Management Accounting in Oshodi Plc

MANAGEMENT
ACCOUNTING

Table of Content

INTRODUCTION
Management accounting is described as a procedure to formulate accounts and
management reports which involves factual information so that management in an organisation
can take appropriate decisions. By using management accounting, an organisation can formulate
income statements and reports on weekly or monthly basis. This helps in accomplishing
organisational work in an organised way (Adler, 2013). This assignment is based on Oshodi Plc
which is a UK based manufacturing organisation, specialising in producing JOJO fruit juice.
This report is covering about management accounting and usage of various management
accounting systems. Various type of managerial reports and their integrated work with
management systems is discussed. By taking help of different costs like absorption cost,
marginal cost etc., budget and financial statements are prepared. Beside this, different planning
tool are mentioned to forecast budget and related aspects. At last, various management
accounting tools are used to solve the problems which are concerned with finance.
TASK 1
P1 Concept of management accounting and the requirement of several kind of management
related accounting systems
Management accounting is defined to the way of identifying business and operational
expenses so that financial reports of a specific company can be formulated in a systematic way.
This will helps the business owner of company to take appropriate decisions so that high
business advantage can be gained. By using this tactics, revenues and profit margins of company
will be enhanced due to transparency in accounts and finance of company. In case of Oshodi Plc,
by using management accounting, company can prepare and income statements in a proper way.
In relation to this, there are various accounting systems for management that can be utilised by
concerned company so that their business operations can be performed appropriately (Aiken, Lu
and Ji, 2013). Below are mentioned some management accounting system that can be used by
Oshodi Plc so that their production process of JOJO fruit juice can be improved and high profits
can be earned:
 Cost accounting system: It is stated as the process of tracking and transformation of raw
material or resources into finished products. This system of management accounting is
widely used by the manufacturers to manage and record their production activities. Due
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to this, flow of stock is acknowledged through various production levels. In context with
the scenario of Oshodi Plc, manager of firm can use this method to manage and monitor
the records of raw materials which is required in preparation of JOJO fruit drink like
fluids, flavours, fruits etc. This specific accounting system is helpful for company in
determining different costs which are incurred while producing goods.
 Inventory management system: It is a management system where records related with
stocks and inventory which is stored in storages or warehouses are mentioned. Managing
of inventory is essential for the manager and employees of a company so that need of
particular inventory or resources can be fulfilled in a timely manner. In case of Oshodi
Plc, manager of the organisation is needed to maintain the records of inventory in an
effective manner so that stock which is required to be purchase, sold or stored for future
use can be acknowledge in a proper manner. Beside this, by using this account system,
loopholes in inventory management can be resolved desirably.
 Job costing system: This system of management accounting includes the procedure of
analysing expenses which take place while producing services or goods. In general, it is a
procedure that categorise the production and manufacturing expenses in overhead, labour
and material cost so that actual cost can be acknowledge in a clear manner. In context
with Oshodi Plc, firm has a separate department which is responsible for managing the
expenses of concerned organisation (Booth, 2018).
 Price Optimisation system: This is a specialised system of management accounting
which is utilised to keep standard prices of products which are manufactured by a
company. With the help of this system, prices for various services or products offered by
a company can be decided. In context with the chosen company i.e. Oshodi Plc, by using
this system, costs which is associated with different beverages or materials while
producing JOJO fruit drink is identified easily.
P2
Managerial account reporting is stated as a report that represent information and facts
about business activities and their operations. Also, this report can be prepared on weekly,
monthly, quarterly or annual basis as per the needs of company. By this availability of funds and
finance is acknowledge in a proper manner. These accounting reports are used by those
companies which formulate and implement their strategies as per their the results of reports. By
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taking the help of accounting reports for management, manager in Oshodi Plc can easily identify
the areas of improvement and weaknesses which can reduce the productivity of business. There
are various methods which are associated with management account reporting, some of these
methods are stated below:
 Budget Report: This kind of accounting reports works as an assistant for managers do
that they can control, monitor and analyse the costs of their resources or materials in a
proper manner. Through this, business performance of company can be acknowledged
along with expenditure which is incurred on the daily based activities. Beside it, this
accounting report is formulated in accordance with the expenses which were spent on
previous year. In context with Oshodi Plc, company can use this report to get accurate
results about their upcoming expenditures (Grabner and Moers, 2013).
 Accounts Receivable Ageing report: It is referred as a tool that formulate reports in
accordance with the amount which is received from the customers. Beside it, this report
also include information about those consumers which are not able to pay their respective
amounts and their transactions are pending. In case of Oshodi Plc, the organisation has a
specific department that manages these reports in a proper manner. For those customers
which didn't have paid their amount, separate entries are maintained.
 Job cost reports: This is a method to prepare those reports that specify the costs and
expenses for a particular task which is performed by the company. In these reports, the
revenues of company are matched with their incurred expenses so that works can be
accomplished in a systematic way. In case of Oshodi Plc, by matching their expenses and
revenues, firm can easily identify their profitability.
 Performance report: This report type is associated with managing performance of
workers and overall company. In this report of management accounting, different kind of
information is included such as predicted performance level in terms of sale along with
actual income level. In accordance with such data, business organisation can
acknowledge their performance for various activities and operations which are performed
by them (Gray III, 2015). In case of Oshodi Plc, they can prepare their performance
report. This helps them in identifying their deficiency and lacking while performing
business operations. By preparing this report, future decision making of concerned
company will improve in a considerable manner.
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M1
Management accounting system Benefits
Cost accounting system With the hep of this system, total cost which will be
incurred during an activity or work can be estimated in a
proper manner. In case of Oshodi Plc, this accounting
system will results in monitoring and controlling the
expenses during manufacturing of products and
commodities. By this, company can reduce their spendings
due to which their profit margins will enhance (Hartmann,
Perego and Young, 2013).
Inventory management system It is beneficial in tracking the quantity of existing raw
material and resources along with finished goods. In case of
concerned organisation, this accounting system can be used
to acknowledge the amount of inventory present and needed
to perform manufacturing of JOJO fruit drinks in a desired
manner. Due to proper inventory management, expenses
due to storage of material and resources is also reduced
which results in increased profits for company.
Job costing system This system is concerned with identification of the cost of
various activities in a separate context. For Oshodi Plc, this
management system will assists them in getting information
about the job which they have to perform (Jack, Davison
and Craig, 2013). This method of preparing report will
benefits the concerned company in emphasizing on those
areas which can results in getting of higher profit margins
by comparison of revenues and expenditures.
Price optimisation system With the usage of this accounting system, prices for
different services or products can be set in a proper way. In
case of Oshodi Plc, this type of management accounting
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system will helps them in deciding the right price for their
drinking product. This will benefits in marking prices for
products of company in accordance with the requirements
and preferences of customers.
D1
It is essential for a business organisation to integrate their management accounting
reporting and systems as the reports required by companies to perform business activities can not
be prepared without the help of account systems. These systems work in an integrated manner to
accomplish organisational processes. In case of concerned firm i.e. Oshodi Plc, company can use
several kinds of accounting systems such as inventory management, cost accounting system etc.
information contained in these systems will helps in preparing accurate report for company so
that actual performance of company can be identified (Lachmann, Knauer and Trapp, 2013). If
these systems will not be used in an integrated manner, it will not be possible for oshodi Plc to
collect relevant data so that required reports can be prepared. Without preparation of actual
report, no effective strategies can be formulated by company due to which their business
productivity will reduce. In this, case revenues and profits of company can suffer in a
considerable manner.
TASK 2
P3
Cost is specified as a cash equivalent or cash amount which is given up for a particular
asset. It involves all those expenses which is required to get assets on place so that they can be
used in a readily manner. There are different type of techniques through which financial
statements of a company can be prepared. In this context, Oshodi Plc company can use
absorption and marginal costing which is mentioned below:
 Marginal costing: This costing technique is concerned with formulation of income
statements by treating fixed cost as a period cost. In this method, variable cost is
considered as cost of a unit. This is the change in total cost when the manufactured
quantity is enhanced by one.
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 Absorption costing: In this type of costing technique, variable and fixed costs are treated
as cost of unit. It includes all of the manufacturing costs that is assigned to the units
which are manufactured. This kind of costing method is needed for external financial
report along with income tax reporting (Law and Yuen, 2012).
Income statement under absorption costing method for month of November & December
Particulars November (in £) December (in £)
Sales
Less: Cost of good sold
500000
376500
600000
349000
Gross profit 123500 250500
Less: Variable selling overhead(10% of sales)
Less: Fixed selling overhead
Less: Fixed administration cost
Under/over absorption fixed production
overhead
50000
14000
26000
-9000
60000
14000
26000
9000
Net profit 24500 159500
Working note:
1. Calculation of cost of good sold:
November December
Opening stock = Nil Nil
Direct material= 216000 180000
Direct wages cost= 48000 40000
Variable production cost= 36000 30000
Fixed production cost= 99000 99000
Less- Closing stock= 22500 -
(2000*11.25)
376500 349000
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2. Under/ over absorption fixed production:
Per unit fixed cost(99000/11000) - 9 per unit
Production cost in November(12000*9)- 108000
So over absorption for November(99000-108000)- (9000)
In December,
Production cost(10000*9)- 90000
Under absorption for December(99000-90000)- 9000
Income statement under marginal costing method for month of November & December
Particulars November (in £) December (in £)
Sales
Less: Marginal cost of production
500000
344000
600000
310000
Contribution 156000 290000
Less: Fixed selling overhead
Less: Fixed administration cost
14000
26000
14000
26000
Net profit 116000 250000
Working note:
Calculation of marginal cost of sales
November December
Opening stock = Nil Nil
Direct material= 216000 180000
Direct wages cost= 48000 40000
Variable selling cost= 50000 60000
Variable production cost= 36000 30000
Less- Closing stock= 6000 -
(2000*3)
344000 310000
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M2
The techniques associated with management accounting helps in preparing different type
of financial and income reports so that company can acknowledge their performance in a
considerable manner. In this context, company can use two techniques such as marginal and
absorption costing. Both these techniques are useful in preparing income statement for company.
With the help of this technique, a framework is achieved due to which financial reports are
prepared in a standardised format (Lerch and Gotsch, 2014). In this context, there are some other
techniques also which can be used to prepare budget and financial statement. Some of these
techniques are ABC technique, standard costing etc.
D2
In context with the above stated report for Oshodhi Plc, it is stated that company is
earning profits for both months. In general, there are two types of costing techniques i.e.
marginal and absorption costing. In case of absorption costing method, in November net profit of
the firm is £ 24500 whereas in case of December, net profit in case of company is £ 159500. in
context with above carried out calculations, the net profit which is achieved from marginal
costing is varied from the net profit incurred from absorption costing. Net profit for the month of
November is £ 11600 whereas in the month of December, it is about £ 250000. At the end, we
can interpret that financial condition of the concerned organisation is good and they are earning
appropriate profits in both months by using different costing methods.
TASK 3
P4
Budget is referred to the document that is prepared by the account manager of an
organisation so that all the expenditures and earning which are concerned with upcoming
strategies and activities can be acknowledged in a proper manner. Budgetary control is defined
as a way to denote the manner in which management of a company use their budget so that their
activities can be controlled and performed properly. In case of Oshodi Plc, budgetary control
will helps them in performing their business activities by utilising their resources in a optimal
manner. Beside this, it will helps the company in acknowledging difference between estimated
and actual revenues so that required improvements can be carried out (Nitzl, 2016). There are
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various planning tools which can be used by concerned company to control and check their
budgets. These tools are listed below:
Zero based budget: It is the main tool associated with budget controlling. In this budget,
all the operations and activities are initiated with zero base. In accordance with this budget every
year a new budget is formulated in which past figures are ignored. This will help Oshodi Plc, in
preparing budget with transparency.
Advantages Disadvantages
 This type of budget brings transparency
and accuracy in the budgetary results.
 As it start with zero base, this budget
can be used for new projects and
business operations (Sarkis, 2012).
 This technique is costly and time
consuming.
 In this budget, data from previous years
is not considered due to which company
faces complexities in managing past
transactions.
Flexible budget- This type of budget is appropriate for those firms which are required
to carry out changes as per their needs and situations. By formulating such budget, Oshodi Plc
can identify how the expenses and revenues will be modified in accordance with the change in
output. In comparison with static budget, this budget is more suitable in context with the
concerned company. Different drawbacks and benefits associated with this budget are mentioned
beneath:
Advantages Disadvantages
 With the help of this budget, a business
firm such as Oshodi Plc, can
acknowledge their overall performance
in the desired manner.
 This type of budget is very flexible due
to which it highly assists managers of
company in recording all the changes in
 In some situations, this budget creates
confusion as manager of company is
required to concentrate on every change
which are linked with budget.
 Formulating this budget is easy as
limited strategies and processes are
needed by company but the processes
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accordance with the market demands
and situations.
followed by company can results in
lack of discipline (Soltes, 2014).
M3
Planning tools associated with the budgetary control are very useful in preparing and
forecasting the budgets. Because of this budgets, a business firm is able to easily predict about
their future expenditures and incomes. For instance, in case of the concerned firm i.e. Oshodi
Plc, they can use various type of planning tools such as flexible budget, zero based budget etc.
All of these budgets are vital for creating and using other budgets. Other than this, these tools
helps the firm in forecasting their actual budget without heavy expenditure of cost and time. In
this context, we can say that planning tools which are concerned with budgetary control are vital
in preparing and estimating the budgets.
TASK 4
P5
Financial problems are defined as the deficiency of funds and capital due to which an
organisation faces complexity in performing their business activities and operations. In order to
perform business activities in a desired manner, every company require sufficient amount of
money. It is essential for a company to resolve their financial issues in a proper manner so that
strategically advantageous decisions can be taken in respect with company. Some if the financial
issues which are faced by company are stated below:
Unequal cash flow: This financial issue is taking place because management in Oshodi
Plc do not have appropriate information about the regulations, principals and rules of accounts.
Beside this, company lacks the skills of money and funds management. Oshodi Plc is doesn't
have proper information about allocating their capital resources. Due to this, operational
activities of firm are suffering in a negative manner.
Decrease in income: This financial problem takes place in those situations in which the
expenses of company are more than their earnings or company is not capable to perform and
manage their operational activities through efficient means. These aspects can results in lack of
income and revenues in a considerable manner (Ter Bogt and Scapens, 2012).
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To overcome the above mentioned issues, concerned company can use different
management accounting systems which are stated beneath:
 Key performance indicator: It is used by companies to continuously monitor the
performance if their company. This will benefits them in acknowledging those aspects
which are their strengths. Beside this, it also specify those factors which require
improvements. Every organisation uses KPI as per their requirement. Manager in Oshodi
Plc can use KPI to identify and resolve their issues or problems related with money
management.
 Benchmarking: This kind of technique is utilised by several organisations to compare
their revenues, activities and operations with other companies operating in same sector. It
benefits them in identifying about those methods, processes and areas where company is
required to carry out changes (Springer and et. al., 2017). In context with the concerned
company, this tool will assists them in making those strategies which will helps them in
managing their capital desirably so that problems of unequal cash flow can be resolved .
Below are compared the management accounting system of different organizations so
that financial issues faced by them can be resolved in a considerable manner:
Basis Oshodi Plc Lyla drinks
Description Company is manufacturing firm
which specialises in the
production of JOJO fruit juice.
This firm is a small scale drinks
manufacturing company offering
soft drinks to their customers.
Financial issue Firm is facing the issue of
decrease in income.
Company faced problem of
unequal cash flow.
Management accounting
technique
To overcome such problem,
company can use KPI. In this
technique, company will monitor
their activities closely so that
unnecessary expenditures can be
reduced. This will increase the
income of company in a
considerable manner.
To solve their issues, company
can use Benchmarking. This will
benefits the company in
acknowledging about cash flow
strategies of other companies so
that they can carry out required
improvement and manage their
cash flow properly.
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M4
Accounting systems of management are important for each business firm in resolving
their issues as it involves different techniques and tools to manage problem desirably. Every firm
has their own purpose and they choose accounting system according to their requirements.
Oshodi Plc can use benchmarking, KPI and other techniques to resolve problems like unequal
cash flow and decrease in income etc. These tools will improve the situation of company due to
which they will have sufficient revenues and profits. This will help them in gaining advantage
over rival organisations.
D3
There exist varying kind of planning tools like capital budget, zero based budget etc. that
assists a business firm in resolving their financial problems. These techniques will help Oshodi
Plc in formulating effective business strategies. With the help of these planning tools, manager
can predict their income and expenses and match it with actual figures. This will helps them in
identifying difference so that they can perform different business tactics to overcome it. This will
help the company in resolving their financial problem in a considerable manner (Tucker and
Lowe, 2014).
CONCLUSION
As per the above depicted report, it has been concluded that in order to manage the
accounts and income statements of a company in proper manner, management accounting is
needed. There are various kind of systems like job costing, price optimisation system etc. which
benefits a company in identifying their prices, expenses and costs in a proper manner. There are
different accounting reports like performance report, inventory report etc. that assists a company
in acknowledging their finances and expenses properly so that required strategies can be
formulated in a proper manner. With the help of absorption and marginal costs, budget of a
company can be prepared properly. There are different types of planning tools such as zero
budget, maximum budget which can be used for budgetary control. By using different
accounting tools like benchmarking, KPI financial issues of an business organisation can be
resolved in an effective manner.
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REFERENCES
Books and Journals
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