Management Accounting and Cost Analysis Techniques

This document provides an overview of management accounting and the different methods used for management accounting reporting. It also discusses the application of cost analysis techniques in Innocent Drinks and provides calculations for preparing income statements.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Definition of Management accounting..................................................................................1
P2. Different methods that are exploited for the purpose of management accounting reporting
......................................................................................................................................................3
M1. Illustrating benefits of systems with their application..........................................................4
D1. Critical evaluation about usage of management accounting systems and reporting are
integrated with business procedures............................................................................................5
TASK 2............................................................................................................................................6
P3. Calculation of various cost through appropriate cost analysis techniques for preparation of
income statement for company....................................................................................................6
M2. Application of various management accounting techniques as well as producing accurate
financial reporting documents .....................................................................................................9
D2. Producing financial reports which accurate apply together with interprets data................10
TASK 3..........................................................................................................................................10
P4. Advantages and disadvantages of types of planning tools in budgetary control used by
entity..........................................................................................................................................10
M3. Analysing utilisation of multiple planning tools with their applications in preparing and
forecasting budgets....................................................................................................................13
TASK 4..........................................................................................................................................13
P5. Comparison about the ways organisations adapt systems of management accounting for
responding problems associated with finance............................................................................13
M4. Analysing how companies responds for financial problems and leading sustainable
success........................................................................................................................................16
D3. Evaluating the ways planning tools responds appropriate for solving financial problems
for leading sustainable success..................................................................................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting refers to application of professional skills, competence and
knowledge to prepare accounting information which assist managers in devising policies for
planning and control undertaking operations (Armitage, Webb and Glynn, 2016). It also includes
multiple facets if accounting that aims to improve information quality which is delivered to
management related to operation metrics of company. To understand management accounting,
Innocent Drinks is chosen. It is a client of consultancy company that is AJ and Sons. Innocent
Drinks makes variants of smoothies, juices and sell them at coffee shops, supermarkets along
with other outlets. It have achieved sales of approx two million smoothies in a week.
The report demonstrates understanding of systems of management accounting and
methods which are opted in management accounting reporting. It also apply techniques of
management accounting to prepare financial statements. Further, the report explains usage of
planning tools in budgetary control and compares activities of two organisation in the manner
they uses management accounting for responding financial problems.
TASK 1
P1. Definition of Management accounting
Management accounting: It is defined to process which measures, recognise, interpret,
analyse and share financial data for pursuing towards organisational objectives and goals. It is
concerned with utilisation of accounting data which is gathered through cost accounting together
with financial accounting in order to devise policies, plan, control, monitor and from decisions
by management. Moreover, it is the concept which is used for elaboration of accounting
techniques, methods or systems that are couples with particular knowledge, assists management
in operations of maximising revenues and minimising losses (Ostaev and Et. Al., 2019). In
Innocent Drinks, objective behind using management accounting is for assisting in planning
together with devising future policies, coordinating operations and communicating updated
information to management.
Management accounting systems: These are said to confidential methods that are used
by internal managers to identify ways to manage business more effectively. Following are certain
management accounting systems with essential requirements on Innocent Drinks:
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Price optimisation system: It is describes as petition of mathematical investigating in
organisation for determining the ways consumers reacts towards distinct prices of products
through various channels. In Innocent Drinks, the system is used for deciding prices that should
best fulfil objectives including maximising operation profit and hence forth. Following are
essential requirement of price optimisation system in Innocent Drinks:
 To discover an alternative through highest achievable performance within provided
constraints by minimising undesired aspects addition to maximising desired one.
 To determine how demand among consumers for products changes at distinct levels of
prices and then using information for setting prices that improves profit (Sanni and
O'Neill, 2019).
Cost accounting system: It refers to framework that is applied by company to
approximate cost of commodities with the hope of valuing inventory, controlling multiple costs
and analysing profits. It is kind of system in management accounting that managers of Innocent
Drinks uses with aim to capture production cost of firm by weighing input costs at each
production stage addition to fixed cost such as capital equipment depreciation. Essential
requirements of this system in the company are mentioned below;
 To allocate cost on the basis of activity based costing as well as traditional costing
(Geibel, 2018).
 To track cost and control them through making decisions that are concerned with
increasing productivity and profitability of Innocent Drinks.
Inventory management system: It is the system which control along with oversees
ordering, utilisation and storing components that are applied by organisation in producing goods
that it sells. In Innocent Drinks, inventory management system effectively track quantities in
storing location and also ensures that managers have information to make sufficient decisions for
inventory. Essential requirements of inventory management system are below:
 To keep proper track of available stock and manage reorder level.
 For categorising materials together with managing inventory in warehouse of Innocent
Drinks in order to provide required inventory to manufacturing place on right time.
Job costing system: The system refers to allocating manufacturing cost to single item or
batch of merchandise (Koelsch, 2016). The system is applied by managers of Innocent Drinks
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when smoothies processed are distinct from one another. Essential requirements of this kind of
system are as discussed:
 Accumulating and applying information for assigning costs in order to process products.
 Ascertain reliable estimates for monetary values related to overheads, direct material and
information labour which are made on producing particular products or jobs. In Innocent
Drinks.
In Innocent Drinks, all the mentioned management accounting systems are applied for the
purpose of managing inventory, controlling costs, improving profits, optimising prices and
reducing risks.
P2. Different methods that are exploited for the purpose of management accounting reporting
In an organisation, various types of methods are opted for management accounting
reporting which are said to aggregation of financial addition to non financial information that are
obtained from accounting records of company (Pavlatos and Kostakis, 2018). Within Innocent
Drinks, distinct reports of management accounting are prepared for managing operational
functions and keeping record of employee workings. Some of methods that helps managers of
Innocent Drinks in generating management accounting reporting are as explained:
Cost report: In a business, management accounting calculates all types of costs of
products manufactured. For this purpose, cost report is used as it considers all labour costs, raw
material overhead plus any additional types of cost to prepare management accounting reporting.
All the data are properly summarised within cost report. With this reporting method, managers of
Innocent Drinks are capable to view cost values of juices and smoothies verse selling prices.
Moreover, the method assist administrations in controlling and planning margins of profit.
Budget report: This method is crucial in management accounting reporting as it is based
in preparing and sharing budgets with different departments of company (Alsharari and Youssef,
2017). Budget reports measures performance of firm and are prepared as whole in Innocent
Drinks as medium sized entity. The report guides managers to have re-negotiating terms with
suppliers and vendors, better employee incentives and cutting costs. It also makes managers to
look towards increasing sales demand and reducing expenses for saving money.
Performance report: It refers to detailed statement which measures outcomes of certain
activities ion context to its success within defined time frame. Management accountants of
Innocent Drinks makes effective use of budgets for comparing actual expenditures with revenues
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to budgeted variables and them list or update the information on performance report. With the
report, managers plans future demands of its smoothies and juices and accordingly makes
changes in prices.
Inventory management report: It is summary of existing stock and stills information
such as quantity of stock available, products that are selling more and fastest, category
performance etc related to status together with performance of inventory. For successfully
growth of Innocent Drinks, it is crucial to manage inventory level in accurate and optimally ways
as possible. It is responsibility of purchase manager of the company to ensure accurate stock
levels are maintained in order to manufacture and sell variants of juices and smoothies. The
reporting method records all types of transactions that are related to allocation of inventory to
different departments and their end results (Heinzelmann, 2018).
All the defined methods are properly implemented by administrators of Innocent Drinks
for determining performances of employees and business, managing inventory level, estimating
budgets and many more.
M1. Illustrating benefits of systems with their application
Mentioned below are benefits and application of various management accounting systems
in Innocent Drinks:
Management accounting
system
Benefits and application
Price optimisation system The system benefits Innocent Drinks by analysing behaviour
of customers for changes in prices and making quick decision
for optimising prices for smoothies and juices as per demands.
The system is applied for discover an alternative and ascertain
how demand within consumers for its smoothies and juices
changes at well-defined price levels then using same
information to set prices which increases profit (Abdul-Hadi,
2017).
Job Costing system The system benefits the company by accumulating three
types of direct material, information labour and overhead. It
benefits Innocent Drinks by controlling cost together with
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improving efficiency.
Job costing system is applied in the company for allocating
cost to separate jobs or products for generating revenues in
future.
Inventory management
system
Inventory management system benefits Innocent Drinks by
managing level of stock at multiple places with faithful book
keeping. It also prevents material shortage as it properly
optimise stocks within organised stores.
Application of system in the company is based on organising
inventory data in spreadsheets and avoiding situation of
product out-stock together with outrages (Hiebl and Richter,
2018).
Cost accounting system With the system, Innocent Drinks is benefited for eliminating
wastages and losses in production of smoothies and juices for
enhancing profits via cost allocation to distinct products.
Cost accounting system is applied in innocent Drinks for
capturing production cost by weighing cost of inputs in all
production stages.
D1. Critical evaluation about usage of management accounting systems and reporting are
integrated with business procedures
Management accounting is crucial part of accounting which provide necessary
information to top management for planning, organising resources, controlling operations and
taking accurate decision. All its systems integrate with multiple methods for preparing reports so
to work as per procedures of entity to reach successful heights. For example, inventory
management system is used with inventory management report so that managers of Innocent
Drinks are able to track required stock in order to execute process of entity to produce smoothies
and juices within defined time period. Along with this, various other systems such as cost
accounting, job costing and price optimising system are also applied to work as per designed
processes to achieve objectives. With reporting methods that are budget, performance etc are
5

integrated with the system that assist managers and other workforce to comply with procedures
of organisation (Zheng and Feng, 2018).
TASK 2
P3. Calculation of various cost through appropriate cost analysis techniques for preparation of
income statement for company
Cost: It refers to amount which is to be paid fro getting some product or service. In terms
of business, cost is monetary valuation of resources, efforts, risk incurred, opportunities forgone,
materials, consumption of time and unities in production together with delivery of products or
services (Labrador and Olmo, 2019). To analyse cost to prepare income statement, finance
manager of Innocent Drinks uses following techniques:
Absorption Costing: The other cost analysis technique which captures all costs
concerned with producing specific product. In Innocent Drinks, managers uses the technique for
making consideration towards external financial as well as income tax reporting.
Income statements calculated through absorption costing of Innocent Drinks fro the month of
April and May
Absorption costing April (In £) May (In £)
Sales 56,000 70,000
Less: Cost of sales
Variable manufacturing cost 30,000 30,000
Fixed manufacturing cost 18,000 18,000
Closing stock 16,000 24,000
Opening stock 16,000
Total cost of sales 32,000 40,000
Gross profit 24,000 30,000
Less: Fixed non manufacturing
cost
5,000 5,000
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Net profit 19,000 25,000
Marginal costing: The cost analysis technique in which fixed costs of period and
variable cost are charged for units of cost are written off in complete manner against contribution
is termed to marginal costing (Hutahayan, 2020). In Innocent Drinks, the technique is used fro
analysing circumstances wherein break even point is equivalent with fixed costs. It implies
additional costs that are part in producing extra output units.
Income statements calculated via marginal costing of Innocent Drinks for the month of April
and May
Marginal costing April (In £ ) May (In £)
Sales 56,000 70,000
Less: Marginal cost of sales
Variable manufacturing cost 30,000 30,000
Closing stock 10,000 15,000
Opening stock 10,000
Total marginal cost of sales 20,000 25,000
Contribution 36,000 45,000
Less: Fixed cost
Fixed manufacturing cost 18,000 18,000
Fixed non manufacturing cost 5,000 5,000
Net profit 13,000 22,000
Reconciliation statement
April ( In £) May ( In £)
Profit/loss under marginal cost 13,000 22,000
Add/Less: Closing stock 6,000 3,000
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Profit/loss 19,000 25,000
Profit/loss under absorption
cost
19,000 25,000
Working note:
Calculation of closing stock
under marginal costing
April (in £) May (In £)
Total variable manufacturing
cost
30,000 30,000
Total produced units 6,000 6,000
Per unit cost 5 5
Closing stock 10,000 15,000
April (in £) May (in £)
Calculation of opening stock
under marginal costing
Opening stock units 0 2,000
Per unit cost 5 5
Opening stock 0 10,000
April (In £) May (In £)
Calculation of closing stock
under absorption costing
Variable manufacturing cost 5 5
8

Fixed manufacturing cost (per
unit)
3 3
Total absorption cost per unit 8 8
Closing stock 16,000 24,000
April (in £) May (In £)
Calculation of opening stock
under absorption costing
Opening stock units 0 2,000
Per unit cost 8 8
Closing stock 0 16,000
Calculation of Break even point Values
Solution:
Variable cost 49
Fixed cost 14,0000
Selling price 60
Contribution: Selling price-variable cost per unit
Contribution 11
Break even point (In units): Fixed cost/contribution
BEP (In units) 12727.27
Break even point (In revenues): Fixed cost/PV ratio
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PV ratio: Contribution/sales*100
PV ratio 18.33
BEP (In revenues) 763636.36
Margin of safety (In units): Budgeted saels (In units)- BEP (In units)
Budgeted sales 20000
BEP 12727.27
Margin of safety (In units) 7272.73
Margin of safety (In revenues): Budgeted sales (In revenues)-BEP (In
revenues)
Budgeted sales (In revenues) 1200000
BEP (In revenues) 763636.36
Margin of safety (In revenues) 436363.64
The income statement shows that through absorption costing, net profit of £ 19,000 is
made in April while in May, Innocent Drinks achieved net profit of £ 25,000. At same time,
through marginal costings, net profit of £ 13,000 and in May, net profit of £ 22,000 is generated
by the company.
M2. Application of various management accounting techniques as well as producing accurate
financial reporting documents
In Innocent Drinks, managers have applied cost analysing techniques of marginal costing
and absorption costing to calculate profitability. These techniques helps in analysing, recording
together with controlling multiple operations (Maelah, Al Lami and Ghassan, 2020). Along with
this, reconciliation statement is also prepared and it is analysed that the company attained profit
10

of £ 19,000 in April and profit of £ 25,000 in May. Moreover, break even profit is also calculated
to know for level in which the entity will be on situation of no profit and no loss.
D2. Producing financial reports which accurate apply together with interprets data
Financial reports are also termed to annual reports of company which are confidential and
devised at end of accounting year. Financial report gives accurate outcomes of losses and profits
which are generated in financial period (Kanaev, Kanaeva and Belousov, 2019). As per income
statement of Innocent Drinks, it is interpreted that the company have made profits in April and
May.
TASK 3
P4. Advantages and disadvantages of types of planning tools in budgetary control used by entity
Budget: It is master financial plan of entity which brings together estimates related to
forecasted revenues addition to proposed expenditures for defined budget duration (Samuelsson
and et.al., 2016). By using prior budgets, finance analysts of Innocent Drinks estimates future
and set budgets for coming duration. It provides a tool that helps managers to evaluate policies
and goals on periodical basis and establish proper guidelines for whole company.
Budgetary control: It is a process that arranges budgets for future date as well as
compares with actual outcomes to find out variances. The major objectives behind budgetary
control are defining organisational objectives, coordinating activities of distinct departments,
improving profits by eliminating waste, centralising management system and fixing
responsibilities of individuals or departments. Within Innocent Drinks, following planning tools
are used for purpose of budgetary control:
Flexible budget: The type of planning tool that changes with changes that takes place in
activity or volume that is held in production is defined to flexible budget. With this budget,
finance assistant of Innocent Drinks increases efficiency together with effectiveness as it sets
benchmarks for real organisational performances. Other use of the tool is for purpose to plan and
control costs.
Advantages: Using flexible budget, Innocent Drinks enjoys following advantages:
 Flexible budget enables finance manager of Innocent Drinks to have information about
original and actual budget (Renmans and Et. Al., 2017).
 It assist in decrease spending level by reviewing variances within budget.
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 It helps managers of Innocent Drinks in avoiding expected loss in coming duration.
Disadvantage: Some of disadvantage of flexible budget are as explained:
 It is prepared on particular duration such as half yearly of annually.
 It assumes linearity of various cost that takes no consideration of bulk material purchase,
labour cost etc.
Cash budget: Other planning tool that includes expected receipts and disbursements of
cash during specific period is cash budget. In Innocent Drinks, cash budget is used for personal
finance for determining where to spent financial resources and from where to make money.
Moreover, it also determines that the entity has sufficient cash for upholding regular operations.
Advantages: Mentioned below are advantages of cash budget to Innocent Drinks:
 Cash budget prevents overspending as well as gives better perspective about how to use
available money (Abel-Smith, 2018).
 By using cash budget, Innocent Drinks do not have to worry fro missing payments or
paying interest.
Disadvantages: Disadvantages of using cash budget are explained as:
 Cash budget limits spending power of Innocent Drinks as people are emphasising more
towards cashless society.
 It depends on estimates of previous year for meeting upcoming needs.
Purchase budget: Planning tool within budgetary control which includes inventory
amount that business should buy within budget period. It simply matches accurate number of
units that are expected to be sold in defined period. Purchase budget allows purchase manager of
Innocent Drinks to have information about quantity of smoothies and juices to sell for reaching
monetary objectives of company.
Advantages: Mentioned below are advantages of purchase budget:
 Purchase budget provides greater control on level of inventories to purchase department
of Innocent Drinks.
 It also help the company to react as quick as possible for avoiding loosing customers due
to slower order filling or longer production duration.
Disadvantages: Purchase budget have certain disadvantages that are explained below:
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 Future estimates of the planning tool are done on the basis of past performances which
may be prove wrong because of changing situation of poor forecasting which could
impact negatively on decision of Innocent Drinks.
 Preparing purchase budget is time consuming exercise and also requires additional
manpower for gaining accurate estimates.
Other planning tools are as evaluated:
Balance score card: It is strategic planning tool that is used by managers for keeping
track of implemented activities by employees within the control along with monitoring
consequences that can arise or occur from the practices. In Innocent Drinks, managers uses
balance scorecard for identifying together with improving multiple business functions addition to
their external results. It also helps in measuring performances and providing feedbacks to
enterprise.
Strengths: Overall, the planning tool assist the entities to emphasis towards measuring
performance in more than individual area (Castro-Wooldridge and Gallego-Lizon, 2016). Some
of the benefits that managers of Innocent Drinks experiences by using balanced scorecard is that
it brings structure to organisation strategy, making communication easier, facilitating better
alignment and connecting manpower to objectives of enterprise.
Weaknesses: There are certain roadblocks and weaknesses of balance scorecard. When
managers implement the tool in workplace of Innocent Drinks, they requires buy-in from
leadership to be effective, it gets complicated with passage to time and requires lot of
information to meet objectives.
Variance analysis: The planning tool which study deviations among actual behaviour
and planned ones in management accounting is said to variance analysis. Financial professional
of Innocent Drinks uses the tool for maintaining control on actual and predicted behaviour.
Moreover, it assist in keeping control on expenses of projects and spotting opportunities, trends,
threats and success.
Strengths: The key strength of variance analysis is that it indicates departure from
expected to real to get attention of management for further investigation. Implementation of
variance analysis on Innocent Drinks benefits managers in controlling expenses and taking
adequate actions in adverse variance outcomes. It also aids in making future adjustments in
estimates of budget (Barua, 2020).
13

Weaknesses: The prime weakness of variance analysis is that it requires huge time for
examining effects or impacts of variance which leads to delays in forming decisions. Moreover,
the planning tool leads to large lag time and execution of the measure significantly delays in
Innocent Drinks. It is an uneconomical tool as it costs huge to entity for detailed analysis of
deviations for each cost element which do not make any sense.
Investment appraisal: Another planning tool that assist businesses to assess
attractiveness of key investments that are based on searching multiple distinct capital budgeting
along with financing techniques. The tool help managers of Innocent Drinks to determine long
term trends and perceived profitability of enterprise. It is significant for the small enterprise as it
is type of fundamental planning and includes potentials to show that the investment will result in
profit or not.
Strengths: The strength of investment appraisal tool is that it is simple to use s well as
popular among businesses for devising decisions about particular investment. It engrosses
calculation of project feasibility that determines administrators of Innocent Drinks to choose best
project which will lead to achieving objectives.
Weaknesses: The planning tool ignores returns and timings of cash flows that results in
inaccurate analysis of viability of project (Donovan, 2018). It is subjective that provides
indefinite investment signals to financial analysts of Innocent Drinks.
M3. Analysing utilisation of multiple planning tools with their applications in preparing and
forecasting budgets
Within the business, planning tools are used to translate identified goals into
achievements (Bui, 2020). In Innocent Drinks, planning tools such as purchase budget, cash
budget and flexible budget are applied in order to prepare budget projections and plan them for
future. For instance, cash budget is applied for forecasting inflow and outflow of cash for coming
year. At same time, purchase budget is applied to forecast about inventory purchase in future.
TASK 4
P5. Comparison about the ways organisations adapt systems of management accounting for
responding problems associated with finance
Financial problem: It refers to a situation wherein organisation fails to afford necessary
activities and meets bills on time. In this type of condition, money makes businesses worry too
14

much and causes stress. Many organisations faces hard financial period which impacts on
sustainability and profitability. Innocent Drinks is mall company that faces hard times related to
finance which are as elaborated:
 Missed credit payments: The situation wherein bulk quantities of merchandise are sold
to clients so that needs of end consumer are satisfied as quickly as possible. There are
various clients of Innocent Drink that makes purchase of smoothies and drinks in bulk
quantity on credit basis. As a result, financial problems arises as this restricts cash
inflows (Fernandez and Hendrikse, 2020). Moreover, clients also do not make timely
payment which reduces its profits and causes financial problem.
 More spendings than income: To gain recognition in competitive market, business
concerns makes huge spending on advertisements, promotions and marketing than their
actual income. Innocent Drinks have also did the same as marketing team have exceeded
their budgetary amount to promote or advertise for the company that have resulted in
hard financial problem.
Wilson's Juice Company is competitor of Innocent Drinks. While managing operations in
the market, there are certain financial challenges which are faced by the managers of Wilson's
Juice Company which are as follows:
 Unforeseen expenses: When a business is busy maintaining its multitude of recurring
organisation expenses, the managers and administrators forgets about costs that are not
easily predicted (Smith, 2020). In context to Wilson's Juice Company, the managers are
cited with unforeseen expenses as their major financial problem. Lack of cash flow: In a business, managing cash flow is perpetual struggle. In case with
Wilson's Juice Company, the managers have analysed that lack of cash flow is greatest
challenge for the entity as without cash there is no existence of business.
Accounting approaches or techniques for resolving financial problems
Benchmarking: The accounting technique which assist organisations to compare
business processes, methods, strategies and performance metrics with best companies in industry
and their best practices. This can be takes as accurate approach by managers of Innocent Drinks
to resolve financial problem through analysing strategies which are implemented by other
business concerns for promoting or marketing products within limited spending. Moreover, the
technique can help the entity in resolving financial problem related to more spending via
15

implementing suitable strategy that can assist in promoting the brand in defined budgetary
amounts. In contrary, managers of Wilson's Juice Company can solve its financial problem of
unforeseen expenses by using benchmarking approach so that it can compare practices of its
manpower to that of practices that are adopted by employees of other company in the industry
for determining the expenses that are causes challenges to the business.
KPI: The technique ensures organisational managers to measure performances for
evaluating success with the hope of reaching extraordinary heights. With this approach,
administrators of Innocent Drinks could find their financial position and can also devise effective
strategies for creditors that will motivate them to make timely payments and will lead to resolve
finance concerned issue of missed credit payments. In contrary, the approach can be adopted by
financial analyst of Innocent Drinks so to set performance indicators for activities that increases
flow of cash into organisation. With this, the analysts can frame strategies for increasing cash
flows that will improve cash movements in business (Akroyd, 2017).
Financial governance: It refers to procedures for gathering, classifying and controlling
data associated to finance. Accountant of Innocent Drinks could resolve financial problems
through using financial governance because it defines accurate phases for collecting, tracking
along with controlling information for the purpose of executing strategic plans and regulations
within set manner. Financial analysis of Wilson's Juice Company can resolve its financial
problems by using financial governance as it ensures that available financial data are accurate
and controls data by analysing that finance department is using adequate version of information
for completing reports, plans or other financial documents.
Comparison among Innocent Drinks and Wilson's Juice Company
Base for comparison Innocent Drinks Wilson's Juice Company
Problem Accountant of Innocent Drink
have analysed that they are
facing financial complexity of
more spending than making
profits. As an outcome, it fails
in achieving extraordinary
heights with huge customer
base.
On other hand, finance department of
Wilson's Juice Company have found that
financial issue of lack of cash flows is
faced by them. Moreover, the managers
are also unable to understand the flow of
cash without and outside the company as
they were recording wrong information
about inflow or outflow of cash (Goel,
16

2019).
Approach of
management
accounting
By using benchmarking
approach, issue of huge
expenditures than income can
be resolved. The technique
will assist in analysing what
strategies have been adopted
by top players in industry to
get timely payments from
creditors.
In contrary, KPI approach can be
utilised by resolving issue related to lack
of cash flow. The approach will assist
the entity in emphasising on cash by
setting and implementing performance
indicators which will improve
movements of cash in business.
Management
accounting system
Cost accounting systems is
suitable management
accounting system to resolve
the financial problem. The
system will assist managers in
allocating money in
accordance to marketing or
promotion tactics and perform
other related activities
effectively.
In this case, inventory management
system fits best as this will keep record
of inventory or stock or cash that have
been taken by different departments so
that proper record of cash flows are
recorded and analysed at the time of
requirement (Abor, 2017).
M4. Analysing how companies responds for financial problems and leading sustainable success.
Business concerns responds towards financial problems through applying suitable
management accounting systems and approaches (Cachia, 2017). In context to financial issue of
more spending than revenues, the company responds via benchmarking tool and cost accounting
system. Through benchmarking approach, the managers understands strategies that are used by
best companies and apply similar ones to achieve sustainable success.
17

D3. Evaluating the ways planning tools responds appropriate for solving financial problems for
leading sustainable success
In an organisation, planning tools aids in devising budgetary estimates and managing
activities in proper manner (Hiebl and Richter, 2018). In Innocent Drinks, managers uses
planning tools including purchase budget, flexible budget and cash budget for responding
towards problems associated with finance. For example, when the company face complexity of
missed credit payments then it responds by using cash budget as well as inventory management
system that benefits in gathering information related to inflows and outflows of cash which leads
to effectively solving financial issue and attaining leads for sustainable success.
CONCLUSION
The report concludes that management accounting is one of effective provision for
analysing information so to advise strategies for business and works towards driving sustainable
success of company. Only internal management team have access to use management
accounting. The objective to use it is for using statistical data to make accurate decision and
control activities, activities of entity. Management account systems including job costing, price
optimising etc are integrated with reporting mechanisms of budget, performance and many more.
Planning tools that are used in entity for responding financial problems and attaining sustainable
success are cash budget, purchase budget along with flexible budget.
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