Table of Contents INTRODUCTION...........................................................................................................................1 TASK 1............................................................................................................................................1 P1: Management Accounting Systems........................................................................................1 M1: Benefits of Management Accounting Systems....................................................................3 D1: Critical evaluation of management accounting systems and reports....................................3 P2: Management accounting reports............................................................................................3 TASK 2............................................................................................................................................5 P3: Calculation of costs...............................................................................................................5 M2: Application of various types of techniques and producing of financial documents............6 D2: Producing of financial reports for analysis and interpretation..............................................7 TASK 3............................................................................................................................................7 P4: Planning tools used for budgetary control.............................................................................7 M3: Analysis of use of planning tools.........................................................................................9 TASK 4............................................................................................................................................9 P5: Comparison of ways in which organizations adopt management accounting systems to respond to financial problems......................................................................................................9 M4: Analysis of response to financial problems........................................................................11 D3: Evaluation of planning tools for accounting.......................................................................11 CONCLUSION..............................................................................................................................11 REFERENCES..............................................................................................................................12
INTRODUCTION Management Accounting is a process which is used in accounting and it enables the managers to apply financial provisions in an effective manner so that they are able to achieve the distinct goals and objectives of the organization through the taking of different types of short- term and long-term decisions(Al-Mawali and et.al., 2018). It can be applied in the different processesofthecompanywhichallowsthemtobeabletobringmoreefficiencyand effectiveness. This allows them to raise the overall profitability level. This report is based on Innocent Drinks. It is a company which provides smoothies and juices to the various customers in the market. In this assignment, detailed focus will be made on management accounting systems, a range of its techniques. Additionally, the use of planning tools and comparison of ways in which firms use it to solve financial problems will be discussed as a part of this project. TASK 1 P1: Management Accounting Systems Management accounting is a tool which can be used to assist the management so that theyareabletoachievebetterplanningandcontrolintheorganization(Management Accounting,2020). There are various systems which can be used in it. These are explained as follows- Cost accounting system- This is used by the organizations so that evaluation of various types of costs can be done in an effective manner(Amir, Rehman and Khan, 2020). There is a requirement for Cost Accountants to make the use of it so that they are able to achieve the various types of goals and objectives. In Innocent Drinks, its use will allow the firm to be able to segregate the costs and overheads. Also the use of appropriate techniques can be made so that significant reduction can be made in them to facilitate maximization of profits. Essential requirements- Thissystemshouldallowtheorganizationsmustbeabletoanalysetheoverall profitability level in an effective manner. This will help the management of Innocent Drinks to be able to analyse the profits effectively and efficiently. This system must also enable the firms to be able to value their level of stock and ensure cost control in the organizations. Thus in this way the managers of Innocent Drinks will be able to identify the requirements appropriately and reduce the costs. 1
Inventory management system- In the organizations, this system is quite helpful for ensuring that the level of stock is properly and effectively managed(Borker, 2016). With its help, the managers can ensure that they are able to identify the way stock can be managed in an appropriate manner. The management of Innocent Drinks therefore should make its use so that they can identify the costs of managing inventory and apply different techniques to reduce them. Essential requirements- This system should allow the managers to make the use of systems like LIFO, FIFO etc. to be able to track and manage the movement of various types of items. In this way it can help the management of Innocent Drinks. With the use of this system the management can ensure that they make their inventory processes more better. The managers of Innocent Drinks will be benefited in this way. Job costing system- For the organizations, the use of thus system is very helpful in ensuring that the various job costs are identified properly(Coad, Jack and Kholeif, 2016). If the managers make its use effectively and efficiently this will make sure that the job costs are reduced and the profits are enhanced. Thus the managers of Innocent Drinks must use it to bring more efficiency and effectiveness in the management of job orders. Essential requirements- This system should help the management to ensure that detailed job costs are identified effectively and efficiently. In this way, Innocent Drinks will be able to assess the job costs in an effective manner. The use of this system should help the managers to be able to improve the overall job performance. Thus this will benefit Innocent Drinks. Price optimization system- The management makes the use of this system so that it is able to use various types of models and assess the price to be used in an appropriate manner(Dai and et.al., 2017). Thus here the managers of Innocent Drinks will be able to ensure that they select the right price for earning higher-level profits in the future time period. Essential requirements- This system have different types of mathematical models which can help the management to be able to forecast the data in an appropriate manner. This can ensure that Innocent Drinks is able to set right price. 2
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In this method, the managers must make sure that the historical is data collected. This willhelpthemanagementofInnocentDrinkstoderiverightconclusionsand recommendations. M1: Benefits of Management Accounting Systems Cost accounting system is useful for the proper estimation of the various types of costs in the organization. Also it can help in reducing costs effectively. Inventory management system is quite useful in proper tracking of inventory items. It can be used to manage the costs related to stock management. Job costing system can help in tracking of job orders. It can be useful for the reduction of costs incurred in job orders. Price optimization system is helpful in setting right price for the products. Further it can be helpful in maximization of profits. Thus in this way these systems are highly beneficial for the managers of Innocent Drinks. D1: Critical evaluation of management accounting systems and reports In the organizations, the managers are required to take proper steps so that they can ensure their successful integration. This will enable them to make sure that they are able to attain higher-level of efficiency and effectiveness. Thus in this way the management of Innocent Drinks will be able to bring the required improvements in their different processes by removing deficiencies and variations. Thus the targeted level of profits can be achieved by the management in the future if the proper integration can be facilitated in the right manner. P2: Management accounting reports All the important information that provide help to managers in decision making process are to be concluded in the management accounting report. For this different reports are to be prepared. Job Costing Report:It is a report that is prepared by experts in which all the relevant information is recorded to calculate the costof manufacturing job(Endenich and Trapp, 2020). Allocation of cost on the basis of labour, materials and overheadforspecific project are mentioned under the report. Innocent Drinks prepare different varieties of drinking items according to requirement of customers so proper reports are maintained by professionals that is considered at the time of decision making activity. To evaluate production performance against estimated standard, this report act as a important management tool. Information related to number of orders, their specification, date of order, details of ordering party are to be recorded 3
by the organisation. It becomes beneficial to prepare as it supports in ascertaining cost of each job. Inventory Management Report:Under this all the stock related data related to specific period of time are covered. Carrying cost and risk of overstock, under stock, obsolescence issues etc. are reduces if proper management is done after considering the related report. It also covers information related to different method like LIFO, FIFO and Weighted Averageof stock maintenance. Innocent drinks by maintaining and observing this report, set their reorder level along with reorder quantity so the stock is easily available to consumers at every point of time. The report covers reorder level information so innocent drinks can easily restock the product. It becomes beneficial to prepare report as it help to increase sales also. Accounts Receivable Report:The report covers all the details about debtors, bills receivable, re discounting of bill etc. to reflect credit sales(Golyagina and Valuckas, 2016). By preparing this report,to make evaluation of payment term with debtors and to made necessary changes as per requirement. Average collection period information are also mentionedin the report. Supporting documents such as invoices, vouchers, and negotiable instruments are also attached in it. Innocent drinks prepare accounts receivable report and with the help of this collection letters covering overdue balance are prepare for respective debtors in this way it help organisation. ProductProfitabilityReport:Thisreportreflectsinformationrelatedtorevenue generated from sales and also by reducing manufacturing cost of product(Kalkhouran, Nedaei and Rasid, 2017). Separation of product that are making good profit and those are not set in market for earning gain are done after analysation of report. Forecasting profitability for introduce of new product in market is also become possible with deep analysis. Innocent drinks prepare this report that help to sort their annual sales related todifferent product.The product manager of Innocent drinks studied the report that helps in taking decision to choose best profitable alternatives among available to increase the profit. Unnecessary cost can easily be eliminated by the expert managers with the help of this report. 4
TASK 2 P3: Calculation of costs 5
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Techniques used by Innocent Drinks to determine the profitability level- Marginal costing- It is a technique through which the organizations can determine their profitability level. It is helpful in making sure that the managers are able to determine the Break- even point effectively and efficiently(Kariuki and Kamau, 2016) (Lay and Jusoh, 2017). It is a point at which the firms neither make profits nor incur losses. Thus in this way the management of Innocent Drinks will be able to use this technique in an appropriate manner. Absorption costing- It is a method through which the various types of costs can be determined in the organization. Thus by making its use the managers of Innocent Drinks will be able to make sure that the profitability level can be determined. Further, the organization can also ensure the proper treatment of overheads by making use of this technique. M2: Application of various types of techniques and producing of financial documents These techniques can be used by the managers so that they are able to make sure that they can properly determine the level of profits which the organization is earning. By making their use, the managers of Innocent Drinks will be able to estimate the profits but will also be able to 6
produce relevant financial documents which will identify the financial situation of the company. In this way, the various types of short-term and long-term decisions can be taken by the management which will be helpful for the organization in the future. D2: Producing of financial reports for analysis and interpretation With the appropriate use of these techniques, the management of Innocent Drinks can prepare financial reports which can be quite useful for analysis and interpretation. Thus in this way the company will be able to derive the conclusions and recommendations through which it can decide the future course of action which it needs to take. Thus this helps the management to be able to take the appropriate decisions in the future time period without facing different types of problems and issues. TASK 3 P4: Planning tools used for budgetary control In the organizations, there is a requirement to make the use of various types of planning tools for budgetary control(Szychta, 2018). An explanation of some of these tools is as follows- Cash budget- It is a budget through which the management can determine the cash receipts and expenses during a particular period of time i.e. mostly a year(Tekathen, 2019). In Innocent Drinks, it can be used so that the proper management of cash can be done. Advantages- By making the use of this budget the management can ensure that a proper track record of various types of cash receipts and expenses can be made in an effective manner. Thus in this way it is able to provide an advantage to the managers of Innocent Drinks. In the organizations, this budget can be used so that the managers are able to identify the approach to be adopted to ensure proper liquidity. For Innocent Drinks, this can be quite beneficial for management of liquid assets in a proper manner. Disadvantages- This budget is not useful for the firms because it can create an impact on the level of flexibility. Thus in this way this can impact the operations of Innocent Drinks. 7
Preparation of this budget requires the organizations to incur higher expenses and this can create an impact on the financial position. Thus for Innocent Drinks this can lead towards a disadvantage. Operating budget- In this budget, there is an estimation of operating revenues and expenses over a particular period of time. By making its use the management of Innocent Drinks will be able to estimate the working pattern of the organization in a much better manner. Advantages- When this budget is used it can help a lot in the estimation of operating incomes and expenses which can be quite useful for the companies. Thus this creates an advantage for the managers of Innocent Drinks. For the firms, this budget can create an advantage because by making its use the operating profitcan be enhanced.For Innocent Drinks, this can leadtowards an advantage. Disadvantages- In the organizations, the use of this budget can lead towards a disadvantage because it can increase their overall level of expenses as preparing it is a costly affair. Thus in this way it is not beneficial for the managers of Innocent Drinks. It is a time-consuming affair to prepare this budget. Thus in this way this creates a disadvantage for the management of Innocent Drinks. Master budget- It is a budget which provides comprehensive and detailed information about the various types of processes within the organization(Tucker and Lawson, 2016). In Innocent Drinks, it can be very useful because by making its use the managers can ensure that they can take appropriate decisions for the future. Advantages- When this budget is used in the firms it can help the managers to get the desired information related to the processes. In this way an advantage is created for Innocent Drinks. 8
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By using this budget in the organizations the managers can ensure that they are able to assess the problems and issues effectively and efficiently and solve them. This creates an advantage for Innocent Drinks. Disadvantages- Preparation of this budget requires the application of high-level of skills from the managers. Thus it creates a disadvantage for Innocent Drinks. If the managers have to obtain specific information related to a department then they cannot do so by making use of this budget. For Innocent Drinks, this can create a disadvantage. M3: Analysis of use of planning tools Planning tools are quite useful for the companies as by making their use they can ensure that they are able to create plans for short-term, medium-term and long-term. Thus in this way Innocent Drinks can ensure that they are able to prepare strategies to be used in the future. They can identify the various ways through which level of profits can be enhanced within the organization. TASK 4 P5: Comparison of ways in which organizations adopt management accounting systems to respond to financial problems Financial problem- It refers to a situation in which the organizations face issues in the management of their funds(Wnuk-Pel, 2018). This can create financial difficulties for them. Like other companies, Innocent Drinks also faces certain financial problems. These are explained as follows- Higher costs in job orders- Innocent Drinks is facing higher costs in completing its job orders. This is increasing its overall expenses leading to creation of an impact on the profitability level. Low profits due to wrong price selection- In Innocent Drinks, the profits have decreased because the firm has set wrong price for some of its products. This is leading towards creation of an impact on its financial position. Techniques for solving financial problems- 9
KPIs- These are Key Performance Indicators. Their use is quite useful from the point of view of the organizations because by making their use they can identify the increase in the overall costs of job orders by facilitating comparison with the set standards. The management of Innocent Drinks can make sure that they use them to solve the problem related with job orders so as to maintain efficiency and effectiveness in the organization. Benchmarking-Itreferstovarioustypesofstandardswhicharesetwithinthe organization. Performance can be measured effectively with the use of this technique. In Innocent Drinks, it can be used so that the problem related with prices can be solved as the managers can make use of this method to compare their existing prices with the set standards to identify deviations and variances. They can set prices according to the set industrial benchmarks and standards. Financial Governance- It refers to the way financial data is managed within an organization.Itisquiteessentialsoastomaintainfinancialdisciplinewithinthefirm (Yigitbasioglu, 2017). By making its use, the managers of Innocent Drinks can ensure that they are able to solve the financial problems in an effective manner. Comparison of organizations- BasisTescoSainsbury's Financial problemIn Tesco, the overheads are not being segregated in a proper manner. This is increasing the costs for the organization. In Sainsbury's, stock items are not beingmanagedproperly. Thisisleadingtowards problemsandissuesforthe organization as it is increasing the maintenance costs of the inventory. Management accounting system used Cost Accounting System can beusedheretosolvethis problem. InventoryManagement System can be used here to solve this problem. Application of the systemThis system can be applied by identifying the different types of costs and making sure that This system can be applied by properlytrackingthestock itemsandensuringthat 10
theyareeffectivelyreduced using appropriate methods. managedeffectivelyand efficiently. From the above comparison of Tesco and Sainsbury's, the managers of Innocent Drinks can learn a lot as they can make use of management accounting systems to solve financial problems. They can use job costing system for solving the problem related to job orders and they can use price optimization system for solving the problem related to price. M4: Analysis of response to financial problems Through the use of management accounting systems, the managers can resolve their various types of financial problems. In this way they can make sure that they are able to bring more efficiency and effectiveness in their processes. Thus the managers of Innocent Drinks are required to make sure that they can use these systems appropriately so that the organization is able to enhance its profitability. D3: Evaluation of planning tools for accounting With the use of proper planning tools, the organizations are able to assess their financial problems and respond to them in an appropriate manner. Thus if Innocent Drinks is able to make the right use of these tools then they will be able to solve their problems and thus this will enable them to achieve sustainable level of success in the future. CONCLUSION From the above report, it can be concluded that management accounting can be used to analyse and interpret the financial statements to derive conclusions and recommendations for the future. For the managers, it is quite helpful as it allows them to take various sorts of decisions in an effective manner. Proper analysis and interpretation can be facilitated by making its use. Its systems are helpful for the managers. Its reports can be used to summarize the various findings. Costs can be calculated using various types of techniques. Planning tools can be used for creating plansforthefuture.Theuseofmanagementaccountingsystemscanbemadebythe organizations so that they are able to respond to their financial problems. 11
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