Management Accounting Systems and Techniques - Innocent Drinks

This document provides an overview of the management accounting systems and techniques used by Innocent Drinks, a company that produces smoothies and juices. It covers topics such as cost accounting, inventory management, and price optimization. The document also explains the advantages and disadvantages of different planning tools and provides guidance on calculating costs using appropriate cost analysis techniques. Additionally, it discusses the application of management accounting techniques and the production of financial reporting documents.

MANAGEMENT
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting systems...........................................................................................1
P2: Methods used form management accounting reports............................................................2
M1 Benefits of management accounting system.........................................................................3
TASK 2............................................................................................................................................4
P3 Calculate costs using appropriate techniques of cost analysis................................................4
M2 Application of management accounting techniques and produce appropriate financial
reporting documents ....................................................................................................................4
TASK 3............................................................................................................................................4
P4 Explain the advantages and disadvantages of different types of planning tools ...................4
M3 Analyse the use of different planning tools and their application ........................................6
TASK 4............................................................................................................................................7
P5 Compare how organisations are adapting management accounting systems ........................7
M4 How, in responding to financial problems, management accounting can lead organisations
......................................................................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting is the activity where identification, analysation, interpretation
and communication function are to be performed by manager to achieve organisational goal.
Financial information are also provided under this process to top managements so that they can
take managerial decision easily (Armitage, Webb and Glynn, 2016). The company which is
selected for this report is Innocent Drinks. It makes smoothies and juices and sold in coffee
shops, supermarkets. It was founded in 1998 with headquarters in London, United Kingdom.
Various topics such as understanding of management accounting system,application of range of
management accounting techniques and use of planning tools used under accounting
management are covered under this assignment. Apart from the above topics, compare ways in
which organisation could use management accounting to respond to financial problems are also
explain in detail in the project.
TASK 1
P1 Management accounting systems
Management accounting is a technique used by experts to measure and evaluate the
process to make proper control over the management of the organisation. Information and
reports related to invoices, cash flow statement, balance sheet etc. are shared by finance
department with the managers of the company which helps in decision making process. Proper
recording of transactions with the help of using supporting document is to be maintained by
managers of Innocent drinks. It helps to take accurate decision to increase operational
efficiency of organisation. Deep analysation is to be performed by top management of company
for taking long term investment decision and also to evaluate the risk involved in the particular
investment (Bennett and James, 2017).
Various systems related to management accounting are also describe in detail as under.
Cost accounting system: It is a system mostly used by a manufacturing company to
estimate the product costing for profitability analysis, and to control cost. Proper valuation of
inventory along with their flow and estimation of different cost is also be consider under this
system. Various costing like fixed cost, variable cost, semi variable cost, etc. are to be calculated
for a product by managers of Innocent drinks to track the cost of product. Record of cost of
inventory is also maintained so it saves many cost in the organisation (Collis and Hussey, 2017).
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Essential requirements: Proper allocation and apportionment of cost is to be made in
the system as it become beneficial to identify idle time, idle cost so that managers can easily
ascertain the product cost at different level.
Inventory management system: It is used to track goods to minimize inventory waste,
and it also helps to analyse trend of stock. Innocent drinks use various methods like LIFO, FIFO,
weighted average etc. to manage inventory. Though there are different ways through which cost
of managing inventory can be minimized.
Essential requirement: It is beneficial to use this system in the company because it
reduces chances of stock loss. management of inventory can easily become possible (Cooper,
Ezzamel and Qu, 2017).
Price optimisation system: It defines the way customers will respond to different prices
for product. By providing best prices for each product Innocent drinks attract large number of
consumers. In this way the organisation achieve their target by providing satisfaction to the
customers (Dekker, 2016).
Essential requirement: By using this system buying pattern of the customer and their
preference for prizing can be easily understand by sales manager to capture market.
P2: Methods used form management accounting reports
Different type of reports are to be prepare by experts of different department so that
financial data can be analysed properly at anytime. As financial information are compiled under
the report so it helps top management of Innocent drinks to take appropriate decision for the
benefit of shareholders and customer. It also shows the financial position of the business over a
specific period of time.
It is mandatory for every organisation to prepare various relevant report regularly as per
their requirement some of these are as follows:
 Budget report: It is a document in which financial data are to be recorded to measure the
performance of the business by making comparison between the actual result with the
budgeted one. It is prepared by professionals in Innocent drinks for investors point of
view and the percentage of risk involved are also be mentioned in the report. The budget
report is used in the organisation is to determine which expenditure is high and and the
measures needed to do reduction in the prices of commodity. Reason of deviations are
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also observe and concluded in the report. It is beneficial to track variances to identify the
area that needs more attention (Gibassier, 2017).
 Accounts receivable report: This report includes all the supporting documents like
invoices, vouchers etc. on the basis of which cash and credit sales is to be determine for
different period. Innocent Drinks maintain Bills receivable receipts and detailed
information of debtors to create collection letters stated with overdue balance. Average
collection period is also be fix by the company so as to avoid bad debts and to recover the
value on time. The length of such credit period is fixed by the managers as per sales. The
Company adjust the term of their agreement to reduce the risk of loosing money.
 Performance report: Performance of employees in terms of efficiency and effectiveness
over a specific period of time is recorded under it. Innocent drinks check the performance
of workers on the basis of target achieved by them. The company provides additional
incentives to good employees as it motivate workers to work hard to earn more. Various
techniques are also be used by team leaders to make improvement in the performance. In
this way management will be able to achieve the goal on time by preparing performance
report in the organisation (Granlund and Lukka, 2017).
M1 Benefits of management accounting system
Application and benefits of cost accounting system: This system mainly applied for
identifying and managing the cost of organisation which occurred at the time of working.
Innocent drink is using to estimate cost and get profitability by controlling the excessive cost in
relation to organisation.
Application and benefits of inventory management system: To identify the inventory
level and stock tracking, such system is useful that can help to manage the orders of customers
and increase organisational sales. Innocent drink is applying this for filling customers
requirement and attracting them towards products and services that helps to make higher profits.
Application and benefits of price optimisation system: The uses of system is setting of
prices in relation to products which should be relevant and feasible for customers and increases
the sales. Innocent drink is using price optimisation system for setting the prices of their drinks
which they produced and attract the customers so sales will be increase effectively (Honggowati
and et.al., 2017).
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TASK 2
P3 Calculate costs using appropriate techniques of cost analysis
Marginal costing : This cost is classified in two categories variable and fixed cost. This
cost is based on cost behaviour with volume of output. This technique is uses to determine the
profits but it is difficult to state profits per unit. In this, fixed overheads are charged in total to the
profits and loss account instead of recovered in product costing.
Absorption costing: This defined as managerial accounting that capture all cost
associated with production of particular product. This involves direct and indirect cost like direct
material, direct labour, direct rent and insurance that are counted with this technique and
increases the organisational profitability (Kastberg and Siverbo, 2016).
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M2 Application of management accounting techniques and produce appropriate financial
reporting documents
Managing accounting technique are those system which uses by management to analysis
and identify the profitability. When products and services are provided by management then it is
important to use optimum technique which can help to generate higher profits and productivity.
Innocent Drink is UK based organisation that have used marginal and absorption technique in
their organisation to know the profits and understand which technique is optimum in order to
operate and attain higher profits (Kumarasiri and Jubb, 2016).
TASK 3
P4 Explain the advantages and disadvantages of different types of planning tools
Budgetary control is the activity which should be focused by management in order to set
the budget by considering income and expenses that increases performance and profitability.
This is important for management to use best tool and technique in their organisation for the
purpose of controlling the excessive budget which occurs in business activities and increases the
productivity. In other words, budgetary control is financial jargon which mainly uses to
managing income and expenditure. This mainly uses to compare the actual income and
expenditure to planned income and expenditure to state whether or not corrective action is
required. For management it is required to have good knowledge about marketing, planning,
strategies, tools and activities that can be use to managing all organisational performance and
improve profitability. Innocent Drink is using different types of planning tools for controlling the
budget that are as explained:
Capital budget : This budget is related to income and expenses that arises in
organisation while running a business. In organisation two types of assets are available fixed and
current that are used to run the business and analysis the profitability. For management it is
important to identify the needs of capital funds that can be collected to sale fixed and long term
assets. Capital payment consider of capital expenditure on acquisition of assets like building,
land, machinery and other equipment that uses to operate and regulate the business continuously.
In context of Innocent Drinks, management should focus on capital budget and prepare this for
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the purpose of knowing capital income and expenditure that are related to business and helps to
increase the organisational performance (Malina, ed., 2017).
Advantages: This budget is useful for organisation as it helps to understand risks and its
affects on business organisation. This increases the decision making opportunities for
shareholders and management by operating a business and increasing activities. This also helps
to control the expenditure. The management of Innocent Drink chooses investment wisely and
control the over expenditure effectively.
Disadvantages: In capital budget decision are taken for long period of time and
irreversible that can create the difficulties in managing budget. Techniques which are uses in
capital budget are assumed not real. Wrong decision in Innocent Drinks affects long term
durability that reduces profitability.
Cash budget: This budget referred as tool which uses by organisation in order to
evaluate the cash inflow and outflow in given period of time. This is important for management
to prepare cash budget and appraise organisational performance and know is organisation is
having adequate amount of cash for overall regular operation. This is suggested to Innocent
Drinks , prepare cash budget which can help to show company's liquidity position and how funds
or cash can be uses to improve the organisational performance and attain the business goals. By
making profits this can promote liquidity by maintaining good relationship and assisting how to
make higher profits (Nørreklit, ed., 2017).
Advantages: This is important budget which used to check whether funds are being used
according to guidelines. This can help to make higher profits by optimising funds and cash
balances. By using this, management and shareholders can get financial position. This also
provide assistance to keep cash balances properly which are related to needs and objectives of
organisation and make efforts to prevent from shortage of funds (Maas, Schaltegger and
Crutzen, 2016).
Disadvantages: This can be negative point for organisation as if funds and cash balance
are not properly used then chances of debt and loss increases. Shareholders can request to get
money refund which they invested in Innocent Drink because they have check the financial
position that create losses. Due of lack of money and financial security no borrows and money
lending is available that impacted on business negatively.
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Zero base budget: This can be determined as approach and plan which uses to prepare a
budget that starts from zero that means it does not involves any past information in relation to a
business. The small and medium size organisation are using this budget as they does not have
last year information and budget that helps to increase the organisational profitability. If Innocent
Drink uses this budget then can reduce the unnecessary cost by seeing where cost can be cut and
make implements (Renz and Herman, Eds., 2016).
Advantages: This is cost and time saving budget that helps to make the right business
decision in certain period of time. The management of Innocent Drink allocate their resources
and capital efficiently and make the right decision. This provides better coordination and
communication within all department of organisation that motivates employees and increases
performance.
Disadvantages: In preparing the zero base budget organisation has to face the high man
power turnover that can be difficult for Innocent Drink because there is no higher number of
employees. Employees who are working in organisation are lack of expertise and create
problems in providing training to employees.
M3 Analyse the use of different planning tools and their application
Budgeting and forecasting is the process of identifying business situation that is
important for organisation to use the better planing tools and get information. This can help to
define the future required activities which can help to increase the organisational productivity
and profitability. For instance, Innocent Drinks uses cash budget to check the financial positions
and arrange the funds properly that can help to increase performance. Moreover, zero based
budget is uses to make right decision in relation to current accounting period and maintain the
higher performance. This can help to increase the business activities and performance in relation
to organisation (Rikhardsson, 2017).
TASK 4
P5 Compare how organisations are adapting management accounting systems
Financial problem is defined as problematic nature that arises in organisation at the time
of providing products and services. If someone wants to improve and increase their
organisational profitability then it need to focus on their activities and performance that they are
managing. The management accounting is the process which involves many systems and reports
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for the purpose of operating a business and increase the organisational profitability. The financial
problem is related to money and cash funds which can be arise any time if basic needs and
requirements are not completed then there is chances to occur financial problem. This is
important for organisation to analysis the financial position and make right decision that can help
to solve them and increase the profitability (Schaltegger and Burritt, 2017). Innocent Drink is
facing different financial problem such as:
Improper arrangement of cash and inventory: This problem is related to organisation
that faces in manufacturing and managing the cash which is managing by management. For
running a business, important thing is to have proper record of inventory and spending cash that
can help to make the right business activities. It has seen that the profitability of Innocent Drink
is reducing due to improper management of inventory and cash that created problems and
affected the business negatively.
Increasing credits: This problem stating that if business are running and giving credits
to its regular customers then important thing is to receive unpaid amount at the maturity and
fixed date then productivity can be maintained. If credits are not receiving on time then it will
difficult for management to run their business. Innocent Drink is facing financial problem due to
lack of fund as customers are not paying amounts and some are paying less that has created
debts and affected the profitability (Tucker and Schaltegger, 2016).
For identifying the problems techniques are uses as:
KPI: Key performance indicator is management and accounting tool which uses by
organisation to know the performance showing relation between financial and non financial
performance. This can be challenging point to identify financial and non financial performance
of employees so this tool can help to determine the same. BY using this, management of
Innocent Drink can get information how financial and non financial activities can be improved
that may provide higher profitability by managing all activities.
Benchmarks: This is another technique which uses to manage the financial performance
and attaining the business goals by comparing with others. If one organisation wants to improve
their profitability then should use this tool in which it compare with other company to know how
it is managing their performance and make the plans accordingly. This can help to increase the
organisational sales and profitability in business environment. Innocent Drink can use
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Benchmarking to evaluate organisational performance by comparing with other company and
manage the performance (Usenko and et.al., 2018).
Financial governance: This can be defined as set of regulation which governed by
authorities in order to regulate a business effectively. This make regulation and policies for
credits and helps to get amounts from unpaid customers efficiently (Wagenhofer, 2016).
Comparison between Rolls Royce and Bentley Motors
Basis Rolls Royce Bentley Motors
Problems This is larger size organisation which
is facing financial problem that is
improper arrangement of cash and
inventory which reduce
manufacturing and profit making
activities.
The size of Bentley that manufacture
different design and structure of cars.
This has some regular distributor and
customers to whom it give products and
services on credits and not receiving
payment on time that has created
financial problems for organisation.
Identification
of problems
This problem is identified by
management with the help of KPI
tool that defies what are the financial
and non financial activities. This also
state how to manage inventory so
that problem can be resolved
(Weetman, 2019).
The problem in relation to credits is
identified by using Benchmarking tool.
This tool helped to compare with other
organisation that how it is receiving
unpaid amounts from customers. After
this, formulate fixed period of credits
stickily.
Uses of system By using inventory management
system this organisation can solve
financial problem which can help to
manage the inventory and maintain
the customer's order that helps to
increase sales and all activities.
Cost accounting system is uses to solve
problem which can help to identify cost
and make plans accordingly that
increases performance. This also follow
credit guideline that can help to get
credits on time that increases
performance (Wagenhofer, 2016).
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M4 How, in responding to financial problems, management accounting can lead organisations
System are the consider as software that uses by organisation in order to responding
problem effectively. By using system properly and implementing plans a organisation can attain
sustainable business. In context to Innocent Drink, facing problem in relation to inventory
management and increasing dents due to providing products on credits. After analysing all, it
applied inventory management and cost accounting system that helped to solve problems.
Costing accounting helps to identify cost and keep records properly where as inventory
management system uses to track inventory and place order accordingly which increases
business performance.
CONCLUSION
From the above report it can be concluded that management accounting is the term which
uses to collect financial data and information in order to operate the business. Management
accounting is uses by people to gather information and managing the business activities
optimally. Systems which are uses by management are price optimisation, inventory
management and cost accounting that can helps to take right action. Reports are planning tools
are uses to manage performance and attain the business goals.
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REFERENCES
Book and journals
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Bennett, M. and James, P., 2017. The Green bottom line: environmental accounting for
management: current practice and future trends. Routledge.
Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
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Cooper, D. J., Ezzamel, M. and Qu, S. Q., 2017. Popularizing a management accounting idea:
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Granlund, M. and Lukka, K., 2017. Investigating highly established research paradigms:
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Kumarasiri, J. and Jubb, C., 2016. Carbon emission risks and management accounting:
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Usenko, L. N. and et.al., 2018. Formation of an integrated accounting and analytical
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Wagenhofer, A., 2016. Exploiting regulatory changes for research in management accounting.
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Weetman, P., 2019. Financial and management accounting. Pearson UK.
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