Management Accounting Systems and Reports - Innocent Drinks

This assignment provides a detailed analysis of management accounting systems and their application in Innocent Drinks. It discusses various systems such as cost accounting, inventory management, job costing, and price optimization. It also explores different management accounting reports like budget reports, accounts receivables aging reports, cost accounting managerial reports, and performance reports. The benefits and evaluation of these systems are also discussed. Additionally, the assignment covers the calculation of costs using techniques like marginal costing and absorption costing, along with a reconciliation statement. It concludes with the calculation of the break-even point and margin of safety.

Management
Accounting

INTRODUCTION
Management Accounting refers to the use of various types of accounting provisions, tools
as well as techniques in order to ensure that the right decision is taken by the managers for the
purpose of increasing the overall level of efficiency and effectiveness in the organization without
problems and issues (Alawattage, Wickramasinghe and Uddin, 2017). Overall it helps for them
in ensuring that they take right decisions in the context of the company. In this way the firms can
ensure that they are able to take the strategic advantage over their rivals by maximizing their
profits and ensuring sustainable growth. In this report, Innocent Drinks has been chosen. It is a
company which provides various drinks to its customers in the market. In this assignment, a
detailed analysis will be made on demonstration of understanding of management accounting
systems, application of a range of its techniques. Additionally, the use of planning tools in
companies and comparison of ways in which they use the management accounting systems to
solve their financial problems will also be discussed as a part of this project.
TASK 1
P1: Management Accounting Systems
Management Accounting refers to an important decision-making tool which is used by
the management in order to ensure that they can take effective decisions for the future time
period. In Innocent Drinks its use can be made so that the managers are able to ensure that they
take the proper decisions in an effective manner.
There are different systems which are used in management accounting. An explanation of
these systems is as follows-
Cost Accounting System- In it, the managers make sure that they are able to use the
right techniques in order to control the overall costs and overheads in the organization (Azudin
and Mansor, 2018). The managers of Innocent Drinks can use this system effectively and
efficiently in the right manner so that they can achieve their goals and objectives.
Essential requirements-
 Cost Accounting System helps in the reduction of the overall costs in the company. In
this way it can help the managers of Innocent Drinks to maximize the level of profits.
 Cost Accounting System should ensure that the overheads in the company are absorbed
properly. By doing so it will help the managers of Innocent Drinks to optimize the costs.

Inventory Management System- In it, the managers make sure that they are able to
manage the level of stocks in the company. In the context of Innocent Drinks, it is required to be
ensured that the inventory in the company is properly managed.
Essential requirements-
 It should ensure that the inventory of the organization is managed properly so that orders
are tracked in the right manner. The managers of Innocent Drinks are required to ensure
this.
 It must be able to ensure that the level of inventory in the companies is maintained so that
there are no problems and issues in supply of goods. Thus the managers of Innocent
Drinks must ensure this.
Job Costing System- It is primarily used in those companies in which manufacturing of
goods are done (Bui and De Villiers, 2017). Thus the managers of Innocent Drinks can
make use of this system so that they are able to manage their job orders and ensure their
timely completion.
Essential requirements-
 Job Costing System must ensure that the job orders in company are managed effectively
and efficiently. In this way the managers of Innocent Drinks can properly manage their
job orders.
 Job Costing System is required to make sure that the job orders in the company are
completed on time. In this way the managers of Innocent Drinks can ensure the
satisfaction of their customers and clients.
Price Optimization System- It has to be used by the organizations so that they are able
to set a price for their goods and services which helps them in achieving strategic
advantage (Christ, Burritt and Varsei, 2016). In this way the management of Innocent
Drinks can make sure that they are able to earn higher level of profits.
Essential requirements-

 It is required in the organizations so that they can ensure that they are able to set a right
price for their products and services. The managers of Innocent Drinks are required to
ensure this.
 It is required in the companies so that they can ensure higher level of profits. The
management of Innocent Drinks has to ensure this.
P2: Management Accounting Reports
These Reports are used by the companies so that they are able to analyze and interpret the
relevant information effectively and efficiently (Cooper, Ezzame and Qu, 2017). In this way the
management of Innocent Drinks can ensure that it is able to analyze and interpret the information
to increase the overall efficiency and effectiveness without issues and problems.
The various types of Management Accounting Reports are as follows-
 Budget Reports- In these reports the different types of budgets are considered. They can
be used in the right manner so that they can be used in the right manner which will lead
towards increase in the overall level of efficiency and effectiveness (Granlund and
Lukka, 2017). Thus the management of Innocent Drinks can ensure this in the company.
 Accounts Receivables Aging Reports- They are used by companies so that they are able
to track their accounting receivables in the company (Hall, 2016). They can be used by
them so that they are able to properly track their debtors and the due payments.
Management of Innocent Drinks can make use of these reports so that an analysis can be
performed on this basis which will make sure that aims are achieved and the payments
are received from trade receivables on time.
 Cost Accounting Managerial Reports- They are used by the organizations so that they
are able to analyze the level of costs (Hopper and Bui, 2016). They can be used in the
right manner to analyze and interpret the why the overall costs have increased. Therefore
techniques to reduce the costs can be used so that the level of profits can be maximized.
The management of Innocent Drinks can make the right use of these reports to find out
their excessive costs and taking the corrective actions as required so that the goals and
objectives can be achieved. For the maximization of profits the managers are required to
take the correct steps which will make sure that the costs are reduced and profits are
increased.
 Performance Reports- Companies make use of them so that they are able to analyze the
overall performance (Järvenpää and Länsiluoto, 2016). They can be used to evaluate and
compare the performance to find out if there are any deviations and variances. If the
deviations and variances are found then the rectifying actions are taken. Thus In Innocent

Drinks, managers can make use of these reports so that they can ensure that performance
is increased without problems and issues which will lead to obtaining of a strategic edge
over the competitors in the future time period and ensuring sustainable level of success.
M1: Benefits of Management Accounting Systems
They offer different types of benefits to the organizations. Cost Accounting System can
help the companies to make sure that the costs are reduced. Also it ensures the reduction of
overheads. Inventory Management System ensures that the inventory levels are properly
managed. Also tracking of stock is made possible. Job Costing System ensures that the job
orders are properly tracked. Also it makes sure that job orders are managed without problems
and issues. Price Optimization System ensures that prices are optimized effectively in the
organizations. Also it makes sure that the benefits of setting a right price are available to the
companies by increase in their profits.
D1: Evaluation of management accounting systems
Management accounting systems can be used by the companies so that they are able to
get the required level of efficiency and effectiveness. These systems are required to be applied in
the right context by the managers of Innocent Drinks. The managers of firm can make sure that
they take the correct decisions. This will surely help in enhancing the productivity and thus the
aims which the company has set for the future time period can be achieved. This happens due to
the application of appropriate techniques.
TASK 2
P3: Calculation of costs by using appropriate techniques
Marginal Costing-
It is a technique in which the marginal cost is charged to the units of cost and the fixed
cost is written off against the contribution (Järvinen, 2016). This technique can be used by the
managers of Innocent Drinks to make sure that they are able to calculate the profits.
Advantages-
 It is very simple to understand and this is an advantage for Innocent Drinks as it can be
easily applied in the context of the organization. Thus this helps the companies in
effectively determining the level of profits without problems and issues.
 Marginal Costing Technique helps in determination of the profits in the organization
which offers an advantage for the managers of Innocent Drinks so that they are able to
make an accurate assessment. Therefore this helps the organizations as this can lead
towards adoption of right approach for determining the profitability with accuracy so that
analysis and interpretation can be performed easily and the decisions can be taken.

Disadvantages-
 Marginal Costing Technique can be disadvantageous for the organizations because it
relies on different types of assumptions which may not always be true.
 Marginal Costing Technique can create disadvantage for the companies because it is not
able to treat the overheads in the right manner.
Absorption Costing-
It is a technique which is used by the organizations so that they are able to identify the
full production cost incurred in the different types of processes (Kostyukova and et.al.,
2018). The managers of Innocent Drinks can make sure that they use it correctly so that
profits can be determined and the proper treatment of overheads can be ensured.
Advantages-
 Absorption costing technique can be advantageous for the companies because it makes
sure that they are able to identify the full cost of production (Maas, Schaltegger and
Crutzen, 2016). Therefore Innocent Drinks managers are able to make sure that they can
calculate the total cost using this technique.
 Absorption costing technique creates an advantage for the organizations by ensuring that
the proper treatment of overheads is done (Messner, 2016). Thus for the managers of
Innocent Drinks this creates a benefit as by ensuring it they can effectively calculate the
profits with the required accuracy.
Disadvantages-
 Absorption Costing Technique creates a disadvantage for the organizations as it is not
that simple to apply like Marginal Costing Technique. The managers of Innocent Drinks
therefore face a problem here regarding the application of this technique in the processes
of the organization.
 Absorption Costing Technique relies too much on different types of assumptions which
do not result in accuracy in obtaining the desired results. Therefore for the management
of Innocent Drinks this creates an issue.
Thus, overall both of these techniques can be highly useful for the companies because
they ensure that profitability is determined and the comparisons can be done with the

previous years and with the competitors. Deviations and Variances can be identified so
that the correct rectifying action is taken for removing them.
Marginal costing
April (£) May (£)
Sales 56000 70000
Less: Marginal cost of sales
Variable manufacturing cost 30000 30000
Closing stock 10000 15000
Opening stock 10000
Total marginal cost of sales 20000 25000
Contribution 36000 45000
Less: Fixed cost
Fixed manufacturing cost 18000 18000
Fixed non manufacturing cost 5000 5000
Net profit 13000 22000
Absorption costing
April (£) May (£)
Sales 56000 70000
Less: Cost of sales
Variable manufacturing cost 30000 30000
Fixed manufacturing cost 18000 18000
Closing stock 16000 24000
Opening stock 16000
Total cost of sales 32000 40000

Gross profit 24000 30000
Less: Fixed non manufacturing cost 5000 5000
Net profit 19000 25000
Reconcilation statement
April (£) May (£)
Profit/loss under marginal cost 13000 22000
Add/Less: Closing stock 6000 3000
Profit/loss 19000 25000
Profit/loss under absorption cost 19000 25000
Working note:
Calculation of closting stock under marginal costing
April (£) May (£)
Total variable manufacturing cost 30000 30000
Total produced units 6000 6000
Per unit cost 5 5
Closing stock 10000 15000
April (£) May (£)
Calculation of opening stock under marginal costing
Opening stock units 0 2000
Per unit cost 5 5
Opening stock 0 10000

April (£) May (£)
Calculation of closting stock under absorption costing
Variable manufacturing cost 5 5
Fixed manufacturing cost (per unit) 3 3
Total absorption cost per unit 8 8
Closing stock 16000 24000
April (£) May (£)
Calculation of opening stock under absorption costing
Opening stock units 0 2000
Per unit cost 8 8
Closing stock 0 16000
Calculation of Break even point
Solution:
Variable cost 49
Fixed cost 140000
Selling price 60
Contribution: Selling price-variable cost per unit
Contribution 11
Break even point (In units): Fixed cost/contribution
BEP (In units) 12727.27

Break even point (In revenues): Fixed cost/PV ratio
PV ratio: Contribution/sales*100
PV ratio 18.33
BEP (In revenues) 763636.36
Margin of safety (In units): Budgeted saels (In units)- BEP (In
units)
Budgeted sales 20000
BEP 12727.27
Margin of safety (In units) 7272.73
Margin of safety (In revenues): Budgeted sales (In revenues)-
BEP (In revenues)
Budgeted sales (In revenues) 1200000
BEP (In revenues) 763636.36
Margin of safety (In revenues) 436363.64
M2: Application of techniques of management accounting
They can be applied in the right manner so that the goals and objectives can be achieved.
Innocent Drinks can use them to analyze and interpret and thus detailed plans can be made for
ensuring the growth of the organization. Therefore it is required from the management that they
are able to achieve the required efficiency as well as effectiveness by the proper use of these
techniques and can ensure sustainable success in the future time period which will lead to
obtaining of a strategic edge over the various types of competitors.
D2: Producing of financial reports for application and interpretation of data
They can be used by the organizations so that they can apply as well as interpret the data
effectively and efficiently. Thus in this way they can make sure that they are able to achieve the

desired goals as well as objectives without problems and issues. In the context of Innocent
Drinks, it becomes quite important that its managers are able to use the financial reports to
improve the overall performance in the company and thus achieve a strategic edge over the
competitors.
TASK 3
P4: Advantages and Disadvantages of planning tools for budgetary control
There are different types of tools which can be used for the purpose of budgetary control.
These tools are as follows-
Cash Budget-
It is prepared by the companies so that they are able to get an estimate of the overall
receipts and payments during a particular period of time which is mostly a year (Nitzl, 2016).
The managers of Innocent Drinks can use this budget so that they are able to achieve their
desired goals as well as objectives and can manage their liquidity level without problems and
issues.
Advantages-
 A Cash Budget can be used by the companies so that the liquidity level is maintained.
This is an advantage for the managers of Innocent Drinks.
 Cash Budget can be used by the organizations so that they are able to maintain the
desired level of efficiency as well as effectiveness in their business operations.
 The use of a Cash Budget can be made so that the regulation of the different expenses can
be made within the organization. In Innocent Drinks, this can create an advantage for the
managers.
 With the use of a Cash Budget the firms can make sure that they are able to control their
finances in an appropriate manner. In the context of Innocent Drinks, an advantage can be
created due to it.
Disadvantages-
 A Cash Budget does not provide the flexibility to the organizations in their cash
operations which can create a disadvantage for the organizations like Innocent Drinks.
 It is a time-consuming as well as costly process. Therefore not every firm can afford it.
This is also a disadvantage for a company like Innocent Drinks.

 Preparing a Cash Budget can create a limit for the spending power in the companies.
Thus a disadvantage can be created due to it for Innocent Drinks.
 It cannot be used by the organizations to consider the different factors related to their
functioning. This creates a disadvantage for Innocent Drinks.
Production Budget-
Production Budget can be used by the companies so that they are able to forecast their
various types of requirements which they have regarding the level of production during a
particular period of time (Nuhu and et.al., 2017). The managers of Innocent Drinks can
use this budget for making accurate forecasts for the future time period.
Advantages-
 It helps the organizations to identify their various types of requirements which they have
regarding the production of goods. Thus it is advantageous for an organization like
Innocent Drinks.
 Production Budget can help the companies in making sure that the production happens on
time and according to the requirements. Therefore this creates an advantage for the
organizations like Innocent Drinks.
 Using Production Budget can help the organizations to ensure that they can identify the
deviations and variations in their production and remove them. In this way it creates an
advantage for Innocent Drinks.
 The use of Production Budget ensures that the organizations are able to manage their
production in a better manner. Thus it creates a benefit for the managers of Innocent
Drinks.
Disadvantages-
 Production Budget relies on various assumptions for the purpose of forecasting the data
which can result in unreliable conclusions. Thus this is a disadvantage for Innocent
Drinks.
 Production Budget cannot be adjusted according to the future changes in demand and
supply and thus in a dynamic business environment this leads to a disadvantage for
companies like Innocent Drinks.
 Preparation of a Production Budget requires the application of high-level skills and thus
in this way it affects the organizations. In Innocent Drinks, this can create a disadvantage.

 The use of a Production Budget can limit the spending in the firm. In Innocent Drinks,
this can lead towards a disadvantage.
Master Budget-
Master Budget of the organizations comprehensively expresses the operating and
financial plans for the future time period which is mostly a year and is summarized in the
form of budgeted financial statements (The Master Budget- Accounting Information,
2019).
Advantages-
 Master Budget can help the companies so that they are able to prepare comprehensive
forecasts of the multiple departments. Thus this is an advantage for Innocent Drinks.
 Master Budget is helpful for the organizations so that they can achieve the desired goals
as well as objectives without problems and issues. Thus an advantage is created for the
managers of Innocent Drinks.
 The use of a Master Budget can be made to identify the various types of problems and
make sure that a right approach is adopted in order to solve them. This creates an
advantage for Innocent Drinks.
 Using a Master Budget allows the organizations to create plans for the future time period.
In the context of Innocent Drinks, this can lead towards an advantage.
Disadvantages-
 Master Budget can create a disadvantage for the organizations because sometimes it does
not provide accurate results which therefore are a disadvantage for a company like
Innocent Drinks.
 Master Budget can lead towards issues for an organization as it does not provide them
with the required flexibility. This is a disadvantage for a company like Innocent Drinks.
 Preparation of a Master Budget is a costly process and requires investment from the
organizations. In Innocent Drinks, this can create a disadvantage.

 Using a Master Budget is a time-consuming process. Thus in this way it creates a
disadvantage for Innocent Drinks.
M3: Use of planning tools
These can be used by the organizations effectively and efficiently so that they are able to
achieve the desired level of productivity. Therefore for organizations like Innocent Drinks this
can lead towards achievement of higher level of productivity which will certainly help in the
achievement of aims in the future. Thus the company can make sure to make a plan so that it can
increase revenues easily without facing issues and problems.
TASK 4
P5: Comparison of organizations on the basis of adoption of management
accounting systems to solve financial problems
Financial Problem- It refers to a situation in which the organizations face constraints
and thus are not able to achieve the desired level of goals and objectives. Like other
organizations, Innocent Drinks also faces financial problems. It faces financial problem of
excessive costs because of improper treatment of the overheads. This is affecting its level of
profitability.
Techniques used for solving financial problems-
 KPIs- These are referred as Key Performance Indicators (Otley, 2016). These are
financial as well as non-financial in nature. They can be used by the organizations so that
they are able to estimate the performance and rectify the deviations and variances which
are present. The managers of Innocent Drinks can utilize KPIs so that they are able to
solve the financial problem of excessive costs. This problem can be solved using KPIs as
performance can be measured and excessive costs can be identified easily which will
ensure that optimization can be done easily.
 Benchmarking- It is a technique in which the financial standards are set within the
organizations so that the aims can be achieved in the future time period (Quattrone,
2016). The managers of Innocent Drinks use it so that they are able to solve the financial
problem of excessive costs. By setting the right standards the problem can be solved
easily and thus this will ensure that the goals and objectives are achieved.
Financial Governance- Financial Governance refers to the various types of measures
which are undertaken by the organizations so that they are able to make sure that they
maintain financial discipline (Turner and et.al., 2017). By using its techniques, the
management of Innocent Drinks can ensure that they can solve the financial problem of
excessive costs easily.

Comparison of organizations-
Basis Tesco Sainsbury’s
Financial Problem Tesco faces financial issue
related to mismanagement
of its inventory.
Sainsbury’s is facing
financial problem related
with improper management
of job orders.
Management Accounting
System Used
Tesco can use Inventory
Management System.
Sainsbury’s can use Job
Costing System.
Application of the system It can be used by the
organization so that it is
able to solve its problem of
mismanagement of
inventory by maintaining a
proper record of outflows
and inflows of the stock
which will ensure efficiency
and effectiveness.
It can be used by the
organization to make sure
that it can solve the problem
of mismanagement of job
orders by tracking and
keeping a proper record of
all the orders and ensuring
that they are fulfilled
properly without issues and
problems in the future time
period.
Thus by learning from the examples of Tesco and Sainsbury's, Innocent Drinks needs to
make sure that management of Innocent Drinks has to make the use of management
accounting systems to solve financial problems. It can use cost accounting system
because by making its use it will be able to solve the problem related to overheads in a
much better manner as in it better segregation of overheads needs to be made.
M4: Analysis of response to financial problems
By detecting the financial problems on time and using the appropriate techniques for
resolving it. The companies can ensure that they are able to effectively and efficiently achieve
their various types of goals as well as targets. In this manner, the organizations can make sure
that they can obtain a strategic edge. Thus the managers of Innocent Drinks have to focus on
detection of problems as well as finding a solution to them.
D3: Evaluation of planning tools
The companies can make use of various types of planning tools. The managers of
Innocent Drinks can make sure that they are able to use them in the right manner so that they can
easily plan for the future time period and thus in this process can set goals and objectives for
short-term and long-term period and achieve them. Thus the company will be able to maximize
its profits easily and can also forecast its future growth rate which in turn will allow it to obtain a
strategic edge over the competitors in the future time period.

CONCLUSION
From the above report, the conclusion is that management accounting helps the
companies as it helps the managers in taking decisions. With its usage the firms can be assured
of higher revenues as they can achieve optimization of processes and functioning and thus this
will lead to sustainable success and obtaining of strategic edge over the rivals which will ensure
that it is able to get ahead of them in the market. If used in the right manner it ensures
achievement of higher-level of efficiency as well as effectiveness which is quite helpful for the
managers to achieve aims set for the future. Thus the management accountants can make sure
that they use appropriate techniques as well as methods for ensuring higher level of productivity
standards in the firm. There are various systems in it which are useful for the management,
different types of methods can be used for the purpose of management accounting reporting.
Costs can be calculated by using the right techniques and methods. There are advantages as well
as disadvantages of the planning tools for budgetary control. Organizations are adopting the
systems of management accounting to respond to their financial problems.

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Online
The Master Budget- Accounting Information. 2019. [Online]. Available through:
<http://nraomtr.blogspot.com/2011/12/master-budget-accounting-information.html>