Management Accounting

Management Accounting

Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
P1 Explanation of management accounting along with essential requirements of its systems.................3
P2 Description of different methods which are used to report information of management accounting. .4
M1 Evaluation of benefits of all the systems which are used for in organizations...................................5
TASK 2..........................................................................................................................................................6
P3 Calculation of costs with the help of different costing techniques such as absorption and marginal
costing.....................................................................................................................................................6
M2 Application of range of management accounting techniques to generate financial reporting
documents................................................................................................................................................8
TASK 3..........................................................................................................................................................8
P4 Explanation of budgetary control along with advantages and disadvantages of different planning
tools which are used in it.........................................................................................................................8
M3 Analysis of various planning tool’s use in preparing and forecasting budgets................................10
TASK 4........................................................................................................................................................11
P5 Comparison of different organizations on the basis of use of management accounting systems to
respond financial problems....................................................................................................................11
M4 Assessment of the way in which companies are using management accounting to respond financial
problems and the way in which it can lead entities o sustainable success..............................................12
CONCLUSION.............................................................................................................................................13
REFERENCES..............................................................................................................................................14

INTRODUCTION
Management accounting is one of the main aspects that all companies rely on to ensure that
produces accurate reports are drawn up that can better assess the businesses' market presence.
Unless the companies are unable to produce it, then insider entities such as staff, managers and
investors will put effect on political mindset as they analyze and evaluate confidential documents
to determine the company's current role. It demonstrates that it is really necessary for all
researchers to implement it each year so shareholders' interests can be improved (Bulgakova and
et.al, 2018). This report based on the AJ & Sons, A consulting firm provides consumers with
knowledge and consulting services and improves corporate profit margins. One of client
Innocent drink face the problem of COVID 19 so consulting firm provide the advise to apply the
management accounting. Management accounting analyses, their systems, their basic criteria,
documents with details, costing strategies including such marginal and absorption costing etc. are
numerous topics covered in this project. Furthermore, this research also discusses the preparation
methods alongside their benefits and challenges, the analysis of organizations based about the
use of management accounting systems to react to economic challenges etc.
TASK 1
P1 Explanation of management accounting along with essential requirements of its systems
Management accounting is the method of monitoring, assessing and reviewing all the
measures the management takes to develop the business in order to evaluate the organizational
value. In Innocent drinks supervisors use it to assess real business performance. Multiple types of
systems that are listed following have been used during performing it:
Price optimization system: All companies use this management accounting system to set
suitable prices for all goods and encourage greater number of customers. It can be used in
Innocent drinks to measure consumer reactions to the price levels of juices and smoothies. It is
important for the company as it lets management establish the most appropriate price for the
product offered either by company, which is helpful in achieving business objectives such as
rising wages and income (Chibili, 2019).
Cost accounting system: Within this accounting system administrators hold accurate records on
all the expenses that happened when the company runs. Company utilizes it in Innocent Drinks

to obtain reliable information about the performance that lead to higher expenses. It is crucial for
the organization to devise cost containment plans, as it will direct the calculation of the all the
costs that may arise in the future when going to carry out another operational activities.
Job order costing system: The businesses engaged in various operations use this method to
meet all customers’ needs in compliance with their preferences. Innocent drinks use work order
costing so administrators can take care of all the work that they do and conduct services. One of
the main aspects of this framework is for the organisation to direct all various aspects of business
and ensure that they execute well all tasks as per client expectations in order to achieve lengthy-
term goals.
Inventory management system: It is often used by organizations to routinely evaluate the
inventory used only to conduct the all activities. Innocent Drinks executives use it to determine
when they have enough products to satisfy consumer specifications (Goddard and Simm, 2017).
There are three distinct forms of it, the following:
• First in First out (FIFO): This inventory management system is being used by organizations for
the production of products using actually bought items.
• Average cost (AVCO): only those products have been used in this technique of inventory
management on an estimate based for the manufacturing processes.
• Last in First out (LIFO): This technique of inventory management is put into account so if
companies use the inventory actually owned to carry out activities.
From all of the other management accounting systems mentioned above, Innocent Drinks
uses FIFO as it allows allowing good use of all resources. Its basic business necessity is that it
advises managers are responsible for ensuring that the correctly are using all the stored products
to conduct all the activities.
P2 Description of different methods which are used to report information of management
accounting
For the purposes of developing documentation of entire years, unique procedures are
performed in all organizations so that internal users can evaluate existing organizational
performance. This method is called Accounting Management Reporting. Executives use this in

Innocent Drinks to collect details on the all the activities they conduct. All of these definitions
are as wants to follow:
Inventory management report: This report is primarily used to document stock information
that is used to conduct business operations. Supervisors in Innocent Drinks evaluate that they
have enough inventory so that they might fulfill the demands of consumers who demand juices
and smoothies. It is helpful for the company as it will help to disregard the shortage of long -
chain in order to carry out company's operations (Gomez-Conde and Lopez-Valeiras, 2018).
Performance report: Most businesses produce this report to document actual company results
and the persons who have been involved in it. In Innocent drinks it is generated by managers so
how they can evaluate the advantages or disadvantages of the attempts they are making to
person's values. It is also helpful to the company as it allows encourage workers by offering them
incentives based on their success.
Budget report: It is connected to increasing funding to various agencies so they can all carry out
all of their by certain. In Innocent Drinks finance successfully utilized it to distribute expenditure
as per their needs to all different units. The main advantage of this to the company is that it
allows bettering carrying out all the operations since it distributes ample funds to all
departments.
Accounts receivable report: It can be used in most large and medium-sized enterprises which
enable terms to customers. For the intention of comparing the overall accounts receivable which
are needed to be obtained from the customers by Innocent Drink in the potential. It is beneficial
to the organization since, with the assistance of managers and other relevant individuals, various
clients are informed of the total volume of business owing (Jbarah, 2018).
M1 Evaluation of benefits of all the systems which are used for in organizations
Innocent Drinks administrators use various forms of accounting management systems.
Availability and advantages of all these can be illustrated using the data from table:
Management
accounting
systems
Application and benefits

Price optimization
system
It is introduced in Innocent Beverages since it is desirable to establish the
required cost for all the items ideally suited to business goals.
Cost accounting
system
It has been used by Innocent Drinks administrators as it allows predicting
financial consequences and devising successful plans for managing them.
Inventory
management
system
This method is implemented in Innocent Drinks because it enable the
business in assessing the real inventory levels and ensuring it has enough
products to conduct all company operations.
Job order costing This management accounting system is being used in Innocent Drinks as
this is advantageous to satisfy only those customer expectations as per their
needs (Johnstone, 2018).
TASK 2
P3 Calculation of costs with the help of different costing techniques such as absorption and
marginal costing
For the purpose of estimating net profits for the year, various forms of costing techniques have
been used in all businesses. Two of them that Innocent Drinks uses to determine the real income
are as followed
Marginal costing: All businesses are using this costing method to determine the cost of all the
extra units produced throughout the year. The management use it in Innocent Drinks to assess the
costs that have arisen due to the creation of extra products that are offered to consumers to
satisfy their requirement. It is also known as dynamic costs, since it uses just variable costs when
measuring income from it (Libby and Salterio, 2019). With the aid of this method, accurate
revenue equation is as follows:

Absorption costing: Businesses use this cost accounting methods to examine that certain costs
incurred during the evolution of numerous components are consumed or not in the earnings of
the very same components. In Innocent Drinks, supervisors use it to ensure that the expenditures
incurred by creating multiple products like juices and smoothies etc. are consumed from their
sales. All corrected and also costs incurred are taken into account when calculating the benefits
from these going to cost methods. Using this methodology to calculate net profit is as continues
to follow:

M2 Application of range of management accounting techniques to generate financial reporting
documents
There are many different forms of management accounting which companies may use to
formulate revenue recognition reports. Any of those definitions are as continues to follow:
Standard costing: Innocent Drinks may use these accounting management methods to examine
the discrepancy between real and standard business results. With the aid of this, methods could
be developed for improving efficiency (Lowe, 2019).
Historical costing: Certain financial assets are expected under such an accounting management
strategy to be reported mostly on level of real instead of selling price. Through being used
Innocent drinks will report correct details of all balance sheet statistics in records.
TASK 3
P4 Explanation of budgetary control along with advantages and disadvantages of different
planning tools which are used in it
Budget is described as a legal report for a financial year that contains projected revenue
and expenditures. In Innocent Drinks, responsible for preparing budget to establish a financial
capital investment program and to guarantee that certain divisions have the tools to efficiently
collect intelligence.
Budgetary control is referred to as a method for establishing an operational budget in
response to regularly comparing the actual results expenditure with a given expenditure control
program and achieving financial objectives. Through this, Innocent Drinks money advisors are
able to handle all appropriations bills that involve in managing company activities and
expenditures to get full revenues. It contains a range of preparation methods that help manage
operational work and some are addressed in Innocent Drinks context as follows:

Zero-based budget: The type of budget where all expenditures for new period are explained is
said to be zero-based. In Innocent Drinks, management team will prepare Zero-based budget
according to the requirements of future activities and receive data concerning operating expenses
relating to all the products and mentioned all the future income and expenses (Lunkes and et.al,
2018). There are mentioned advantage and disadvantage of this planning tool such as:
 Advantage: Innocent Drinks earn rewards from zero-based budget in generating insights
for the coming periods and reducing overall waste production by offering new revenue
and expense estimates.
 Disadvantages: The finance manager of Creams Ltd takes considerable time but in-depth
expertise for each financial process to plan zero-based budget, making it impossible for
the company to do so.
Flexible budget: Flexible budget is a budget that is often used as a budgeted amount which
actually adjustments with adjustments arising in the amount or operation kept in operation,
sometimes attempting to enhance the productivity which competitiveness of the manager since it
is designed to evaluate the company's economic output. It measures separate emphasis on cost
spending which relies on variations in current profit. Only with support of a flexible budget,
Innocent Drink's finance department is capable of making important modification in expenditure
plan as per the spending plan (Machado, 2016).
Advantage:
 It can help in estimating revenue, expenses, and benefit at different production load
levels.
 It helps in determining the value / cost of output to be generated to enables the business
produce the expected level of profit.
 The most important benefit of this strategy is that it allows the management team to
evaluate the impact of development in various culture and technology environments.
Disadvantage:

 The budget needs professional staff to work upon this. Shortage of trained labor has
become an industry problem. Therefore, considering its immense benefits, most sectors
and businesses are unable to utilize this programme.
 It depends on appropriate reporting about accounting. The conclusion cannot actually be
right if the Books of Accounts have any errors. A flexible budget is highly reliant upon a
projection of previous business success. Therefore the factual aspects utilized must be
correct (Matsuoka, 2020).
Cash budget: Cash budget is perhaps the financial plan that offers an estimate of cash inflows
and cash outflows for a given time span. The aim of planning cash budgets for innocent drinks is
to predict inflows and outflows of cash inside a specified time period. The cash budget makes it
possible for managers to predict significant quantities of cash. It isn't desirable for businesses to
have vast sums of cash sitting empty in savings accounts. This capital should at the minimum be
saved to gain a decent amount of interest. In most situations it is easier to use extra cash to grow
and expand new projects than it does to sit idle in financial statements.
Advantages: Cash budget assists Innocent drinks investment executives in reducing defaults and
discovering shortfalls on specific time. And it allows to effectively recognise possible
constraints.
Disadvantages: Cash budget generates fraud droppings for the business and also restricts the
resources to invest on financial operations. In addition, the expenditure also restricts the
businesses' ability to create credit profiles
M3 Analysis of various planning tool’s use in preparing and forecasting budgets
Planning tools are essential for planning various financial forecasts alongside forecasts.
Expenditures sum up expected sales revenue along with numbers, expenditures and investments,
working capital, capital amounts and much more. Cash budget, flexible budget and zero-based
budget are also the major elements of planning techniques that are implemented in Innocent
Drink. It is used for calculating cash flows inside the sector in the form of the financial plan. In
addition, zero-based budget is implemented to minimize costs and avoid expenditure increases or
decreases as per the expenditure of the prior quarter. Innocent Drink's financial department is
applying flexible budgets to adjust factors as per activity shifts (Mazarak and Fomina, 2016).

TASK 4
P5 Comparison of different organizations on the basis of use of management accounting systems
to respond financial problems
Organizations are faced with numerous financial problems in the current dynamic market
climate. Some of the basic things Tesco faces are listed below:
• Inventory management: Due to changes occur in the market frequently this becomes causes
challenges for organizations. As per the changes clients are becoming more demanding due to
intense competition, and they expect outstanding services. This poses a negative impact on the
company in its supply chain management.
• Liquidity shortages: Sudden withdrawal, low capital adequacy, excessive lending, weak
profits, investments, decreases in asset prices, loss of established resources, investment
accumulation, etc. are the sources of the company's financial problems.
Management accounting tools to prevent problems
KPI: Key Performance Indicators (KPIs) are the key (key) metrics for progress towards an
desired outcome. KPIs provide a forum for managerial and operational development, include an
objective basis for decision-making and help concentrate important belongings most.
Financial Governance: Financial governance is the way monetary data is extracted, handled,
tracked and regulated by a corporation. Financial governance encompasses how businesses
monitor money transfers; manage information on quality and monitoring, enforcement, activities
and reporting (Nasieku and Githinji, 2016).
Comparison of 2 organizations based on use of management accounting system:
Basis Tesco Sainsbury
Issue face by
company
The business experienced problem in
properly managing its supply chain.
Because of ineffective supervision
and weak decision-making, the
manager of the organization faces
The company faces a related
problem owing to shortage of
profitability. It will not have
sufficient money to fund its
operational activities in an efficient

problems in holding its stock. and effective way.
Management
accounting
System
Inventory management system is
suitable for overcoming the problem
accurate inventory. Using this
method improves the efficiency and
competitiveness in decisions and
processes. That also helps to reduce
manufacturing costs and optimize
revenue and earnings. It simplifies
the manual activities and allows to
efficiently fulfilling the clients
through fulfilling their requirements.
Cost management system is the most
effective management method for
handling the problem of lack of
reserves. This supports retain
liquidity level in a business through
managing its scheduling of
operation, earnings, cash flows, as
well as short-term investment
approaches. It supports handle all in-
firm inflows and outflows of cash.
This allows the organisation to
sustain maximum cash flows
ensuring smooth functioning of
corporate programs and events.
Technique Implementation of key performance
metrics would be beneficial for the
concept of business organisation to
monitor the stock and improve
results.
Financial governance is the most
efficient device that enables to
collect, manage, regulate and
evaluate all of the organization’s
financial statements by making it
possible for managers to identify all
money transfers in order to maintain
adequate cash flow inside the
business.
M4 Assessment of the way in which companies are using management accounting to respond
financial problems and the way in which it can lead entities o sustainable success
Innocent Drinks is one of UK's medium sized businesses. There are two major financial
challenges it faces. These are overdue consumer transactions and ineffective wealth
management. Supervisors inside the firm use management accounting strategies such as KPI,

financial reporting, and benchmarking to define and interact with things. The company makes
improvements in its tactics and addresses the problems effectively with the support of both of
them (Nishimura, 2019).
CONCLUSION
As per the above report it has been concluded that this is very essential for certain corporate
entities to use management accounting systems and reports in order to be able to perform all the
company helps. It can help in analyzing ongoing business productivity and eventually to all long-
term business achievement of objectives. There are various varieties of cost structure such as
marginal and absorption that might be used to evaluate the year's expected revenue. Various
types of expenditures, including such cash flow, flexible and zero-based, have been used in
financial management by many other businesses and come to terms with the financial difficulties
that business faces. There are several methods that are often used to recognise and resolve the
problems relating to financial. These would be leading factors of the results, benchmarking and
financial governance. This can be used by those undertakings which are attempting to deal with
the all the issues they face due to a lack capital.

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