Management Accounting Systems and Reporting

This document provides an overview of management accounting systems and reporting methods. It discusses the different types of systems used in management accounting, such as cost accounting system, inventory management system, job costing system, and price optimization system. It also explains the various types of management accounting reports, including job costing reports, inventory management reports, accounts receivables ageing reports, and budget reports. Additionally, it explores the advantages and disadvantages of planning tools, such as cash budget, overhead budget, and master budget. The content is based on a case study of Innocent Drinks.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management Accounting Systems........................................................................................1
P2: Management Accounting Reporting......................................................................................3
TASK 2............................................................................................................................................4
P3: Calculation of costs...............................................................................................................4
TASK 3............................................................................................................................................5
P4: Advantages and Disadvantages of planning tools.................................................................5
TASK 4............................................................................................................................................7
P5: Comparison of organizations in adaptation of management accounting to solve financial
problems.......................................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management Accounting refers to using of different types of financial provisions which
will help in deriving the right results for the future time period (Abernethy and Wallis, 2019). It
is quite helpful in deriving the advantage for the company. It helps the managers a lot by
ensuring that they are able to take short-term and long-term decisions. Through it, analysis and
interpretation can be done to derive conclusions and recommendations in an effective manner.
This report is based on Innocent Drinks. It is a company which specializes in providing
smoothies and other drinks to its customers. In this assignment, focus will be made on
demonstration of understanding of management accounting systems, methods for preparation of
its reports. Additionally, explanation of the use of planning tools and comparison of ways in
which the companies can make its use to respond to financial problems will be made as a part of
this assignment.
TASK 1
P1: Management Accounting Systems
There are various types of systems which are used in management accounting. These are
explained as follows-
Cost Accounting System- In this system, there is an estimation of various costs in the
company (Armitage, Webb and Glynn, 2016). Thus it can be very helpful for the purpose of
determining the costs. For the management of Innocent Drinks it is essential that they are able to
make its use for segregating the costs and determining the overheads. These overheads can be
allocated according to the expenses which are made by the various departments such as
Production, Finance, HR, Sales and Marketing etc.
Essential requirements-
 This system needs to ensure that the different types of costs are calculated in an effective
manner within the organization. Thus in the context of Innocent Drinks it must be able to
identify and segregate the various costs and expenses which are being incurred.
 This system must be able to advise the management on the techniques which can be used
so that costs can be reduced and profits can be maximized. For Innocent Drinks, it is
important that the company is able to consider it and reduce costs for enhancing the level
of profits.
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Inventory Management System- This system is used in order to track the stock levels
and manage them in an effective manner (Arunruangsirilert and Chonglerttham, 2017). By
making its use, inflows and outflows of various items can be tracked in a better manner. Thus for
the managers of Innocent Drinks it is extremely helpful so that they are able to ensure that stock
is properly managed and there is not misplacement of the items.
Essential requirements-
 In a good inventory management system, there should be identification of different items
and their related information. Thus the managers of Innocent Drinks will be able to
identify various stock items by making appropriate use of it.
 In an inventory management system, there must be the use of a software which can be
helpful in the tracking and managing of stock items. Thus in the context of Innocent
Drinks it can be quite useful for ensuring that there is no misplacement of goods.
Job Costing System- In this method, there is an estimation of various job costs. It is
essential to be used in those companies which are indulged in the process of manufacturing
(Aureli and et.al., 2019). In the context of Innocent Drinks, it can be very helpful to manage its
job order inflows and outflows effectively. In this way the firm will be able to make sure that it
can attain a higher level of efficiency and effectiveness.
Essential requirements-
 In a good job costing system, there must be tracking of job performance. Innocent Drinks
will be able to ensure that they can identify deviations and variances and remove them.
 A good job costing system ensures that the level of profits can be enhanced effectively by
ensuring that the costs and expenses which are associated with them are reduced. In this
way, Innocent Drinks will be able to maximize its level of profitability.
Price optimization system- In it, there is setting of price by the managers through the
use of appropriate methods and techniques (Bedford and Speklé, 2018). Therefore, for the
managers of Innocent Drinks are required to ensure that they make the use of this system by
forecasting the change in prices in the market.
Essential requirements-
 In a price optimization system, there must be use of mathematical methods to forecast the
changes in demand of goods. This will help Innocent Drinks to set a right price.
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 A price optimization system must help the managers to be able to collect the historical
data related to the price of various products. In the context of Innocent Drinks, it can be
quite helpful.
P2: Management Accounting Reporting
There are different types of reports which are prepared in management accounting. These
are explained as follows-
Job Costing Reports- In these reports, there is an analysis and interpretation of job costs
in an effective manner (Ghasemi and et.al., 2019). It analyses the flow of job orders related
information in an effective manner. They are useful for those companies which deal in the
process of manufacturing. By preparing them they can identify the methods and techniques they
can use for the purpose of enhancement of the level of profits which is earned by completing the
orders of clients. For Innocent Drinks, they are useful in the management of job orders so that
they can derive adequate information whenever required. All the records can be maintained in
the desired manner when the managers use them.
Inventory Management Reports- These reports are prepared in order to maintain the
desired information related to the stock items (Ghasemi and et.al., 2016). A detailed record of
stock items over the year can be maintained as a part of them. Thus for the management they
become quite useful and are required to be used in an appropriate manner. Effective analysis and
interpretation can be carried out by making them. In Innocent Drinks, they can be used so that
the managers can identify any problems which are being faced while maintaining a detailed
record of inventory. Rectifying measures can be taken with immediate effect if required.
Accounts Receivables Ageing Reports- The managers of organizations prepare these
reports to maintain a track record of their trade receivables (Hariyati, Tjahjadi and Soewarno,
2019). Proper details regarding each and every debtor of the firm can be thus maintained. The
number of days for which the credit has been provided to them is included as a part of them.
Thus the debtors who have not paid their dues on time can be identified. In the context of
Innocent Drinks, it is essential that the management manages the accounts receivables and
identifies those debtors who have not paid their dues since a long time in the organization. Thus
a strategy can be framed effectively for collecting the amount which is due with them.
Budget reports- In the companies, there is a specific requirement for the preparation of
these reports to maintain a record of the budgets which are made (Honggowati and et.al., 2017).
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They are prepared specifically for a year and can be adjusted according to the change in the
requirements due to the prevailing situations and circumstances in the market according to which
the organizations can make the required adjustments. For the management of Innocent Drinks,
there is a requirement to identify the detailed aspects related to the budgets so that deviations and
variances in the performance can be identified. This will help a lot to control the expenses and
forecast the incomes in a better manner. Thus higher-level of efficiency and effectiveness can be
maintained in the processes.
TASK 2
P3: Calculation of costs
In a firm, there can be use of various types of techniques through which costs can be
calculated. These are explained as follows-
Marginal Costing-
It is a technique through which the organizations are able to determine the level of
profitability and the break-even point which is the level where the firms neither earn profits nor
incur losses (Maas, Schaltegger and Crutzen, 2016). The management of Innocent Drinks can
use this method so that they are able to estimate the profits which they are earning.
Advantages-
 With the use of this technique, the managers are able to ensure that they take short-term
decisions. Thus Innocent Drinks will be able to make use of it to take the appropriate
decisions which will be very helpful in the short-term period of time.
 The use of this method is very useful for the comparison purposes. It can be facilitated
either with the set industrial standards or with the previous data of the company.
Disadvantages-
 In this method, there is an use of different assumptions. Thus the management of
Innocent Drinks will face a disadvantage if any of these assumptions prove out to be
wrong.
 Through this technique, effective control cannot be exercised. Thus for the managers of
Innocent Drinks this can result in a disadvantage if they are not able to control the various
aspects in the organization.
Absorption Costing-
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It is a method through which the overall level of costs can be calculated in the organization
(Messner, 2016). By making its use, the organizations will be able to make sure that they can
estimate the costs in a highly effective manner. In the context of Innocent Drinks it can be very
useful so that it can estimate the level of profitability.
Advantages-
 When this method is used by the organizations it can be quite helpful in bringing a
higher-level of responsibility in the managers for their respective departments. If their
department is having excessive costs then the reasons for the same can be identified. This
can initiate rectifying actions to be taken for reducing them effectively and efficiently.
Thus in Innocent Drinks an advantage can be created.
 The use of this technique by the companies can ensure that inefficient utilization of
resources can be avoided in the organization. Thus in this way under-utilization and over-
utilization of resources can be prevented and their optimum-utilization can be ensured so
that the best results can be derived from them which can be highly beneficial for the
company in the future time period. For Innocent Drinks, this can be quite helpful in
creating an advantage.
Disadvantages-
 The right use of this method is dependent upon the accurate apportionment of overhead
costs. Thus in Innocent Drinks this can lead towards a disadvantage.
 This technique is not helpful for preparing flexible budget and also does not helps in
segregation between fixed and variable costs. In the context of Innocent Drinks, this can
create a disadvantage.
Justification- Both of these techniques are highly useful for the organizations so that
they are able to estimate the level of profits. Thus for the management of Innocent Drinks it is
recommended that they use them to ascertain their profitability level for a specific time period.
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TASK 3
P4: Advantages and Disadvantages of planning tools
There are various planning tools which can be used by the firms for facilitating
comparison. These tools are explained as follows-
Cash budget-
It is an estimation of the overall receipts and payments in cash over a specific period of
time (Otley, 2016). In Innocent Drinks, its use can be made so that the managers are able to
properly estimate the cash requirements in an effective manner.
Advantages-
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 The use of this budget is quite helpful in the organizations for the purpose of maintenance
of liquidity. Therefore this is highly beneficial for the managers of Innocent Drinks.
 By making this budget the management can determine the best way to manage their cash
and other liquid resources to optimize their use. In the context of Innocent Drinks, this
can create an advantage.
Disadvantages-
 This budget can create an impact on flexibility. For Innocent Drinks this can result in a
disadvantage.
 Preparation of this budget consumes a lot of time in the organization. In Innocent Drinks,
this can lead towards a disadvantage.
Overhead budget-
In this budget, there is an estimation of various types of overheads within the organization
(Quinn and et.al., 2018). It can be very helpful for the management in ensuring that proper
segregation of overheads can be made. For the managers of Innocent Drinks this can be helpful
in controlling of the expenses in an effective manner.
Advantages-
 Better segregation of overheads can be made when these reports are used. In Innocent
Drinks this can create an advantage.
 When this budget is used within the companies it can ensure that they are able to exercise
greater control over the operations in an effective manner. For Innocent Drinks, this can
result in an advantage.
Disadvantages-
 Preparation of this budget within the companies requires the application of higher-level
of skills. For Innocent Drinks this can create a disadvantage if its workers do not have
these skills.
 In this budget, there can be an over-allocation or under-allocation of the overheads. In
Innocent Drinks this can result in a disadvantage if the overheads are not allocated in a
proper manner.
Master budget-
It is a budget which includes several types of smaller-level budgets in the company and is
inclusive of cash flow forecasts, financial statements and financial plan (What Is a Master
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Budget?, 2020). For Innocent Drinks, it is quite important that they are able to properly estimate
the requirements in an effective manner with the use of this budget.
Advantages-
 With the preparation of a master budget a comprehensive overview of the organization
can be obtained. Innocent Drinks can ensure that overall estimation of a business's
earnings and expenses can be made by preparing it.
 Deviations and Variations in the different processes of a firm can be identified
effectively. For the management of Innocent Drinks, this can result in an advantage.
Disadvantages-
 Preparation of this budget is quite time-consuming for the firms. In the context of
Innocent Drinks this can create a disadvantage.
 The use of this budget can lead to an increase in the overall costs and expenses. Thus for
the management of Innocent Drinks, this can lead towards a disadvantage.
Justification- All of these planning tools are quite helpful for the managers in order to
create plans suiting their needs and requirements. This will allow them to be able to take
decisions for the future time period.
TASK 4
P5: Comparison of organizations in adaptation of management accounting to solve financial
problems
Financial problem- It is a situation where creates an impact on the financial situation of
the firm. Thus it can lead towards losses for the organization (Shields and Shelleman, 2016).
Thus it is required from the companies that they are able to find a solution to the problem. Like
other organizations Innocent Drinks also faces financial problems. The problems which it faces
are as follows-
 Segregation of overheads- In Innocent Drinks the overheads are not segregated in a
proper manner. This can result in an increase in the overall level of expenses and thus an
impact can be created on the profitability of the organization.
 Mismanagement of job orders- In Innocent Drinks, there is a problem which has been
created in the management of job orders. This has lead towards issues because the costs
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to complete job orders has increased and thus this can create an overall impact on the
level of profits.
Techniques for solving financial problems-
 KPIs- These are Key Performance Indicators. They are Financial as well as Non-
Financial. Their use can be made by the managers to identify and assess the overall
performance in a highly effective manner. Their use can be made by Innocent Drinks to
solve the problem of overheads as by using them it can be judged whether there has been
a substantial increase in the overheads and the techniques which can be used to reduce
them.
 Balanced scorecard- In it, there is a constant monitoring by the managers on the staff
members in various departments and the tasks which are performed by them (Soderstrom,
Soderstrom and Stewart, 2017). Thus the overall performance of the organization can be
judged easily through it. In the context of Innocent Drinks, it can be used so that the
management is able to solve the problem related to job orders.
Comparison between organizations-
Basis Asda Aldi
Financial problem It is facing the problem of
increase in the overall costs
due to wrong distribution of
overheads among the
departments.
It is facing the problem of
management of stock items
due to improper application of
inventory control methods.
Management accounting
system used
It can make use of the Cost
Accounting System.
It can make use of Inventory
Management System.
Application of the system It can apply this system by
ensuring that various costs can
be identified and therefore
right methods can be applied
to reduce them in an effective
manner. Further, this system
can also help in right
It can apply this system by
making sure that the various
stock items are identified and
thus the appropriate use of the
right methods of this system
can be made to manage the
stock items in a proper
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apportionment of overheads. manner.
Thus, it can be said that the management of Innocent Drinks can learn a lot through the
examples of Asda and Aldi and can ensure that the right management accounting system is used
by them to solve financial problems. By making the use of Cost Accounting System the problem
related to overheads can be solved and by using the Job Costing System the problem related to
job orders can be easily resolved.
CONCLUSION
From the above report, it can be concluded that management accounting can be used to
be able to take decisions in a highly effective manner. It has various types of systems which can
be used by the companies. Its reports are very helpful for analysis and interpretation in an
effective manner. Different types of techniques can be used so that the costs can be calculated.
There are various planning tools which can be used for budgetary control. Firms can make the
use of management accounting systems to be able to solve their financial problems.
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REFERENCES
Books and Journals:
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by small and medium‐sized enterprises: a field study of Canadian and Australian
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Arunruangsirilert, T. and Chonglerttham, S., 2017. Effect of corporate governance characteristics
on strategic management accounting in Thailand. Asian Review of Accounting.
Aureli, S. and et.al., 2019. Traditional management accounting tools in SMEs’ network. Do they
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Ghasemi, R. and et.al., 2019. The effectiveness of management accounting systems: evidence
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Messner, M., 2016. Does industry matter? How industry context shapes management accounting
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Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014.
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Quinn, M. and et.al., 2018. Future research on management accounting and control in family
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What Is a Master Budget?. 2020. [Online]. Available through:
<https://www.thebalancesmb.com/budgeting-what-is-a-master-budget-393049>
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