Management Accounting and Reporting Methods

This document provides an introduction to management accounting and its essential requirements for different types of organizations. It discusses various methods used for management accounting reporting, such as budget reports, accounts receivable aging reports, job cost reports, performance reports, and costing reports. The document also includes calculations for absorption costing and marginal costing, along with an interpretation of the results. Overall, it offers valuable insights into management accounting and reporting methods.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
P1 Definition of Management accounting and essential requirement of different types of
management accounting system for organisation........................................................................1
P2 Different methods used for the management accounting reporting.......................................4
P 3 Calculation.............................................................................................................................5
P4 Different types of planning tools and their advantages and disadvantages............................9
P 5 Organization responding to financial problems with help of management accounting
systems.......................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
The MA could be described as the process of analysing the business cost and operations
for preparing the internal financial reports, accounts and records to enable the managers in
decision making to achieve the business goals. In simple words it involves utilising the costing
and financial data for making essential decisions for improving the efficiency and productivity of
the enterprise. MA is also used by the management for formulating financial strategies by using
the budgets, forecasts, costing techniques and other accounting tools. Present report is based over
Innocent drinks providing fruit juices and other energy drinks. Study will demonstrate the
concept of MA and the different systems of MA used by the organisations to manage the
operations along with their requirements and benefits. It will be providing about the different
MA reporting methods used by the firm. Further the report will also provide about the different
costing techniques used for preparing profit or loss statement in MA to identify profits or losses
occurred. Further the study will cover the different planning tools under budgetary control with
their advantages and disadvantages. At last it will provide about the MA tools used by the entity
in resolving financial issues.
MAIN BODY
P1 Definition of Management accounting and essential requirement of different
types of management accounting system for organisation
Management accounts includes various accounts of firm that need to be managed so that
company can easily operate its business and achieve its objectives.
Thus, it is process that helps in preparing reports about the way business operates at the same
time assist manager in taking appropriate decision for growth and sustainability of enterprise in
highly competitive market. Management accounting helps in identifying, analysing and
measuring various statistical information so that correct decision can be made by manager for
benefit of organisations. There is difference between two terms that is management accounting
and finance accounting. Such that finance accounts are mostly useful for external parties such as
investors, shareholders, suppliers and customers to know credibility of firm so that they can
invest or lend money or supply raw material at credit for smooth operation of business
(Căpușneanu and et.al., 2020). Manager of innocent drink in order to take decision related to day
to day operation make use of reports or accounts so that firm can cope up with external changes
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and achieve its objectives. It can be stated that management accounting system vary as per their
application or uses in the organisation thus it provide information as per requirement of manager.
Job costing, price optimisation, inventory management and cost accounting system are different
kinds of accounting system that are used by manager of innocent drink with different objectives,
function to take best decision. Therefore, essential requirements of different types of
management accounting systems for innocent drink can be illustrated as follows:
Price optimising system: It assist manager of innocent drink to understand the way customers
will react on particular price or communication channel that is set or used by organisation. Price
optimising system helps manager in determining best prices at which various products or
services needs to be delivered to customers. So that they can be influence to be part of
organisations for satisfaction of their needs. Most of the customers while taking decision to make
purchase compare actual price with value delivered by company in order to get maximum value
(Taschner and Charifzadeh, 2016). Therefore, innocent superior manager by use of price
optimising software can easily set best possible price that attract more and more customers to
prefer products and services of specific company rather than other competitors in industry.
Cost accounting system: It is frameworks that is used by manager of innocent drink to estimate
actual cost that company have to bear to manufacture specific products and services within
organisation. Cost accounting system enable manager to identified products that are more
profitability for organisation. Manager find actual cost incurred by company to produce final
goods by weighting actual expense that it have incurred to purchase raw material( variable cost)
plus fixed cost (machinery and land and building). Manager of innocent drink by comparing
actual cost incurred with selling prices is able to identified total profit earned by enterprise from
specific products and services (Gatti, 2018). Therefore, it can be stated that it is key concept as it
helps in controlling budget, setting appropriate prices at which products or services need to be
offered to customers so that company can earn maximum profit margin.
Job costing report: It is another management accounting system that is essential for organisation
as it helps in identifying or tracking actual cost that will incurred to complete on going project. In
another words, it helps innocent drink manager to evaluates or compare production performance
with estimated standard set by firm. These job cost are further classified or divided into three
common cost such as labour, variable cost and material cost, overhead (Fleischman Johnson and
Walker, 2017). It helps manager to track actual revenue and cost that company have incurred to
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complete particular project. At the same time job costing system helps in providing information
related to cost data to customers in case cost need to be refunded.
Inventory management system: It is systematic approach to collect and retained information
related to existing raw material and finished products within organisation. Inventory
management system is essential for innocent drink because it helps company to have sufficient
raw material and finished products to meet customers requirement in minimum time frame and
cost. There are various application such as barcode scanners, mobile devices and desktop
that are used by manager to store information related to total stock that is present in organisation
and need to be arranged in future for better satisfaction of customer's needs. Therefore, it
contributed in minimising or reducing overall cost of firm to over store or under store resources.
Inventory management system have several benefits like helps in improving workflow,
enhancing inventory accuracy and bottom line of company (Cokins, 2016). Manager of
innocent drink through inventory management system can easily enumerates and track quantities
of products that are available in enterprise. Thus, manager can take decision to make purchase of
more raw material or products in order to fulfil requirement of various customer's for growth of
enterprise.
Evaluation of benefits of management accounting system and their application in firm
It can be critically evaluated and analysed that there are various benefits and application
of management accounting system in organisations. Such as systems helps in understanding or
estimating actual cost that company have incurred in while manufacturing products thus assist
manager in taking correct decision. It can also be stated that manager through analysis various
data or information that are present in accounting management system can take effective
decision for achievement of short and long term goals of organisation (Gatti, 2018). Innocent
drink manager can easily reduce cost to store more raw material or finished products in the firm
by making use of inventory management system. Application of different types of management
accounting system differ as per objectives, purpose and function that manager of innocent drink
wants to perform for growth of enterprise. Therefore, it helps in effective planning, controlling
and managing various resources and activities so that company can easily grow and expand its
business in particular sector.
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P2 Different methods used for the management accounting reporting
The management accounting report helps the managers and owners of small businesses to
monitor performance of company and to be prepared throughout accounting periods. The reports
could be requested on quarterly, half yearly and annual basis. The basis of time sensitivity and
nature of the firm. There are different types of reports that are prepared by the management.
Budget Report
It helps the business owners analysing the performance of company and of respective
performance of the departments and costs. The estimated budget related to period is based over
actual expenses from the prior years. If the departments and expenditures are over the budget in
previous years and feasible ways were not established for trimming the cost, budgets for the
future level will be improved to more accurate levels. Managers and owners use the budget
report to provide the rewards and to analyse the performance (Langfield-Smith, Thorne and
Hilton, 2018). The budget reports are also used for measuring the variances between the actual
and budgeted figures for improving the performance of entity. Budget reports are essential for
the improving performance of business and to make effective allocation of the resources.
Accounts Receivable Ageing Report
It is critical tool to manage the cash flows for the companies extending to the customers.
Report breaks the balances of customers on the basis of length of owing. The ageing reports
contains details about the ageing report and its time length. It is used for analysing the collection
process of the company and to identify the issues associated with it. Credit policies regarding the
collection period needs to be tightened if outstanding balance is high of customers. It prevents
the company from supplying goods to customers whose balance is pending from considerable
time.
Job Cost Reports
The report provides the management with the costs and expenses related to the specific
project or operation. It is generally matched with estimates of revenues so company could
evaluate the profitability of job. It helps to identify higher earning areas of business so company
could focus the efforts in such jobs moving from the low profit margin jobs. The report is also
used for analysing the costs while the project is in process to correct the areas of waste. It also
provide details of specific jobs to enable the management in effective decision making.
Performance Report
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The report is prepared by the management to measure the performance of different
departments and operations. The performance contains detailed information about the the
benchmarks of the activities or operations and the level of targets achieved by the staff. The
performance measures the efficiency of departments in achieving the target goals and objectives.
The process are enhanced and improved by employing new resources and training the employees
(Otley, 2016). Performance reports also enable the management to identify employees who are
performing well so that they could be promoted.
Costing Report
The report provides information about the costs and expenses of the business. The report
is prepared by the management to analyse all the items of costs and expenditures incurred related
to the production. It helps the management to identify the cost associated with specific products
or services produced by the entity. On the basis of cost information management takes steps for
improving the costs and reducing the expenditures that are not productive and to also frame cost
efficient strategies to control the costs (Rikhardsson and Yigitbasioglu, 2018). The cost reports
also compares the actual figures with the standard cost to analyse the extent of variations
between the figures.
P 3 Calculation
Super Smoothies April May
Units Produced 6000 6000
Units Sold 4000 5000
Opening StockNil 2000
Closing Stock 2000 3000
Selling Price per Unit £14 £14
Variable Manufacturing cost per unit £5 £5
Fixed Non Manufacturing Cost £5000 £5000
Fixed Manufacturing Overhead £18,000 £18,000
Selling Price per pack of 12 60
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Absorption costing
Variable Manufacturing cost per unit 5
Fixed Manufacturing Overhead (18000/6000) 3
cost of production 8
April May
Sales 4000*14 56000 5000*14 70000
Less: COGS
Opening stock 0 0 16000
+ Purchases 6000*8 48000 48000
- closing stock 2000*8 16000 32000 24000 40000
gross profit 24000 30000
Less: expenses
Fixed Non Manufacturing Cost 5000 5000
Net profit 19000 25000
Marginal costing
Variable Manufacturing cost per unit 5
cost of production 5
April May
Sales 4000*14 56000 5000*14 70000
Less: COGS
Opening stock 0 10000
+ Purchases 6000*5 30000 30000
- closing stock 2000*5 10000 20000 15000 25000
Contribution 36000 45000
Less: expenses
Fixed Non Manufacturing Cost 5000 5000
Fixed Manufacturing Overhead 18000 23000 18000 23000
Net profit 13000 22000
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Interpretation: Through the above calculation, it is analysed that absorption costing method is
beneficial for the company as compared to marginal costing because the methods allocates a
proportion of fixed overheads to actual unit sold as well as closing inventory. In the same way,
through the calculation it is analysed that absorption costing is beneficial for financial statement
while marginal costing do not. As the table depicts that net income for quoted firm through
absorption costing is 19000 and 39000 while in the case of marginal costing, it is varies from
13000 and 22000.
Thus, it is analysed that by using marginal costing, company also determine the break even point
which in turn assist to meet the define goal but it is not possible in the case of absorption costing.
In addition to this, absorption cost consider all the cost such that production cost, variable cost
but it is not in possible in the case of marginal costing that is why, using absorption costing is
more favourable rather than other method. This is also reflected from the table because net profit
is obtain by considering all the overheads and even more reliable to track profits than other
method.
Break even point
Selling price per unit 60
Less: Variable cost
Variable Materials 20
Variable Labour 14
Other Variable Costs 12
Variable 3 49
contribution 11
BEP (in units) Fixed cost/ Contribution 12727
BEP (in value)BEP (in units) * Selling price per unit 763636
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Graph
Detaile table
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Interpretation: It has been depicted that, the company will attain a breakeven point after selling
12727 units and will attain a break even point if the company sells goods of value 763636. this is
the point where business neither earns profit nor suffer any loss. If the company sells over this
unit then it
P4 Different types of planning tools and their advantages and disadvantages
Budget could be defined as the estimation of revenues and the expenses for specified
period. The budgets are made for the effective allocation of the resources to meet the objectives
of the business. Budgetary control on the other refers to system of the management control where
the actual incomes and spendings are compared with budgeted incomes and spendings. It ensures
that departments are complying with budgets and identifying if changes are required for making
profits. There are different types of planning tools used by the organisation for managing the
operations of business.
Zero Based Budget
It could be referred as budget that involves preparation of the budget from the starting.
This type of budget does not take into consideration information of previous budgets for
preparing the current year budget. Each and every information is taken after properly analysing
the requirements and factors influencing them. In zero based budget justification is required to be
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provided for every item included in the budget. The budgets are used in the activities and
operations involving changes at short period.
Advantages
It is flexible budget that does not take into account previous budgets to prepared new
budget. It prevents the errors and mistakes to carry forward over future years. The budget is
useful where significant changes are seen in short period.
Disadvantages
The budget is very time consuming as each item is assessed every time the budget is
prepared. Also, budget is expensive and is focused over short term planning.
Activity Based Budget
The budget are prepared after analysing the activities thoroughly for predicting the costs.
The budget does not accounts for historical costs while creating the budget. The budget is
prepared after analysing all the activities that are included in the process for meeting the
requirements of business (Ameen, Ahmed and Abd Hafez, 2018). The budget is highly effective
in the business process having different activities to allocate resources as per requirements of
different activities.
Advantages
It enable the management to identify the operational cost of each job separately that helps
in allocating the resources to each activity separately. It also enable the management to identify
the issues associated with any activity separately.
Disadvantages
A major disadvantage of the budget is that it is time consuming and costly as compared
with other budgeting methods. It is difficult in business with complex production environment.
The budget requires deep knowledge of the activities or processes for allocation of resources.
Incremental Budgeting
It refers to budgeting method that uses budget of previous year to make the budget for
current year. The incremental budget is prepared by the management by making changes and
adjustments to the previous budgets. The adjustments made to previous budgets are related to the
market conditions, demand and supply, inflation rates, economic conditions and other factors
(Alborov and et.al., 2017). The budget is considered most conservative in comparison with other
budgets.
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Advantages
The budget is simple and easy to implement. The budget follows consistency and
operational stability in the firm that makes it less time consuming. The budget enables the
business enterprise to make allocation of the resources after analysing various forces that could
influence the budgets.
Disadvantages
It is based over old budgets hat may cause the errors and mistakes to be forwarded in
future periods. The budget promotes unnecessary spendings as the areas that are non productive
and productive are not identified by the management.
P 5 Organization responding to financial problems with help of management accounting systems
The financial problems are the difficulty which the company faces at time of managing
the finance within the business. this is the most common type of problem which is faced by the
companies in managing finance. These can be like increase in expenses, decrease in income, lack
of cash flow and many other different types of financial problems. The major management
accounting system which are helpful in dealing with the financial problem for Innocent drink are
as follows-
Benchmarking- this is a management accounting tool which aims at comparing the actual
performance with the performance of the competitors (Hileman and Rauchs, 2017). This is a
tools for solving the financial problems as when the company will compare the performance of
itself with that of the competitors then they will come to know about the areas where the
company is lacking.
KPI- this is a system of management accounting which assist in dealing with financial
problem. Under this system the key performance indicator is set by the company and the
performance of the company is accessed against that only. For instance, Innocent drink can use
sales as a KPI and compare the performance on the basis of the sales only.
Variance analysis- this is also a type of tool which assist Innocent drink in order to solve
the financial problem. Under this method the variance analysis is used in order to deal with the
financial problem of the company. The variance analysis is a tool which assist the company in
finding out the deviation between the planned performance and the actual performance. This will
help the company in identifying the difference between the planned and the actual and try to
bridge the difference between the deviation.
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Comparison with other company
Innocent drink Vita Coco
The company uses the management accounting
tools that is variance analysis. The major
benefit of using this method for dealing with
the financial problem is that the company has
some standard to be achieved and have a
direction in which they have to work. Thus,
this method guides the company in how they
have to work.
The company Vita Coco uses the tool of
benchmarking and this is helpful for the
company in dealing with the financial problem.
The major benefit of using this method for the
company is that in this method company
compares its performance with that of the
competitors. If there is any deviation then this
is solved by the company by looking at
performance of the competitors.
Responding to the financial problem assist the company in leading to sustainable success
because if the company will not be having any financial problem then they will be in a position
to allocate the finance to all activities of business in effective manner. Thus, in the end it can be
said that the financial problem is very essential to be solved and for this the management
accounting tools are very helpful (Li, 2019).
CONCLUSION
It could be summarised from the above report that MA plays a critical role in the success
of the organisation. MA systems enable the management to organise the systems that are
essential for managing the operations of business enterprise. The MA systems are integrated with
MA reporting to make informed business decisions for improving the efficiency of enterprise.
Management could analyse the different issues faced in the systems that are affecting the
operational efficiency of the entity. Costing techniques used in MA enable the management to
identify the profits under different costing techniques. Budgetary planning tools are used by the
enterprise to allocate the resources in efficient manner among the different departments. They are
highly essential for controlling the costs and expenditures and also for resolving the financial
issues.
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REFERENCES
Books and Journals
Alborov, R.A., and et.al., 2017. The development of management and strategic management
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Accounting and How It Can Be Implemented into the Organizational Culture. Dutch
Journal of Finance and Management. 2(1). p.02.
Căpușneanu, S and et.al., 2020. Management Accounting in the Digital Economy: Evolution and
Perspectives. In Improving business performance through innovation in the digital
economy (pp. 156-176). IGI Global.
Cokins, G., 2016. The top seven trends in management accounting. Edpacs, 53(4).pp.1-7.
Fleischman, G. M., Johnson, E. N. and Walker, K. B., 2017. An exploratory examination of
management accounting service and information quality. Journal of Management
Accounting Research, 29(2). pp.11-31.
Gatti, M., 2018. The impact of management accounting research: an analysis of the past and a
look at the future. International Journal of Business and Management, 13(5). pp.47-60.
Hileman, G. and Rauchs, M., 2017. Global cryptocurrency benchmarking study. Cambridge
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for creating and managing value. Sydney: McGraw-Hill Education.
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Accounting System under Big Data Background. In 2019 International Conference on
Advanced Education, Service and Management (Vol. 3, pp. 161-166). The Academy of
Engineering and Education.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
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Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
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Taschner, A. and Charifzadeh, M., 2016. Management and Cost Accounting. John Wiley &
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