costing method for
benefit of firm. Therefore all such information is necessary for innocent drink because it helps
quoting accurate prices at which firm can earned reasonable profit or income.
Inventory management: Company needs to manage its inventory in order to timely supply
products and services to end customers. Inventory management is one of the system of
management accounts that helps manager of innocent drink to easily control, monitor and
oversees total amount of existing raw material, order in processed and finished goods. Inventory
is most important resources for any organisation so innocent drink through this system is able to
make best or optimum investment in resources of firm. Main function of inventory management
in innocent firm is creating purchased order, reallocation or disposable of resources (Fleischman,
Johnson and Walker, 2017). Thus, it contribute in preventing over and under stock of raw
material for benefits of organisation such as reduce in cost and fast delivery of services to
customers. So, it can be illustrated that various benefits of inventory management for firm is
improvement in workflow, inventory accuracy and bottom line.
Price optimising system: It is another management accounting system that helps manager of
innocent drink to understand the way customer will react to particular prices and channel used by
company to meet their needs. Essential requirement of price optimising system is because it
helps in attracting more and more customers and enhancing profitability of firm. Thus, it assists
manager to set best prices at which customers are motivated and interested to make purchased so
that firm can earned more profitability and market share.

P2 Different method used for management accounting reporting
Management accounting reports are most useful for manager and various stakeholders
that are interested in operation of business such as directors, investors and employees of firm. It
is most useful for planning, controlling, measuring performance and taking appropriate decision
that can be fruitful for the organisation. These report are most essential or important because all
decisions of firm are taken on the basis of such reports so they need to be accurate and
authentically. Manager of innocent drink have make better use of information that are presented
in the report for growth and expansion of organisation (Lay and Jusoh, 2017). Financial
statement reports, job cost reports and account receivable reports or stock management are some
of the management accounting reports that helps in taking effective strategic decision for
Innocent drink which can be illustrated as follows:
Cost report: It can be stated that management accounting helps in calculating actual cost that
have been incurred in manufacturing of various products of firm. Cost report is prepared on the
basis of accumulation or addition of total cost, labour and overhead that were incurred during
production of goods and services. Thus, manager of innocent drink by dividing total amount of
good manufactured with all cost incurred is able to prepared cost reports. So, report enables
manager to review actual selling price or cost value of products in order to take corrective action
to reduce price so that customers are delivered better products at reasonable rates. One of the
benefits of cost report is that it helps in making optimum utilisation of resources, reduction in
overall cost of manufacturing products so that maximum profitability can be enjoyed by firm.
Performance reports: It is another report which has been created by manager of innocent drink
that reviews performance of employees as well as overall organisation. It helps manager to
evaluate about existing performance of organisation so that future strategies can be formulated
for expansion of business. It deeply analysis key factors or employees that are working hard for
organisation in previous years thus planned strategies to motivate them future to make their best
efforts for achievements of company goals (Li, 2018). Innocent drink manager evaluates or
analysis performance of company by comparing actual expenditure and revenue to budgeted
amount. Thus, manager while formulating new budget make use of all such information
presented in performance reports. Innocent drink compares and contrasts or revises this report on

monthly or quarterly basis in order to cope up with future circumstances and contributed in
achievements of company goals.
Budget reports: It is another one of the useful accounting management report that assists
manager in formulating effective budget for completion of task. Innocent drink manager mostly
prepared budgets on basis of previous years experienced and future circumstances or changes
like expected expense. This report also enumerates total earning and expenditure of organisation
in particular years so that accurate budget can be decided for completion of task in best possible
manner (Nielsen and Pontoppidan, 2019). Therefore, manager by making use budget report can
cut costs, guide employees the way they can make optimum utilisation of resources for benefits
of organisation.
Evaluation of benefits of management accounting system and their application within firm
It can be critically evaluated and analysis from above discussion that there are numerous
benefits of application of management accounting for innocent firm such as helped in taking
better decision, company can easily cope up with uncertain events or threat thus promote
sustainability of organisation. Manager can easily improve performance of company and
employees through making use of management accounts (Taschner and Charifzadeh, 2016). It
also assists manager in preparing accurate budget so that various funds can be accumulated for
better operation and expansion of business. Therefore, in short each and every organisation
needs to make use of management accounting system to growth and sustain business for longer
time frame.
LO 2
P3 Techniques of cost analysis to prepare an income statement utilizing marginal and absorption
cots
Income statement as per Marginal Costing
Particulars April May
Sales Revenue (4000*14) 56000 (5000*14) 70000
Marginal Cost of Sales
Variable Production cost (4000*5) 20000 (5000*5) 25000
20000 25000
Add:
Opening Stock 0 (2000/6000*30 10000

000)
Less:
Closing Stock
(2000/6000*30
000) 10000
(3000/6000*30
000) 15000
10000 20000
Contribution 46000 50000
Fixed manufacturing overheads 18000 18000
Fixed Non-Manufacturing Cost 5000 5000
Net Income 23000 27000
Income statement as per Absorption Costing
Particulars January February
Sales Revenue (4000*14) 56000 (5000*14) 70000
Marginal Cost of Sales
Variable Production cost (4000*5) 20000 (5000*5) 25000
Fixed manufacturing overheads 18000 18000
38000 43000
Add:
Opening Stock 0 16000
Less:
Closing Stock
(2000/6000*48
000) 16000
(3000/6000*48
000) 24000
22000 35000
Gross profit 34000 35000

Fixed Non-Manufacturing Cost 5000 5000
Net Income 29000 30000
Reconciliation statement
April May
Profit as under marginal costing 23000 27000
Add: Under absorption of closing or
opening stock 6000 3000
Profit as under absorption costing 29000 30000
Interpretation: It can be stated that profit under the absorption costing is much than that
under marginal costing which is because of specific reason and that in absorption costing all the
cost related to manufacture is included in COP irrespective of fixed and variable cost. Also,
absorption costing method is used for the external purpose as well. Therefore, the absorption
costing approach should be used. It is also considered as managerial accounting technique or
approach for capturing all costs included with production a specific thing. Profit under this
method is higher than marginal costing technique. Absorption costing helps to analyse and then
calculate external activities and its costs in a company. Direct and indirect costs, such as direct
labour, direct raw materials, rent, insurance, are accounted for utilizing this approach. Selected
method is recognized as procedure of connecting all production costs to cost unit to create a full
budget per unit.
Budgeted production 20000 packs
Sales revenue (20000*60) 1200000
Less: Variable costs
Materials (20000*20) 400000
Labor (20000*14) 280000

Other variable cost (20000*12) 240000
Variable administration and selling (20000*3) 60000
980000
Contribution 220000
Less: Fixed cost
Fixed cost 80000
Fixed administration and selling 60000
140000
Net profit 80000
Contribution margin per unit 60-(20+14+12+3) 11
Contribution margin (11/60) 18.00%
Total fixed cost 140000
Break even point (in units) 12727.27
Break even point (in amount) 763636.36
Current sales in units 20000
Break even sales in units 12727
Margin of safety (in units) (20000-12727) 7273
Current sales 1200000
Break even sales 763636
Margin of safety (in amount) (1200000-763636) 436364
Units Sold
Sales
Revenues Variable Costs
Fixed
Costs
Total
Cost
Operating
Profit
0 0 0 140000 140000 -140000
3181 190909 155909 140000 295909 -105000

6363 381818 311818 140000 451818 -70000
9545 572727 467727 140000 607727 -35000
12727 763636 623636 140000 763636 0
15909 954545 779545 140000 919545 35000
19090 1145455 935455 140000 1075455 70000
22272 1336364 1091364 140000 1231364 105000
25454 1527273 1247273 140000 1387273 140000
28636 1718182 1403182 140000 1543182 175000
LO3
P4 Advantages and disadvantages of planning tools used for budgetary controls
Planning tools play an integral part for developing budgetary controls metrics within
functional paradigms where there are various scenarios playing functional importance where

innocent drinks can leverage stronger results in their financial performance goals. There are
several planning tools which can be analysed as per their advantages and disadvantages which
can be analysed as follows:
Budgetary control: This can be understood as process by which budgets are prepared in future
periods with high range of actual performance parameters for finding out various variances in
financial performance goals. The comparison of budgeted figures within company enable to
develop stronger performance within future scenarios and enable management to form effective
investment decisions based on resources requirements and corrective actions without any delay
which form stronger synergy further (Alsharari, 2019).
Advantages: This is a mechanism that helps various senior managers for strategically forming
wider pathways of investments within company business framework for ensuring that all limits
are taken care. The planning tool will enable Innocent drinks to yield onto best paradigms of
corporate profits.
Disadvantages: This may also create rigidity within company business standards, where various
dynamic demands and business resources planning goals differ within budgetary control usage.
Cost volume profit analysis: This planning tool is managerial accounting procedure which
analyses impact of various working operational parameters for governing stronger position
among major fundamentals, for higher competitive profit revenues and fixed business
considerations. Cost volume shall enable Innocent drinks to generate wider functional innovation
scenarios among management, higher new investments by analysing operating profits, variable
costs which frame base for higher profits. The cost volume profit analysis consists of five basic
components that include volume or level of activity, unit selling price, variable cost per unit,
total fixed cost and sales mix.
 Advantages: This planning tool analysis helps management to make important decisions
revealing various parameters of interrelationship where the volume of output and sales,
costs, profits are analysed and further worked on. Disadvantages: It only takes into account specific period of time for calculating the
analysis, which may decline flexibility and working strengths among company goals
scenarios. This disadvantage may also widely decline company financial position if
correct working actions for generating stronger abilities are not taken among functional
scope metrics (Căpușneanu, Topor and Marin-Pantelescu, 2020).

Pricing strategy: This planning tool takes into account varied segments, ability to pay back to
consumers and shareholders, market varying conditions and competitor actions which build
various worked on actions. Pricing strategy us targeted at defined customers and against various
competitors, for penetrating prices into market share quickly where industry goals play major
role for higher effective functional standards.
Advantages: The consumer base pricing strategy as planning tool enables how target customer is
willing to pay for determining deal price synergy and also enables allows management to know
gross margin costs where demand pricing plays an integral role.
 Advantages: Customer base pricing looks how target customer is willing to pay for
determining ideal price and allows management to know gross margin costs where
demand pricing allows management to optimise prices. Innocent drinks shall be able
to form strong place with pricing strategy to yield on new place within industry for
forming wider place within market scenario where there are major scenarios for new
determinants (Fleischman. and McLean,2020).
 Disadvantages: Management pricing is not fixed where cost base pricing may lead to
products being priced competitively, by not taking into account overall profits and
how much response are customers giving for willing to pay. This may create wide
range of functional development where there are various scenarios worked on.
LO4
P5 Comparison of Organisations adapting accounting systems for responding to financial
problems
The innocent drinks have been using strong efficient accounting systems for financial problems
functional analysis where there are various parameters focused on for generating new avenues of
stable position metrics. Company also resources smart effective trained specialists within
business scenarios within accounting system, but with increased competencies and major
paradigms analysis working essentials of financial positions shall be worked on. There is also
wide range of competition within industry domains where Innocent Drinks company financial
positions is specifically being widely growing towards major position arenas, and also there are
major arenas such as wide range of working goals worked on for higher profits. Vita Coco is
also one of the strong competitor within industry where company has various services and

organic products, for leveraging higher functional scope to attain stronger place within
consumers growing demands (Taschner and Charifzadeh, 2020). Company also specifically
focuses to take various leveraging steps and functional scale paradigms, where financial
problems are huge and also to attain strong place among competitors which is highly important.
Financial problems within business is worked on major factors which specifically develops
higher synergy for investing in new services and products functional arenas for obtaining
stronger space among actions. Vita cocoa uses new latest accounting methods as compared to
Innocent drinks where it can be understood that there is also wide business progression worked
on for generating higher space among consumers business market and technical development
onto where company uses major parameters . It can be also understood as there are also various
new planning tools, higher informative accounting scales within business scenarios for higher
working ethics and new scale promotion scenarios which will enable company to generate larger
synergy. There has been various new functional scale innovation worked on where it can be
understood that higher scale profits can be reached on by bringing on various new working
scenarios, and also promoting wider technical innovation goals onto where new relativity
developed which pertain higher potential metrics within business scales. Innocent drinks have
stronger market parameters for innovation development, higher scale innovation programming
and for generating new functional place which compose wide development avenues further in
major financial goals analysis. It can be understood that company long term stable position
metrics are highly correlated with working onto financial problems and using up of accounting
information within system where wide opportunities are also there (Ugalde Vásquez and
Naranjo-Gil, 2020).
CONCLUSION
It can be concluded from above report that there are various accounts or financial
statements which are used by insider and outsider of business. Such as investors, customers,
employees and top management or senior executive for different purpose so these accounts need
to be properly managed. Manager with help of management accounting system can planned
effective strategies which could be useful in reducing overall cost and enhancing profitability of
organisation. At last, it can be concluded that different organisation make use of different
management accounting system in order to cope up with financial problems of business thus
contribute sustainability.

REFERENCES
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know and what we teach. Journal of Accounting & Organizational Change.
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Online
What Is Management Accounting, 2019, [Online]. Available Through:<
https://www.freshbooks.com/hub/accounting/management-accounting>.