Management Accounting

Managemnt
Accounting
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INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
TASK 1............................................................................................................................................3
P1. Management accounting and essential requirements of management accounting systems
(MAS)..........................................................................................................................................3
P2. Explain the different types of management accounting reports which are used for reporting
purpose.........................................................................................................................................5
M1. Benefits of different management accounting systems (MAS) along with its applications 5
TASK 2............................................................................................................................................6
P3. Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................6
M2. Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents...................................................................................................10
TASK 3..........................................................................................................................................10
P4. Explain the advantages or disadvantages of different types of planning tools which are
used for budgetary control.........................................................................................................10
M3. Analyze the use of different planning tools and their application for preparing budgets
and forecasts..............................................................................................................................12
TASK 4..........................................................................................................................................12
P5. Compare how organizations are adapting management accounting systems to respond to
financial problems.....................................................................................................................12
M4. Analyze how, in responding to financial problems, management accounting can lead
organizations to sustainable success..........................................................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16
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INTRODUCTION
Management accounting has many methods used by organisations in the finance sector. It
could be seen as accounting rules wherein professional accountants evaluate financial and non-
financial information for disclosure aspects for internal as well as external management (Busco
and Quattrone, 2015). This accounting carries a large set of roles and obligations for business
organizations. Innocent Drinks UK has selected for this report and it offers Smoothies dairy free
variety for targeted customers and it will provide better understanding
of management accounting concept. There are several forms of management accounting systems
and organisational positions are covered in the study. Various types of financial reports are used
for reporting purposes. In addition, financial reports are also produced in line with MAS
'contribution to resolving financial problems faced by corporations.
MAIN BODY
TASK 1
P1. Management accounting and essential requirements of management accounting systems
(MAS)
Management accounting:
Management accounting can be described as a financial accounting whereby descriptive
knowledge is frequently managed in order to meet the requirements for internal reporting.
Financial reporting plays an essential role in several areas where it assists in financial planning,
decision-making processes, greater control of production process etc (Cooper, 2017.
Management accounting is beneficial for management teams to obtain reliable information, as
well as being able to make appropriate business choices with regard to the organisation. The
Innocent Drink UK managers follow several management accounting systems which are
discussed below:
Different management accounting systems:
Cost accounting method: It is regarded as a structure that is ideally linked to the process of
business enterprises which estimating future expenditures. This system's function is not limited
until estimation, and moreover seeks to determine cost variances. In companies, this cost
accounting system is useful in helping manage operational activities, so that the amount of
expenses can be reduced. This management accounting model is implemented under Innocent
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Drinks UK, with the goal of minimizing the cost of their daily free price compare to the
approximation.
Price optimization system: This system is associated with the technique used to measure
the price of a product & service which is based on the demand and reliability of their products)
(Fleischman and Parker, 2017). It is possible as it collects information about consumer demand,
and the price is determined. Along with all the business entity, the sales department uses
such information about their regular products such as Smoothies on the help of this performance
and classifies their demand in different customer segments.
Investment management system: This is another form of management accounting system
that deals with the method of maintaining ownership over all products purchased and delivered
by corporations for a given period of time. In the organisation of Innocent Drinks UK, valuation
of stock is given in combination with advanced methods, such as the LIFO, FIFO process and the
(weighted average cost methodology) WACM. All of these techniques play an essential role for
companies to track accurate inventory quantities at the present time it is necessary. As with
Innocent Drinks UK, with their production staff is using critical knowledge for manufacturing
systematic approach of raw material handling.
Job costing method: This could be defined as management accounting system (MAS)
that is related to the process of measuring cost in each unit of production. MAS 'purpose is
to reduce the overall cost of jobs (Gray III, 2015). Because of the limited range of products that's
not suitable for small businesses. It is suitable for large organizations which have a wider range
of products. As far as the above-mentioned company is concerned that is Innocent Drink UK,
this accounting scheme is applied to cover the costs of each Smoothies product produced by the
production line.
Essential requirements of MAS:
• Reliable: It is an essential requirement of management accounting systems that the
gathered information should be reliable and which further help in final results.
• Up-to - date: accounting professionals can use current data for the right results, or modify
their financial reports on a quarterly and annual basis for successful or effective business
decisions.
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• Accountable: financial experts and administrators have to be responsible and accountable
for their actions and it will provide transparency that is important for management accounting
system.
Accurate: Information must be reliable or accurate which contributes to accurate outcomes
as well as further management makes their decisions to make better business decisions and goals
appropriately (Gullberg, 2016). It is possible when data is accurate.
P2. Explain the different types of management accounting reports which are used for reporting
purpose
Cost accounting report: This study is conducted using the application of a cost accounting.
The research offers information on spending leading to essential sales and organisational
activities being carried out. All the functions are categorised according to their intended amount
of budget in this business. The objective of this report is to focus on other factors in the process
which absorb larger levels of costs. With regard to the Innocent Drinks UK, this section contains
key information from their finance department which helps them to minimise overall expenditure
or make business choices appropriately.
Inventory management report: It could be viewed as yet another method of report that
provides data on approximate quantities of products in warehouse (Harrison and Lock, 2017).
This study was also collected with inventory management support system. The purpose of this
study is to support the department of manufacturing in taking the necessary initiatives according
to how many units are required to be manufactured. Their manufacturing department creates
Smoothies within the context of the Innocent Drink UK, by collecting vital information in a cost-
effective manner in this report.
Accounts Receivable Aging Report: In this management accounting report, management
manages entire information of creditors who are accountable for the time of purchase by
corporate entities. The role of preparing this report is to help finance department keep plans and
procedures correct. Innocent Drinks UK’s financial team uses critical business information in
this document that helps enable seeking to increase debt from different debtors. This further
assists managers in making tight money interventions to mitigate their list of fraudsters.
M1. Benefits of different management accounting systems (MAS) along with its applications
MAS Benefits & Application
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Cost accounting system It is associated with the element of balancing overall costs of
individual activities by calculating right amount of
disparities. They use this management accounting system with
respect of Innocent Drinks UK to monitor the real costs of
production and manage those activities whose expenses are far
beyond calculation.
Price optimisation system That's also useful for initiatives to set prices of products according
to the industry trends cycle (Hoque, 2018). Throughout the sense
of Innocent Drinks UK, the sales team has fixed the price of
Smoothie as per consumer spending. Additionally, organisation
also perceives the behaviour of their rival organisations.
Inventory management
system
Under this management accounting system the quantity of stock
need to measure in an acceptable way. Inventory management
system's responsibility is to protect down inventory costs. With
respect to Innocent Drinks UK, their sales team integrates this
accounting system into their operations and reduce their
manufacturing costs to earn high profit margin.
Job costing system It's beneficial for Innocent Drinks UK to calculate the expenses of
each produced unit. Those who use this accounting method to
determine the cost of each beer produced by assigning and
estimating the quality of the project in the context of Innocent
Drinks UK.
TASK 2
P3. Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs
Absorption Costing:
Income statement for month of April as per absorption costing:
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Income statement for month of May as per absorption costing:
Marginal Costing:
Income statement for month of April as per marginal costing:
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Income statement for month of May as per marginal costing:
Working note:
Calculation of cost per unit under marginal costing:
Fixed manufacturing cost (18000/6) = 3
Variable cost per unit= 5
Total cost per unit (3+5) = 8 pounds per unit
Reconciliation statement:
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Calculation of BEP and MOS:
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M2. Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents
Numerous income statements should be prepared by using absorption and marginal costing
technique and all the outcomes mentioned in financial reports for better analysis. With respect to
Innocent Drinks UK, their declarations of benefit are formulated using methods of absorption
and marginal cost. They all have their benefits and drawbacks. Besides these methods, there are
many other ways to identify revenue, such as standard costing process, activity-based costing
process, margin of protection etc (Hoque, Parker, Covaleski and Haynes, 2017). This can be
argued in the form of historical costing, since it is related to the calculation of transformative
costs even though used for the direct comparison forks. While expenditures are allocated and
measured for the different categories and it also helps to make strategic decisions
to optimist both manufacturing and profit margin.
TASK 3
P4. Explain the advantages or disadvantages of different types of planning tools which are used
for budgetary control
Budgetary Control: It is a principle of controlling cost that combines the procedure of
budgeting, team building and monitoring, balancing actual performance with planned outcome
and behaving on results to maximize profitability. There have been different planning tools
which are used by the several organizations for budgetary control and in context of Innocent
Drinks UK; it has various advantages and disadvantages that are as follows:
Cash Budget: For a business, cash budget is an estimate of cash flow for a given period of
time. This budget is often used to assess if the organisation has enough cash to operate. Having a
cash budget is very essential especially in smaller companies (Arnaboldi, Lapsley and Steccolini,
2015). This planning tool helps a business to determine which credit line it can lend to customers
without liquidity problems. This tool has certain benefits and disadvantage that are as follows:
Advantages: This planning tool requires constant attention in depth, tracking specific
trends of expenditure and diligent organization to achieve that sufficient funding is still able to
meet certain needs. They just had to find ways of maintaining cash, meaning the company needs
to reduce all the excess expenses within budget.
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Disadvantages: A number of firms have actually prevented accepting money for such
activities. They might find it hard to buy stuff without having debit card at their fingertips to
reach the cash. It requires paying directly for the goods or services. Trying to recognise a direct
payment on an e-commerce platform was kind of in poor taste.
Master Budget: This planning tool combines all lower budgets inside the enterprise and
integrates them into an integrated budget, allowing them to provide a comprehensive overview of
their business finances (Kure, Nørreklit and Raffnsøe-Møller, 2017). The budget includes the
several departments such as HR, marketing, and other units and further build a budgets to create
a cumulative, coherent budget. It has different advantages and drawbacks that the management
of Innocent Drinks UK need to consider so these are as follows:
Advantages: This planning tool helps in provide an proper outline of the total spending
which are essential to know by the owner or management team. While tiny budgets of each
division also include the costs and revenues for each area of the corporation, they would need to
review all expenditures of such divisions to see the maximum income and costs of the business
entity as a whole.
Disadvantages: The income amount and statistics written mainly on the master budget
provide an absolute measure of all the departments' expenses and income. For instance, they
would not have been able to say how much marketing department spends on a daily basis
because the amount would be added as one amount of other team spending.
Operating Budget: It is a type of budget that is focused on projecting income and
expenses for a given period of time. Using this process, it's easier for managers to decide the
material needed to carry out the different activities. Its accounting professionals are planning this
budget in the sense of Innocent Drinks UK to support their top management. With the assistance
of this software their managers take reasonable action to manage different types of operations. It
has benefits and drawbacks that are as follows:
Advantages: This budget is beneficial for companies when planning their operating
expenses (Monden, 2019). The importance of operating budgets is evident as company controls
on current expenses. Fixed salary costs, such as workplace space and employees' salaries, are a
priority for such budget. Those were not the sorts of expenses that can be reduced unless the
company can cut its workforce or operating hours.
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Disadvantages: In relation to the benefits of this planning tool, it still has disadvantages.
Such as this planning tool takes a lot of time to complete the necessary budget and it is also
expensive to begin preparing for small organisations which cannot bear. When formulating an
operating budget, the actual operating costs in each department may not be equal to the
projections they obtain.
M3. Analyze the use of different planning tools and their application for preparing budgets and
forecasts
Different types of strategy methods used by businesses to make good investment decisions.
The above mentioned budget is ideal for efficient management or their financial sources, as well
as for generating accurate estimates of different activities and projects. In the case of Innocent
Drinks UK, professional accountants are preparing crucial collection of predictions such as cash
forecasting, production estimate and delivery estimate. All of these predictions play an important
role in the improvement of accurate revenue and expenditure estimates. This is possible because
managers of the above-mentioned organisation review information budgeted in past years to
predict potential activities.
TASK 4
P5. Compare how organizations are adapting management accounting systems to respond to
financial problems
Financial problems: Each and every organization has encountered financial crises which
affect their operational efficiency as well as profit margin. This will be because of the financial
challenges that are now impacting the company and it is very better to solve them as quickly as
possible. There are a few unique financial concerns affecting the enterprise’s competitiveness or
performance and a few of those mentioned below:
Uneven cash balance: Low financial management contributes to uneven cash position that
optimizes or eliminates cash inflows (Roslender and Monk, 2017). Managers must adopt
proactive strategies which either reduce cost or increase profit.
Waste of stock: Company is faced with the situations that stock will be lost for several
reasons; this really is the financial problem often faced by organizations. Managers should take
sound inventory management strategies to reduce wastage levels or solve this monetary
dilemma.
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Management accounting techniques:
Key Performance Indicators: This measurement represent change to the intended
outcome. KPIs include a forum for systemic and strategic change, provide an objective basis for
decision-making and concentrate mainly on what matters are of immediate interest. It assists the
organization to accept those monetary or non - monetary factors and then make reasonable
decisions that are more effective.
Balance scorecard: It's a strategy for growth and evaluation tool that businesses use to
show what they've been trying to achieve. Reach equilibrium the repetitive job that everybody
uses for the method. Have a focus on programmed, services and goods. It allows the company
constantly monitors its progress and takes decisions to resolve the financial challenges the
organization is currently facing.
Financial governance: This is the market standard and the manner in which financial data
is managed and accessed that enables managers to handle everyone. This will allow the
organization to monitor financial reports and disclose the reports that required supply to be
produced.
Comparison of two organizations:
Basis Tesco Aldi
Problem Business is now facing difficulties
where the average money inflow
is less than cash outflow, thereby
allowing an uneven liquidity
position.
In Aldi, the executive team faces
issues of high wastage of raw
material which raises the overall
production cost (Ruch and Taylor,
2015).
Management
Accounting
Systems
Tesco can monitor the
expenditures of each service
through using cost management
strategies and seek to reduce net
costs or raise profit margins. It
helps management to determine
items that
would minimize operating costs
or improve cash inflow.
To fix the issues surrounding
product wastage, Aldi needs to
implement inventory management
software or system to resolve this
issue or maintain stock quantity
records and buy additional quantity
as necessary. It actually
prevents wastage as well as
shortages situations.
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Management
Accounting
Techniques
Tesco is using KPI approaches to
resolve these concerns that better
represent monetary and non -
monetary indicators and then
make effective strategies.
Balance scorecard is being used to
overcome the above-mentioned
obstacle in order to raise awareness
of these circumstances and use of
these approaches may build further
tactics to help Aldi tackle its
financial problems.
Large scale companies follow the various accounting systems to overcome their financial
difficulties regarding inventory management, cost control, product distribution, etc.
Such management accounting systems help to resolve issues like wastage of inventory, higher
cash outflow etc. In addition, different management accounting techniques are used to help
businesses to maximize their performance by identifying factors that are barriers to improving
overall efficiency levels.
M4. Analyze how, in responding to financial problems, management accounting can lead
organizations to sustainable success
The only approach to describe financial issues in a short amount of time is to use different
management accounting systems (Smith, 2015). In the sense of Innocent Drinks UK, their
dilemma was in reality solved effectively through the method of price control, cost and inventory
control. They experience unequal cash flow and raw material wastage throughout dairy product
production. They have changed their plans, and business' financial problem is resolved. These
accounting systems bring the firm to measurable development or accomplish its organizational
goals and objectives.
CONCLUSION
It was concluded that, from overall study that management accounting plays a critical role in
organisation, as well as helping managers to monitor organisational and other business
operations. Accounting systems helps in calculating the cost of operation, monitor stock levels,
and set product prices. Moreover, all the evidence received from such management accounting is
documented for managers in the various financial reporting to make potential plans on the
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foundation of this. In addition, there are numerous preparation resources that can be used to
address financial issues and help archive sustained progress.
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REFERENCES
Books & Journals
Arnaboldi, M., Lapsley, I. and Steccolini, I., 2015. Performance management in the public
sector: The ultimate challenge. Financial Accountability & Management. 31(1). pp.1-
22.
Busco, C. and Quattrone, P., 2015. Exploring how the balanced scorecard engages and unfolds:
Articulating the visual power of accounting inscriptions. Contemporary Accounting
Research. 32(3). pp.1236-1262.
Cooper, R., 2017. Target costing and value engineering. Routledge.
Fleischman, R. K. and Parker, L. D., 2017. What is Past is Prologue: Cost Accounting in the
British Industrial Revolution. 1760-1850. Routledge.
Gray III, A. W., 2015. Evaluating ethics education for accounting students. Management
Accounting Quarterly. 16(2). p.16.
Gullberg, C., 2016. What makes accounting information timely?. Qualitative Research in
Accounting & Management. 13(2). pp.189-215.
Harrison, F. and Lock, D., 2017. Advanced project management: a structured approach.
Routledge.
Hoque, Z., 2018. Methodological issues in accounting research. Spiramus Press Ltd.
Hoque, Z., Parker, L. D., Covaleski, M. A. and Haynes, K. eds., 2017. The Routledge companion
to qualitative accounting research methods. Taylor & Francis.
Kure, N., Nørreklit, H. and Raffnsøe-Møller, M., 2017. Language Games of Management
Accounting—Constructing Illusions or Realities?. In A Philosophy of Management
Accounting. (pp. 211-224). Routledge.
Monden, Y., 2019. Toyota management system: Linking the seven key functional areas.
Routledge.
Roslender, R. and Monk, L., 2017. Accounting for people. In The Routledge Companion to
Intellectual Capital (pp. 40-56). Routledge.
Ruch, G. W. and Taylor, G., 2015. Accounting conservatism: A review of the literature. Journal
of Accounting Literature. 34. pp.17-38.
Smith, S. S., 2015. Accounting: Evolving for an integrated future. Journal of Accounting,
Finance & Management Strategy. 10(1). p.1.
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