Management Accounting and Importance: Assignment

Management
Accounting

INTRODUCTION
Management accounting refer to the presentation of account knowledge and information
in various paths that help the stakeholders to understand and took their decision accordingly. It
includes daily transaction activities which impact the business and operational functions.
Management accounting is beneficial for managers to evolve the strategic and important
decisions and implement for accomplishing organisational goals. For the better understanding of
this concept, this report select the Oshodi Plc is a fruit juice manufacture organisation. Currently
it is involved in manufacturing JOJO fruit juice so manager required all the relevant information
for the decision making process.
This project report cover various topics such as management accounting and importance
of these accounting system. Management accounting report to evaluate employees and business
performance. Moreover, it undertakes the costing method which helps in determining income
from different methods. With help of planning tool, organization able to control their budget and
perform accordingly. In addition, company face some fiscal issue that impacts on the business
and operational activities. So how organization able to resolve their financial problems by using
accounting system.
MAIN BODY
TASK 1
P1
It is also called cost accounting which include the process of identifying and controlling
various activities. All the required information to the manager. It further helps in decision
making process where they take necessary action in order to complete organization's goals &
objectives.
It is the procedure for managing internal operations which helps the administration to
improve their operational efficiency. Below mention accounting system helps the manager to
take necessary action for earning more profits by increasing productivity of the juices.
(Armitage, Webb and Glynn, 2016). Some of them discussed below:
Cost accounting system: This is also called system of costing the product because they
utilized structure for identifying the product cost which further helps in analysing productivity,
cost control and inventory valuation. It is essential for the manager to determine accurate cost of
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product and advance decisions will be taken accordingly. In context of the JOJO juices cost
accounting system also helps in reducing cost for the whole period of production and try to
minimise because lower the cost will provide high profit margin which increase the demand of
product as well. This accounting system required to develop requirement of information which
helps the manager for further decision making process. It further required to analyse managerial
behaviour.
Price optimisation model: works as a numerical program that helps an organisation for
identifying the consumer behaviour and purchasing patterns of products. With the help of this
model, managers are able to examine that how demand will impact as per the different price
range. It is essentially required to determine product price which meet the objectives of the
customers. In context of JOJO fruit juices, manager follow these system for analyse suitable
price range for their product that is JOJO fruit juice. It helps in analysing the affordable price
structure for customer.
Inventory management system: This refers to the collection of technological practices
which include hardware or software that further helps the organization to maintain their
inventory level. This system provide overall monitoring and maintenance. Inventory
management system required by the manager in order to analyse level of stock in the business
because it impact the production. In context of JOJO fruit juice manufacturing company,
manager required regular review otherwise it impact the production or generate various situation
situation like to reduce unnecessary activities such as raw-materials. (Bobryshev and et.al.,
2015). Accounting system required for source of information which help the management to get
important information. Both cases generate financial loss for the business so this system helps in
preventing these situations. Some types of inventory system are explain as follow:
 Last In First Out (LIFO): It is the inventory management methods where material used
to record in the pattern of most recent goods used for the production first. Basically, last
ordered material out first for production of goods. Manager use this inventory
management system to records each item according to the date of purchase and make sure
that last ordered item used to manufacture product.
 First In First Out (FIFO): This system also used to record raw material but in the order
of first in first out. Manager ensure that earlier ordered item will be use first to
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manufacture goods. It is more beneficial for the business because there is high chances of
damage older goods if they take longer time to converted into finished goods.
 Average Cost Method (AVCO): This methods used by the manager where they assign a
cost of inventory which based on total cost of goods purchased and it will divided by total
number of item produce or purchased. This method also knows as weighted average and
if it is used by the organization then they have to follow for the whole production period.
From the above inventory systems, Oshodi Plc follow First In Fist Out (FIFO) because it
help the organization from the wastage of stock. It also helps in providing more accurate cost
because older items were less costly in comparison to the latest ordered inventory.
P2. Evaluate different methods of reporting which required by the manager to maintain their
business information
Management accounting reporting is the method to record financial information which
helps the manager in various way. It helps in decision making process where organization
develop strategic decision to improve operational efficiency as well as effectiveness. It helps the
manager to analyse or compare performances or results and then take necessary actions to
improve it accordingly. Some methods of accounting report that is required by the manager to
understand its importance and take some actions to increase operational efficiency and profit
margin as well. Some of these discussed below:
Budget report: This refers to the managerial accounting reporting which help the
manager for measuring the performance of business and it will be generated according to
different departments or for small or large organization. Budget always formulates from the
report of previous information which helps in comparing expenses or revenue. With the help of
this, manager of JOJO fruit juice and Oshodi plc analyse their organizational performance on the
basis of individual as well as departmental efforts to achieve organizational task as well as
objectives. Budget include all the estimation expenses which occur at the time of proceeding
goods.
Performance report: It it the report which is generated for analysing the performance of
individuals and the organisation. Large organization evaluate the performance department wise
which required lots of time, efforts and money. Performance report help the manager to develop
effective strategies for developing future plans and it leads in achieving current business goals &
objectives. Individual performance often required for the awards and for the employees
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promotions (Bui and De Villiers, 2017). It will encourage employees to perform well and
achieve their each task which will be assign by the manager. Along with this, training provide to
the workers if any improvement required to enhance their outputs.
Account receivable report: This types of report mostly used by the multiple
organization because they sell their products on credit. They have enough creditors which is not
easy to remind without any written report. It help the manager for identifying default client and
what action should be taken for the recovery. Manager of the Oshodi plc follow this reports
which help them for identifying their defaulter and develop strategies accordingly which stop
this kind of situation in the future.
Inventory management report: Accounting reports help the organization to increase
usefulness of financial information as well as statement. In the production level this report
required because manager of Oshodi Plc have to take decision according to the availability of
stock in the warehouses (Burns, 2014). This report include the level of stock or if it is low then
manager have to order after analysing production requirement. Because if they order low
quantity then it impact the production and provide huge financial loss. Along with this, if they
order high quantity more then the requirement then it become wastage if further production cycle
was not near.
M1
Management accounting
system
Benefits
Price optimisation system Accounting system provide immediate financial benefit to the
organization because it help the managers of Oshodi Plc to
identifying consumer buying behaviour. Along with this, it is
beneficial for quick & better decision which can increase
product demand (Benefits of Price optimising system, 2019).
Cost accounting system It helps the organization to identifies their product cost of each
unit and after that manager will develop various strategy
regarding reducing & controlling cost. Because lower the cost
will provide high profit margin and increase the demand as well.
Inventory management It helps in increasing productivity and efficiency to operational
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system goals & objectives. It provide various benefits such as
minimising cost, maximising sales & profit. It will also prevent
the various situation like deficit or wastage of raw material
while completing the process of manufacturing.
D1
It is critically evaluated that account methods help in increasing operational efficiency
which improve production as well as profitability. With implementation of product costing
system management is able to identify and reduce per unit cost and it will be recorded in the
costing report that helps manager to take the strategic decision for the upcoming events. (Hiebl,
2014). Accounting system improve organizational efficiency or effectiveness and it will be
measured through performance report. So basically, accounting system of management or
accounting reports linked with each other or both required in the organization for the successful
outcomes.
TASK 2
P3.
Marginal Costing: This works as an effective costing technique that only consider fixed cost as
well as variable cost. for the particular period. It helps in determining cost for the next unit that
are going to produce (Marginal or Absorption costing, 2019). Under this method, first and last
stock does not impact the cost for each unit. This includes all those cost which are included to
manufacture a product.
MARGINAL COSTING (VARIABLE COSTING) INCOME STATEMENT
Particulars November December
£ £ £ £
Sales revenue
5,00,00
0.00
6,00,000
.00
Less Variable Cost of Sales
Opening Stock (valued @ 0 50,000.
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Marginal Cost) 00
Add: Cost of Production
(Valued @ Marginal Cost)
(12,000 x
£25) 3,00,000.00
(10,000 x
£25)
2,50,00
0.00
3,00,000.00
3,00,00
0.00
Less: Closing Stock
(Valued @ Marginal Cost) 2,000 x25 50,000.00 0
Variable production of
sales 2,50,000.00
3,00,00
0.00
Variable Selling Expenses
10% of
500,000 50,000.00
10% of
600,000
60,000.
00
Variable Cost of Sales
3,00,00
0.00
3,60,000
.00
Contribution
2,00,00
0.00
2,40,000
.00
Production 99,000.00
99,000.
00
Distribution 14,000.00
14,000.
00
Admin 26,000.00
1,39,00
0.00
26,000.
00
1,39,000
.00
Profit for the Year 61,000. 1,01,000
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00 .00
A marginal costing system will value all units at the variable production cost of £25 per
unit (£18+£4+£3).
Interpretation: From the above calcination, this is interpreted that the actual profits of
November month is 61000 and 101000 of December with marginal costing methods. Net profit
from this method is various from the absorption costing method as their are only variable cost
consider as products cost.
Absorption costing: This costing technique include the variable as well as fixed cost for
the product. Overheads for this costing method is different where they include administration,
selling & distribution expenses. Fixed cost will be consider as product cost which reduce the
profit margin. Under this technique opening & closing stock affect the each unit cost of goods. It
support to calculates the actual profits and it is used for the purpose tax and financial reporting.
Income statement by using Absorption costing method:
Particulars November December
£ £ £ £
Sales revenue
5,00,00
0.00
6,00,000
.00
Less Full Production Cost
of Sales:
Opening Stock 0
68,000.
00
Full Production Cost
12000 x
34 4,08,000.00
10,000 x
34
3,40,00
0.00
4,08,000.00
4,08,00
0.00
Closing Stock
2,000 x
34 68,000.00 0
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3,40,000.00
4,08,00
0.00
Over/Under absorped fixed
production overhead (9,000.00)
9,000.0
0
Full Production cost of
sales
3,31,00
0.00
4,17,000
.00
Gross profit
1,69,00
0.00
1,83,000
.00
Less Selling/ Admin
expenses:
Variable Selling expenses 50,000.00
60,000.
00
Fixed Selling expenses 14,000.00
14,000.
00
Fixed Administration
expenses 26,000.00
26,000.
00
90,000.
00
1,00,000
.00
Net Profit
79,000.
00
83,000.0
0
Working notes:
Fixed production overheads absorption rate = Fixed production overheads
Production
= 99000 / 11000
= 9
Interpretation: the upper mentioned calculation represented that 79000 and 83000
profits after tax for the month of November or December respectively. It is different from the
marginal costing methods because absorption costing methods include the variable as well as
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fixed cost for the product cost. Along with this, it is required for the financial or tax reporting
purpose.
M2
There are different methods that helps the organization to develop reporting documents of
an organisation and some of them discuses below:
Standard costing: This costing technique include the predetermine cost of each item that
required for the production (Klychova and et.al., 2015). Standard cost will be compared with the
actual cost for the effective analysis.
Cost accounting: In this accounting techniques manager differentiate each cost
according to their nature such as product wise, branch wise, department wise etc. Analysis as
well as comparison will be based on predetermined value. This technique help the manager to
evaluate each product cost including all the variable or fixed cost. It further helps in analysing
profit margin of the company.
Above mention techniques helps in developing reporting document which is beneficial
for the manager of Oshodi Plc which helps decisions making process and development of
effective strategy.
D2. Produce financial reports and then interpret data of organizational activities
At the time of calculating net profit for the Oshodi plc manager adopts marginal as well
as absorption costing method for effective outcomes. Net profit for the month of November &
December are 61000 and 101000 respectively by using marginal costing method. On the other,
net profit of the month of November & December by using absorption costing method was
79000 & 83000 respectively. In result, by using marginal costing method organization get the
profits particularly due to ignorance of fixed expenses.
TASK 3
P4.
Budget: It is the overall estimation of expenses which done by the organization to
manufacture their products. Plan of spending called budget where manager already prepare the
amount of spending for each activity.
Budgetary control: Under this process manager try to utilize their budget in effective
manner and all the expenditure will be done under the budget. It is the process of setting finance
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for the specific goal. Moreover, this assist the manager of Oshodi Plc to compare their result and
analyse how budget effectively perform.
Different types of planning tools: Planning tool is the instrument which help the
organization to control their budgeting system. It help the manager through providing detail
description about the actions or activities which they have to taken for the successfully outcomes
(Lavia López and Hiebl, 2014). There are various kinds of planning tools which helps the Oshodi
Plc to control their budget in order to accomplish targets of the business. Some of the planning
tools discussed below along with its advantage or disadvantage:
Cash Budget: This budget include the inflow or outflow of cash where all the expenses
are paid and estimated cash receipt recorded. Cash budget used to evaluate organizational
liquidity and position of the company in the future. These type of budget has some merits and de-
merits which is discussed below:
 Advantage: Under this budget, manager can avoid debt which provide accurate inflow as
well as outflow of cash. It forces the employees to perform under the budget because they
have limited spending for the particular item.
 Disadvantage: It is very risky because there are various document which clearly shows
that cash movement and it will be easy to manipulate through changing figures.
Zero base budget: It is one of the budgeting method which helps the manager to control
their budget in order complete each activity as per the prescribe amount (Salterio, 2015). Here
manager develop budget from the zero base where manager start estimating each activity without
analysing any previous information. Some of the advantage or disadvantage discussed below:
 Advantage: Under this budget, manager justify all operational expenses and pay more
attention on that area which generating more revenue. Along with this, traditional
methods does not include the legacy cost but in the zero base budgeting legacy cost will
included.
 Disadvantage: It is very complex budget because manager have to evaluate each item
cost from the zero base that is time as well as money consuming process. Along with this,
it required large amount of investment to implement this budgeting method.
Master budget: This budget used by those organization which have huge product line
and various separate departments. This budget include all the types of information such as sales,
purchase, capital investments, expenses etc. Budget will be prepare department wise which
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further help the manager to evaluate performance and their efficiency. This budget also has some
advantage & disadvantage that discussed below:
 Advantage: It is a motivational toll because it helps the individual to compare their
actual performance with budgeted once (Macinati and Anessi-Pessina, 2014). It helps in
planning future events in the advance and develop strategies to achieve them.
 Disadvantage: It is very rigid budget because it is very difficult to implement in the
practice life due to its complexity. Under this budget, estimation based on low revenue
and high expenses where manager avoid to grab new opportunity and does not include as
a growth for organization.
Above discussed budget help the organization to perform their each task accordingly so
manager of Oshodi Plc follow the master budget because they have maintain separate department
budget. Company manufacture variety of juices such as JOJO fruit juice so manager have to
develop budget for each product line. It further helps in analysing individual performances and
comparison will provide the requirement of improvement.
M3.
In context of budgeting control, organization have various options such as cash budget,
zero base budget or master budget. All of them used by the manager of Oshodi Plc in order to
forecast their operational activities expenses and it helps in analysing financial perspective of the
organization (Mistry, Sharma and Low, 2014). Master budget help the manager to determined
each department performance and try to improve for maximising productivity as well as
profitability. These budgets helps the individual to perform their task accordingly and make them
capable to achieve business goals & objectives.
TASK 4
P5
Financial problem: It is a condition where organization face problem regarding money
where they required finances in order to complete their operational activities. It will impact
individual mental health. Manager of Oshodi Plc also face some financial problems which
impact the production and with the help of management accounting system it can be resolved.
Some of financial problems will be discussed below:
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 Cash outflow is more than cash inflow: Company face the problem regarding low
inflow which impact the organization and they have to face hard financial times.
 Wastage of raw material: It has been analysed that, at the time of manufacturing juice
enough of material waist due to lack inventory management.
Techniques to solve financial problems:
 Benchmarking: It is an organizational practice which help the business to improve their
operational process or performance (Nielsen, Mitchell and Nørreklit, 2015). This
technique used to compare business activities and best practices will be adopted in terms
of improving their efficiency as well as effectiveness. Benchmarking typically measure
the quality, time and cost so manager of Oshodi Plc follow this framework to analyse
their performance and evaluate the improvement area.
 Key Performance Indicator (KPI): It is a measurement tool which help the organization
to identify that how business effectively achieve their goals & objectives. Most of the
business adopt this measurement tools to evaluate their success. Manager evaluate key
performance indicator and it can be financial or non financial components. In context of
Oshodi Plc, manager measure the performance of various aspect and adopt various
strategy to achieve business goals & objectives.
Financial governance: It is the process of various practices and policies which followed
by the organization to perform ethically. There are various norm and accounting principles which
business has to follow in order to maintain their financial statement and resolve all the financial
problems. By using various accounting tools, standards and principle manager develop their
strategy and implement in the organization in order to maximise their production or printability.
It further helps in achieving business gaols & objectives.
Comparison between organization on the basis of management accounting system which
helps in solving financial problems:
Management Accounting
System
Oshodi Plc Kiril Mischeff Limited
Cost accounting system High outflow or low inflow of cash
will impact the organization so
manager of Oshodi Plc use cost
management accounting system.
This company follow job
costing system in order to
evaluate their expenses and
than further strategies will be
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Where manager evaluate each type
cost and estimate the amount
which going to spend and develop
strategy accordingly. This system
helps in maintaining inflow as well
as outflow of cash.
done according to it (Otley,
2016).
Inventory management
system
Wastage of raw material at time of
manufacture product will impact
the organisation where company
have to face financial loss.
By using price optimising
system, manager of Kiril
Mischeff Limited identify the
behaviour of their customers
regarding different price range
of product. It help the manager
to set product price which
meet customer as well as
organization expectation.
Job costing system This accounting system helps the
organization to maintain their cash
outflow as well as wastage of raw
material. Because effective
inventory management will reduce
product cost or increase
productivity as well as
profitability.
It helps the business to reduce
product cost and further
beneficial for the organization
to meet customer objectives
regarding product price.
M4. Evaluate that how management accounting manage financial problems for sustainable
development of the organization
Every administration of a business faces lots of financial issues which impact the
production and profit margin as well. In context of JOJO fruit juice manufacturing company,
they face various financial problems such as low inflow of cash and wastage of raw material
which provide huge financial loss (Pavlatos and Kostakis, 2015). With the help of various
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accounting techniques such as benchmarking and key performance indicator (KPI) help the
manager to take necessary actions. By using these tools organization able to face financial
problems where manager compare their policies and performances with others and analyse the
different and try to improve their actions & activities for the development of business.
D3. Evaluate that how planning tools help the business to resolve their financial problems in
order to success and achieve their business goals & objectives
It has been critically evaluated that planning tool help the organization to resolve their
financial problems in order to maximise their productivity which automatically helps in
achieving business goals & objectives. Such as budget forecasting help in evaluating future
expenses and manager have to develop strategy to face those financial problems. Manager can
maintain their cash outflow through preparing budget (Van der Stede, 2015). Every budget help
the manager to make strategic decision in order to face financial problems such as low inflow
and wastage of material.
CONCLUSION
From the above mention information help the internal people to maintain their internal
functions as well as productivity in order to achieve their business goals & objectives.
Management accounting system helps in reducing organizational efforts and increase the
productivity. Such as by using cost accounting and inventory management, manager reduce their
product cost and manage inventory level for the production which maximise the profit margin.
Management accounting is beneficial for the organisation in present scenario because it helps
them to complete their work with more efficiency that results in earning high amount of profits.
With the help of reporting method, manger able to evaluate employees as well as organizational
performance which provide sustainable success. Along with this, planning tools helps in
marinating budget which provide maximum output with minimum input. Accounting system
helps in resolving financial problems and make organization capable to achieve their desired
outcomes.
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REFERENCES
Books & Journals
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