Management Accounting: Services & Techniques

This document provides an in-depth analysis of management accounting systems and techniques. It covers topics such as management accounting reporting, different methods of cost, and the advantages of management accounting methods. The document also includes case studies and examples to illustrate the concepts discussed.

Management accounting
services & techniques

Table of Contents

INTRODUCTION
Management accounting (MA) is a process that analyse the business operational cost in
preparing the final statement and accounts and other relative information that help to manager in
decision making process (Nilsson and Stockenstrand, 2015). To achievement of the business goal
it is necessary to measure the organisational performance on regular time period. It may include
the data related to costing and financial data that transformation the information into relevant
data to support the management of an organisation. Management of a business looks into the
matter related to process happening around the business and find out the needs of it. This tool of
management accounting is help in the fabrication of the business plan of action and achieve the
financial growth. For the better understanding, Oshodi plc company is selected to prepare this
report. This is manufacturing company based in UK that produce the fruit juice item and expert
in JOJO brand. This report is all about the management accounting method, process, financial
difficulty in the business and planning tool that help in the resolving the business issues.
MAIN BODY
TASK 1
P1. Management accounting systems and its requirements:
Management accounting:
It is financial tool which consider the financial and non monetary data to management by
providing the related information so that they can analyse the business information related to
operating activities of an entity. It will help in the strategic decision making related to future
planning of the business (Halbouniand and Nour, 2014). It plays a good role in assessing the
financial data and address the business concerns with a effective business model. So it help to
Oshodi plc in enhance the productiveness and profit of the business. Management style that is
connected with the accounting system of the organisation must be effective to use by
management. MA is used by all organization in order to make right business decisions and
increase the profitability. It helps to realize the needs of organization and make activity to fill up
the needs by using proper MA principles.
Management accounting system:
MA system is a business process that utilise the business data and information in a structured
manner to obtain the set targets by following the company's rules and regulation. These systems
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of MA help in making the fiscal decision for determining the price of the offerings by Oshodi plc
company. The chief goal of this system is to examine the overall business action, set the
objective and standard, rules and process and control on the operational activities of the business.
These accounting system are depends on the structure of the business organisation. In order to
develop the MS crucial information that are available from the business must be effective tyo
use by management. So the management system are helpful in the business to correct
evaluation on timely basis. Some of the management system are discussed as under:
Cost accounting system:
This is the important system of MA which emphasises on the cost composition of a
company. In the method of cost, institution includes different feature related to business concern
to reckon the cost of producing the food items, provided services and its impelling strategies like
price control, cost per unit etc. without using this system, it is difficult to evaluate the cost of
manufactured goods and services, value of services. So this cost model is used by the oshodi plc
to determine the price structure, cost of products inventory valuation, profitability analysis etc
(Boyns Edwards and Nikitin, 2013). The essential requirement of this system is ascertained from
the point that this process help in eliminating the extra cost related to manufacturing process of
an unit. By applying this cost system in the business oshodi plc can ascertain the input cost of
material, labour and direct overhead at different level of production. This method fulfils the
requirement related to the resolution of the different assorted kind of cost issues like high
operating and functional cost in processing units. The aspect which is achieved from the
application of the same is that cost must be affordable to purchase the goods by the customer.
Inventory management system:
This is the fundamental systems that is related to management of stock material in the
business. Its pools the process regarding the management of inventory that includes the process
of raw material, work progressive and processed goods. The requirement fulfilled due to the
effective application of this system is about availability of the material and stock at right time
and to track the inventory and keep proper records of all inventories within organization. So
oshodi plc can make the decision regarding the purchase of the stock by considering the stock
level. This system is generally adopted by those organisations which deals in the manufacturing
business and stores like shopping mall's warehouses, marketing company's stores etc. These
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types of institution usage this model to ascertain the inward and outflow of the goods. There are
some method that provides the detail in relevance with flow of goods such as LIFO, FIFO.
 LIFO - It means Last in, first out. This method of stock defines the last manufactured
items must be sold prior to other goods.
 FIFO – It defined as First in, first out. This process states that goods should be sold in
ascending order of production that means the item which manufacture first, should be
sold prior to other. Company is using this method in its production unit. (Ngwakwe
2012).
 Weighted average method - This method derives that value of stock from all inventory's
cost accumulates and find out average cost of goods.
Job costing system:
This is the most important system for those company which are involving in the
manufacturing business. It apportions the aggregate cost of production over the peculiar unit of
end trade good. This method fulfils the requirement in respect to the recognition of the total cost
of the production on no. of completed projects. It also provide assistance by classify the cost in
to specific department or batch that helps to complete work effectively. It is also essential on
Oshodi plc to divide the cost in to specific department according to needs and maintain the
profitability. It is very useful system to Oshodi plc which fulfils the requirement of the
management in respect to yield the accurate cost structure for a specific fruit items. It divides the
total manufacturing cost in three category named as material cost, labour cost and overhead
(Ross, 2017). Company uses this model as a tool of costing to ascertain the expenses of the
manufacturing units as this system allows to track all the direct and indirect expenditure. In
addition to, this system ensures to evaluate the cost of each task or activity and further it adds the
profit margin to find out the selling price of a particular product.
Price optimisation system:
This is functional approach of the M. A. S. that helps in the setting or deciding the price
and value for different kind of goods and services which are offered by the business. This system
is used to ascertain relevant prices for the manufactured products which can satisfy customers as
well as the manufacturers. Such system has essential requirement to set the prices of products
and services which are manufactured by structure of business and helps to define the profit
margin. Such as Oshodi plc is using such method to setting the prices of products and services
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which are rendered by it and earn profits. Also another requirement fulfils the application of this
system is about determination that how consumer will act to price and offering to its cost and
quality. It is helpful in measuring the various status and response of the consumer at different
level of pricing and valuation of goods. That's the reason company is opting these system in
business. Here, company oshodi plc is also apply this model to know the behaviour of the
customer with their offerings. This optimisation system help in the business to meeting the long
term goal of the firm.
P2. Management accounting reporting:
It is detail process of the business that pertain the business information such as
accumulation of financial aspects, and other statistical collection that analyse by the business
management in perform the fundamental business enterprise action on regular time basis. These
are the periodic report that measure by the management to take the business decision in the
organisation (Siverbo, 2014). Oshodi plc's management provides the necessary information to
departmental head by analysing the business data. Some of the business reports that are created
by the organisation are as below:
Budget report:
This is the report that provides the data regarding future estimation of the financial gain
and disbursal of the business. By the considering the previous year data related to revenue and
expenses, the future forecasts can be based on the customer’s requirement and demand. This
report is generated by the direction in know make comparison analysis between the budgeted
data and actual performance of the business. This is an internal report that evaluates about
whether business is capable to meet its long term goals or not. Oshodi plc is prepares this report
to know the organisational performance so that management can make decision regarding it.
Accounts receivable ageing report:
This is the report that is created by those organisation which are trading or dealing on
credit with its customers. This includes an appropriate record of credit transaction with its credit
limit periods. This report provides the information about the overdue payment of the consumer.
So management able to know that how many customers are not paid the fund on time. Oshodi plc
is preparing this report to track the transaction records of outstanding money with customers. It is
beneficial report to company they can take strict action against the customer who are not paying
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on time and tighten the credit policy as per outstanding amount of debtors (Warren, Moffitt and
Byrnes 2015).
Inventory management report:
This is the crucial report of management accounting that track the stock level in the
business whether it is stored in warehouse or at business unit. This report confirms the
availability of the stock for right time use. And management ensure the stock at stores to
available at any business process. It includes the information related to inventory level of raw
material, progress of WIP and at finished goods. This report is mandatory to prepare to check the
level of inventory so management can place the order if it cross the lead time stock. For the same
reason oshodi plc prepares the report to continuously checking the stock during peak time like
summer season. It helps in better managing the level of inventories at business.
Performance report:
This report evaluates the overall business performance along with efficiency of the
individual who are working in the organisation. This report display the organisation carried out
action in appropriate manner. Performance report is compared with previous year data to make a
simple analysis of the business structure with standards. For the purpose of the business
strategies and standard Oshodi plc is making this report to measure the performance of the
worker and firm as well. It is also used by management to provide inducement or bonus to the
employee whose performance is relatively good then others (Welford, 2016).
M1. Advantage of management accounting method (MAM).
Advantage of the management accounting in respect to oshidi plc company is mentioned
in the table. For every management system that company has used in the business are described
below:
Accounting system Benefits and Application
Cost accounting
system
This management system helps in the ascertaining the total cost and
provides all the detail structure of the cost. Oshodi plc is used this
method in assessing the cost and profit from their various operations.
Inventory management
system
It is beneficial to oshodi company in the handing the inward and
outward stock in the business. So company can implement the
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processing of the raw material and finished goods.
Price optimisation
system
This method helps in identifying customer reaction at different pricing
level so company oshodi plc can determine pricing of foods item at
exact price. So company can fix the straight price where consumer can
access the product by paying for worth.
Job costing system This method of accounting method helps in finding the total cost for
particular task or job. Oshodi plc can valuing or computing the cost for
particular job and completed projects. It is really beneficial in cost
controlling activities of the oshodi plc.
D1. MAS and management accounting reporting are integrated within organisational processes.
Management accounting system and management accounting reporting are related with
each other to provide the detail information to the business organisation. These system are really
helpful in the business to attain the long term goal. Both systems and reports provides help
Oshodi plc in controlling the operational and other business activities and provides a related
statistical data. These process includes measurement of accounting tools, business standard,
analytical performance and effective planning in the firm. That's is the reason these reports and
system help in the business process.
For example; formulation of effective inventory account further aid in formulation of
better report which have all the information in respect to the stock. The usage of the same in
completion of overall organisational process is that it help in optimum utilisation along with
accomplishment of organisational objective through the fulfilment of customer needs.
TASK 2
P3. Different method of cost:
Cost is a value of expenses of the business concern that is incurred for material purchase and for
other expenses such as material, overhead and other assorted expenses like direct overhead,
indirect expenses, fixed cost (Lindholm, Laine and Suomala, 2017). Here are two methods
of cost discussed as under:
Marginal costing method
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It represents the changes in the total production due to manufacture one additional unit of
a product. In this method marginal cost assume only variable cost as a production cost. For the
propose to make an income statement of a company both the value are considered as
manufacturing cost and also includes in this accounts.
Absorption costing method-
This is costing method that express the total cost of production for each unit. It includes
the total cost like direct material, indirect labour, and both the manufacturing cost fix and
variable cost. Absorption cost assumes both the cost fix and variable as manufactured cost.
Income statement under absorption costing method in the month of November and
December
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Working Notes:
Calculation of the cost of sales -
Total cost = 25
Fixed production overhead = 99000
Normal production unit = 11000
cost per unit = 9
Total cost of sales ( 25+ 9) = 34
Income statement under Marginal costing method for month of November and December:
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So here total profit for the month November and December is (61000+101000)= 162000.
M2. MA system for preparation of financial reporting written document.
In the management accounting techniques, Oshodi plc is applying the cost techniques
named as marginal and absorption costing in their internal financial reporting documents. After
computation of both the statement marginal and absorption, it can be said that marginal costing is
the best method as compare to absorption costing as it includes the information to fix and
variable cost and also easy to understand the statements. The information gathered from the
application of these help in development of the financial reporting documents too. The financial
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reports which are developed on the basis of the use of systems like marginal and absorption
includes income statements and cash flow statements.
D2. Interpretation of costing statements.
After analysing the statement of cost, it is interpreted as per absorption statement,
institution oshodi plc is earning the NP of £ 79000 in the month of November. Whereas
company's net profit in December month is higher and amounted to £ 83000. In further, by
considering the data of marginal costing, it generated the net profit £ 61000 and 101000 in month
of November, December respectively. The difference in between the profits arose due to the
difference in between the approach of marginal and absorption costing. The different present in
both is that in marginal costing fixed cost is not charged against the contribution but the same is
considered in absorption costing method.
TASK 3
P4. Advantages and disadvantages of various kind of planning tools that used for budgetary
control:
Budgeting: It is a process that consider the plan to disbursement of the money for a
special time period. It is based on the financial plan that estimates the amount of income and
expenses. This plan ensures about the money if a business or individual have enough money to
spend on it or not. It provides a balance between income and expenses of firm. In the budgeting,
there are different type of budget plan includes such as master budget, production budget, fixed
budget etc.
Budgetary control: This is the method that is used by the firm in order to forecasted
data with actual figure to reckoning the variances. It is basic structure in which management of
the firm can control and handle the cost and business operations in a specific time of period
(McVay, Kennedy and Fullerton, 2016). The budgeting process is to prepare the estimation for
the future period and make a comparison with actual performance of the business and find out
the variances if any have. This controlling system help in the better management of the business
activities. Oshodi plc uses this techniques to plan its activities and verify with the real execution
of business. The budgetary tools provides the support to the firm in terms of control the action
plan of the business. It may some advantage and disadvantage too. Some of the budgeting
planning tool are discussed as follows:
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Capital Budget: This is the budgeting process that allocate the money for purchase and
maintenance of the fix assets like land and building, equipment, tools etc. This budget is related
to acquisition of the long terms investment and research and development projects. Management
of oshodi plc is makes this budget to ascertain the funding money through capital structure of the
company.
Advantage:
 This method is used to build specific budget that gives details related to capital expansion
of the oshodi plc to get the higher result in terms of return.
 Formulation of effective capital budget help Oshodi to build improve long term profit.
Disadvantage:
 One negative point from the point of Oshodi is that planning not necessarily be in
accurate in nature which have further impact over decision making and operations too
 It provides the long term benefit to oshodi plc but not consider short term profits.
Production Budget: This budget refers to overall amount which will be spent over the
entire production. It estimates the total no. of units which will be manufactured and total cost of
it. This budget is combination of sales forecasts and finished goods inventory at hand. This is the
planning tool that is used by oshodi plc in manufacturing the goods by predict the demand of
customer (Schaltegger, 2012).
Advantage:
 It helps to increase the production in Oshodi in continuation with optimum utilisation of
resources.
 It help the management of Oshodi to ascertain the amount of resources they have and
further required as this will help to build effective strategic plans.
 This budget provides a detail information related to production level of Oshodi plc and
help in the optimize the cost of manufacture.
Disadvantage:
 Less amount of the flexibility is negative from the point of Oshodi as this will have direct
over production in opposite direction.
 Due to uncertainty at production level,it can manipulate the actual output level.
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 This specific budgets based on the postulate as exact production estimation can not be
identified (Dillard, 2014).
Flexible Budget: This budget is defined as it can flux as per situation or variation in the
sales volume. It is more sophisticated than static or fix budget. This is financial plan of the
oshodi plc that forecast the projected revenue and expenses. It may have some advantage and
disadvantage too:
Advantages:
 The benefits of this can be ascertained by Oshodi in the manner that this will provide
more financial strength.
 This budget is help Oshodi to back from the tough situations and the situation of
contingencies as the variation is allowed.
Disadvantage:
 It is little bit confusing and long processed budget. It displays large and complex variety
of data which have negative impact over the production of Oshodi.
 This budget is based on the continuous assumption made by management of oshodi plc
and the same has negative impact over other aspects of management.
M3. Uses of planning tools and their application for preparing and estimating budgets:
After application all these designing techniques of budgets and estimates can be
improved the capability and productiveness of production units in the business concern (Moore,
2014). It may provide a strategies plan to management so that they can utilizes it in the terms of
the future planning and operating the business issues. This budgeting technique applied in the
measuring the business and financial aspects so that financial reporting of the organisation can be
reliable to the internal as well as external stakeholders. In the same way Oshodi plc is applying
the planning tools in the business to analyse the performance of entity.
Receipts £
Cash sales 250
Credit sale receipts from
debtors 320
Other income received 415
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Total receipts (a) 985
Payments
Purchases 215
Wages- Labour and overheads 115
Fixed costs 200
Capital expenditure - Plant 650
Advertising 20
Total Payments (b) 1200
Surplus/Deficit (a) – (b) -215
P5. Adoption of MAS to react the financial difficulty:
In the competitive era of business, most of business organisation faces the financial
problem in the business. These financial issues are most threat to business as it may effect to the
function and internal activities of the firm. It is primary to settle these concerns to smooth flow
of organisational activities. At this moment company oshodi plc is facing the issue related to
finance and sales that are discussed as under:
Increasing functional cost: This basic issue is defined as increment in the total
production or operational cost. This issue create the financial difficulties in the business
organization. Oshodi plc is facing the problem in making the juice items, as its cost is relatively
high than other competitor. This issue needs to be addressed by the management of oshodi plc to
better cost structure of company.
Less sales: This is the financial issue that describe as break down due to lower quality of
services and goods. This financial crisis may occur when company is not providing the sales
facility or lower administration of the business. Due to this problem profit may decreases.
Osodhi plc is facing this issue in business as it sales are getting lower day by day. Management
should look into the matter and provides a solution get rid of this (Serena Chiucchi, 2013).
Methods to deduct the issues: There are different kind of issue present in the business
that needs to be address by applying some techniques. Here some of the tools are discussed to
identification of the financial issues:
 Key performance indicator: This is method to find the issue that are present in the
business organization. This function finds the business concern in less time. With the
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help of this tools oshodi plc is find the financial problem increases in the operational cost
of the business. This technique is used by the organization to provide response one of the
issue which have impact over the financial condition of organization includes increment
in functional cost. Use of financial KPI help the organization to compare the functions
costs of previous year with current to get the information in respect of the deviations.
Rectification of the same will help in reduction of the cost.
 Bench-marking: This is the effective technique us by Oshodi to improve the sales figure
through bring comparison in between the approaches adopted in two different period of
times. This will provides and opportunity to get the information in respect of factors that
have impact over the sales along with emergence of new. Deviations are analyzed from
this situation which help to overcome from the issue of less sales figure through bring
improvement in the approach in accordance to the factor.
Comparison between Airdri and Oshodi Plc
Basis Oshodi Plc Airdri limited
Financial
Problem
Company has worrying about the of
issue of increasing operational cost that
is reducing profit margin of company.
Company is facing the issue related
to low cash sale the business. It
influences the profit structure of the
company.
Identifies
problem
This particular problem can be
identified through Key performance
indicator as excessive amount of fix
cost in manufacture of goods.
This problem is identified through
Ratio analysis comparison with last
year data that was showing gap in
cash flow statement.
Accounting
system
To resolve the fiscal crises, institution
should be implement cost accounting
system. It will definitely resolve the
issue of operational activities of the
business.
This problem can be handled by
active the price optimization system
of management tool by setting
effective price make up and plan the
budgeted sales.
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M4. Application of planning tools to respond financial issue along with attainment sustainable
success:
To achieve the economical growth in the organisation like Oshodi plc, needs to react in
the business problem by implementation cost method which involves the plan regarding
operational cost and sales issue. Management of Oshodi plc should provide the attention towards
these business by applying these tools. To attain the sustainable grow in the future they need to
address the business concerns and financial problems (Stechemesser and Guenther, 2012). For
ex., application of the flexible budget help to removal of the financial issue arose due to
irregularities of operations. SO, application of this budget help to cover that time effectively.
D3. Planning tools respond to settle the financial problem:
By applying of this planning tools in the business, it can lead the business organization
to sustain in future. These tools of budgeting such as production, capital and flexible budget are
provided the estimating information like sales, production level to the business. So management
of Oshodi plc can apply this tool effectively in the business to betterment of the organisation and
smooth functioning the business activities. So, it will help to accomplish sustainable success and
help in achieving adequate profit margin and sales. Cash budget have effort in determine of the
amount of cash in an company have in all different quarters. This will aid to keep the limit of
credit which provides an possibility to carry on their proceedings in cash reduce the cost of
interest. Also, this will help to achieve success as help to grab adequate sum of earnings.
CONCLUSION
As per this study it is concluded as management method and reports play a crucial role in
functioning the business activities in manufacturing business. By using various method of
management accounting a business can accomplish long term business objectives. Income
statement that provides the information regarding business profit and contributing the data to
financial growth of a company. In addition to, this project represents the benefit of using the
planning techniques like budgetary control that may help in the forecasting the production and
sales data. Other planning tools like KPI that help in finding the financial issue. By resolve the
issue with this system, performance of the organisation can be better.
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REFERENCES
Books and journals:
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